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(Source: Quora)
Question: how do you search today? The first answer popping into your head is likely, “Well, I google it.” And that is the same answer for 89% of the people in the U.S. and 84% of people worldwide (stats). We sometimes forget that the phrase or verb “Google it” did not come into existence until just 23 years ago. For the past two decades, Google or the traditional search engines (Bing, Baidu, Yahoo, Yandex, etc.) have become an indispensable part of our daily life. Google, in particular, has dominated the industry with an overwhelming majority share. But search engines in their most commonly known format today may be facing major waves of disruption. And we are not referring to ChatGPT.
Today, we are diving into Lemon8, a new app published by Bytedance (the Chinese social media giant behind TikTok) that’s recently gaining huge momentum and popularity in the United States. It’s currently ranked #2 in App Store under the Lifestyle category, so check it out if you are curious.
What’s Lemon8?
To put it in the most relatable term, Lemon8 is a much more sophisticated Pinterest Board. Some industry commentators also described the business as the intersection of Instagram, Pinterest, and Amazon - because of 1) a highly customized content feed, backed by recommendation engines; 2) strong embedment with Commerce, supported by User Generated Content; and 3) strong social network effect based on interest groups. The closest comp, however, is still 小红书 or LittleRedBook (we will be calling it Red in this article).
Founded in 2013, Red was last valued at $20B in 2021 with a Series E round led by Alibaba Group. As of today, Red has over 260M MAUs, ~50% of the Pinterest user base or 20% of Instagram’s.
Out of all the users on Red, over 90% of them are Content-Generating users meaning they have created at least one content post or more. This is one of the most engaged UGC platforms we have ever observed in Consumer.
There are over 175k Brands on Red - these brands range from Luxury & Designer brands (Balenciaga, Louis Vuitton, Chanel, etc.), Beauty (Lancome, La Mer, Estee Lauder, Sephora, etc.), Food (KFC, McDonalds, Pizzahut, etc.), Games (Genshin Imapct, Honor of Kings, etc.), Car (Tesla, BYD, BMW, etc.), Travel (Airbnb, Cathay Pacific, New Zealand Airline), and many others. Red has replaced
Red/Lemon8 as a Search Engine:
The core engagement mechanism in apps like Red & Lemon8 is around “Posts” - different than TikTok’s horizontal video-based content feed, Red’s Post can be either in video or picture formats. And one post normally constitutes anywhere from 1 to 10+ pictures. Compared to Youtube or Tiktok, these posts contain much more information and can therefore function as a collection of “answers” to many lifestyle-related questions. For example, I have been using Red to look for good bars & restaurants in the cities I often travel to, NYC, SF, Seattle, you name it, and the results are surprisingly great. Red works in the United States today but all posts are created in Chinese.
Above is an example of what the search result of “SF Bar” look like - thousands of posts written by other users. Every single post can 1) provide a list of bars the user has been to and rated highly of; or 2) a video of some of the best bars they visited; or 3) suggestions on which bars to not visit; or all the above. From flipping through these content posts, the searcher/user can easily find people with similar tastes to lock into their interested recommendation. The recommendation engines in the backend also reinforce this search -> interest - > feed post loop. Let’s say, I spent more time reading through the SF bar list of a person who has a preference for a quiet hangout location. The system may start recommending to me “10 quiet places to spend the weekend near SF” on my main feed page. Since all the recommended content is already customized & appeals to the users based on their past search history, it’s easy to turn these users into high-intent users for purchasers and actionable items. And this is where the Commerce part comes in - many product or services businesses have utilized this to deliver their products to the most appropriate users who already have a slight lean-in motion.
Fragmentation of Search?
The broader implication can be much larger than just the rise of one social app. Taking one step back, when we Search we are normally looking for Answers based on Facts or Opinions. If we are looking for factual results - for example, when is Easter Holiday Weekend in 2023? - we can still easily go into Google, Bing, and traditional search engines because the answers are fixed. However, if we are asking for more specialized or localized facts - where’s the latest file on 2023 Tax Season - then I can no longer search that on the broader internet. In that context, AI-driven enterprise-grade or personal applications may be the best alternatives. With the likes of Glean (for Enterprise) and Notion (for team and individuals), search for Facts in Specialized areas already have been and will continue to shift away from the traditional search engines.
If you are solely searching to kill time - for example, searching for Taylor Swift’s Era Tour - you may find way more diverse and real-time content in TikTok and another live video-based content platform than Google. It could also further disrupt other “Opinion” based platforms such as Yelp, TripAdvisor, NextDoor, Foursquare, and many other specific function-based search.
With Lemon8, TikTok, and other socially targeted driven content platforms - these platforms will eventually reach a stage where the contents are locked in to form a closed-loop ecosystem. If you want the “best Airbnb in Seattle”, maybe it makes more sense to see it on Red/Lemon8 instead of doing a broad-band search where you already know there are people who you would follow their recommendations and Opinions.
We have gone through two decades of relative stability in where to search to find both Facts & Opinions. But that status quo will be heavily disrupted in the next 5-10 years with UGC-based, recommendation engine-powered, specialized intent-driven platforms. Can’t wait to see how these unfold - if you know a founder/company building in the space and just general thoughts, send us a note.
Chart of the Week in the Public Market:
Not too much of market movement as we head into the earnings session. Ahead of earnings, we see deceleration in cloud computing across hyperscalers and will be putting pressure on infrastructure names.
Fintech index slightly moderated up to a medium-term average of 7-9x. By Sector, Consumer Fintech actually held up the YTD strength and continues to lead in subsector performance. With a current median of 4.5x, Consumer Fintech is priced at a premium to all other consumer subsectors.
Consumer index climbed up to ~3x, a small near-term high from the past few year’s norm of 2.5x-2.8x. Gaming continues to lead at 4.3x and almost on par with Consumer Fintech at 4.5x. Marketplace / E-Comm trails the full sector.
(Market data as of 4/22/2023, source: Bloomberg, CapIQ. See index composition at the bottom)
Now that we are lapping the Stripe announcement, the priavte landscape remains very much muted with ~6-8B growth dollar deployed globally. On a relative scale, this is at 21% of the high of ~$30B in late 2021. One+ year into building this tracker, we are impressed to see the magnitude of market normalization. But this also means, we are operating in a new paradigm and era of Growth-stage investing. May luck be with the disciplined & strong-hearted.
(Deal data as of 4/23/2022, source: Pitchbook. Defined as - Series B+ global growth stage deals)
Sources: Software Index: over 200+ public companies / Fintech Index: V, MA, PYPL, SQ, BILL, ADYEN, SHOP, LSPD / Consumer Index: ABNB, BMBL, CHWY, CVNA, DASH, DHER, DKNG, DUOL, ETSY, FB, FTCH, GDRX, GOOGL, MTCