The Heavy vs. Light Approach – How to Achieve Quick Digital Adoption

During the AI class session, Professor Kane mentioned a book wrote by Kai-Fu Lee, the . It turns out to be one of the most fantastic books I have read recently. I highly recommend it to those who are interested in AI, venture capital, and entrepreneurship.

In this book, Mr. Lee explains the exciting social adoption of digital transformation in China in a short amount of time. Businesses are making a tremendous difference in a short time with their “heavy” strategy. I found it quite exciting and wish to share this story with you.

My previous blog discussed how individual digital transformation is about technology and psychology, letting people accept the idea and willing to be active in this transformation. Social adoption is not so different. The major four factors for the successful social adoption of AI in China are; highly motivated entrepreneursmuch datatrained AI engineers, and government support at the policy level. The highly competitive business culture and the fact that any new promising business will have lots of copycats, plus the current government support and subside in technology development, have created entrepreneurs with their unique going heavy strategy different from their silicon valley peers. Abundant data is a result of such business strategy and public adoption of digital transformation. This difference in strategy is very inspiring from a business perspective as well as a digital transformation perspective. 

Going heavy entrepreneurs

China has known to be a country full of business copy cats; entrepreneurs copy business ideas from other countries and each other, which created an environment full of competition. Such an environment leads to the Chinese tech business’s heavy approach, which is very different from Silicon Valley businesses’ light approach. “Heavy” and “light” here describes how involved an internet company becomes in providing goods or services and the extent of vertical integration as a company links up the on and offline worlds. Silicon valley internet businesses tend to focus on building the best platform and leaving it there for others to use. In contrast, Chinese tech companies tend to want to control all the related business. One good example is the different growth paths of Yelp and Dianping. Yelp, around 2015, wanted to go into the online ordering and delivery business. It acquired Eat24, however, after acquiring this order and food-delivery platform Yelp took the light approach and have restaurants on this platform to still handle the majority of deliveries and fill in gaps for those who don’t have a delivery team. This approach did not provide enough incentives for restaurants to participate. Yelp end up selling Eat24 to Grubhub.

In contrast, Dianping is the biggest restaurant rating app in China. When it went into the food-delivery business in 2013, it chose the heavy approach. Dianping spent millions of dollars hiring and managing fleets of scooter-riding teams that delivered restaurant orders to door-steps. This delivery army gained extensive coverage in a short amount of time and provided every mom-and-pop shop the option of expanding its customer base without having to hire a delivery team.

美团终于要上市,一轮轮的巨额互联网投资是如何影响了消费、工作乃至资本本身?_商业_好奇心日报

By investing a massive amount of money in this heavy approach, Dianping quickly gained economies of scale and improved efficiency. Decided to double down on those economies of scale, Dianping merged with Meituan (one of the largest food delivery companies at the time). By 2017, Meituan-Dianping’s valuation is $30 billion, which is more than triple that of Yelp and Grubhub combined. The combined company did not stop their growth at food delivery but pushed into other areas such as travel booking services, transportation, bike-sharing, etc. Watch this excellent 5 minutes movie explaining features of Meituan Dianping, how it uses AI, and its impact on people’s day-to-day life!

Dianping is only one of the many companies that choose to go heavy. Other examples include Didi (Chinese Uber), which buys up gas stations and auto repair shops to service its driver fleet, and Tujia (Chinese Airbnb). Tujia gives the platform for people to rent their house and takes care of cleaning the apartment, stocking it with supplies, and installing smart locks. The competitive environment trained this heavy approach to quickly build walls around the business; otherwise, copycats would do it and win the game. One side benefit is the data each integrated business can acquire. Data is starting to show its advantage recently as AI and machine learning algorithms become more mature. Vertical integration allowed companies to gain more data across the board and provided a valuable resource for future AI development.

Going heavy is one of the fundamental reasons for Chinese fast digital transformation. As the company willing to provide incentives for both businesses and customers that use their platform. A considerable amount of subsidies are giving to customers to lure them into creating a habit of using the new services. Business customers benefit from a very user-friendly platform that helps them resolve many management issues and provides all different resources. What I found from this story is that incentives are the most critical factor to accelerate digital transformation. However, such incentives are in bed with many risks that a silicon valley public company may not take with limitations from the board and other government policy and legal restrictions. The right side of the story is, I believe this incentive structure and going heavy may also be applied to corporation digital transformation. For example, employee promotion can be based on their digital transformation effectiveness; and in an entrepreneurial culture, how many cutting-edge business improvement ideas an employee can develop. Employee’s performance valuation can be based on peer competition. Outstanding performance should link to bonuses and more opportunities.

Thank you for reading this blog!

7 comments

  1. Really nice post. I very much enjoyed the book as well. If you want a crazy connection to this class, go back and check out a 2015 post on this very blog! https://isys6621.com/2015/11/15/look-beyond-the-content-an-interview-with-kai-fu-lee/

    1. Chuyong Liu · ·

      Wow the interview with Kai-Fu is awesome to look at! Especially the blog was wrote in 2015 so many technologies has not been used back then. I saw that Kai-Fu said back then that “may be the “Internet of things”, with everything connected together; maybe it has to do with a new type of human interface, maybe it’s robotic artificial intelligence…who knows what it is. ” And all of these are in our life today!

  2. Scott Siegler · ·

    You’ve done a great job of comparing and contrasting the two different strategies. I feel like there are only a handful companies in the US that are going heavy today (Amazon, Facebook, Apple, Google, maybe a few more) and because so many other companies have the light approach, no matter how brilliant they are, a good number of them end up being bought by one of the few giants. It’s so interesting to compare economies with these opposing dynamics, and it will continue to be interesting to see how these dynamics play out and develop into the future. Thank you for this great analysis.

    1. Chuyong Liu · ·

      Thank you for the great comment Scott! I also think it’s interesting that going heavy can actually help a company become more diversified. All companies you’ve mentioned, such as Google. Amazon and Facebook have become more diversified. This may also lead to other companies hard to compete with them and having the large companies end up controlling everything.

  3. sayoyamusa · ·

    Great post, Chuyong! I’ve always wondered what has enabled rapid digitalization of China, but your thorough explanation about the “going heavy” strategy has made clear that’s the biggest key. It seems all the factors are integrated to accelerate the growth, from the problem solving of copycats to the dominant power of Chinese government over huge population or data. I do want to try Meituan Dianping service, which looks excellent!!
    I think this is the strategic choice of each nation. As for Japan, younger entrepreneurs are deliberately not going heavy nor competing with fascinating Silicon Valley start-ups because they do not want to compete in such a fierce battle ground. If you can earn, say $1 million, that would be enough, if you cannot earn, say $10 billion. Not super ambitious, but reasonable. I hope they can add unique value and contribute to making the world a better place. It will be interesting to see how each nation will engage in constructive competition and collaboration (hopefully…)!

  4. williammooremba · ·

    Really great post, Chuyong. One thing it made me wonder about is how Chinese entrepreneurs typically fund their startups. My understanding is a lot of US startups are venture capital backed. A consequence of this is in a lot of cases the VC firms heavily influence or ultimately control the fate of those companies. They could mean that once the US tech company gets those investors, they will need to be sold or go public in a lot of cases whether they want to or not. I am wondering if either the kind of funding or attitude of Chinese investors plays a role in that light versus heavy entrepreneurship approach.

  5. AndraeAllen · ·

    Thomas Jefferson once stated, “With great risk comes great reward.” Going heavy is the embodiment of this sentiment. With the competitive nature of the business world in China it seems fitting that entrepreneurs fill in any gaps that a competitor could use to steal market share. From a marketing perspective I imagine this would encourage these same companies to expand as quickly as possible to create a “Network Effect”. This makes me wonder If companies such Dianping and Didi are racing to soak up as much market share as possible, how are Anti Trust laws viewed in this environment? Very enlightening post thanks for sharing!

%d bloggers like this: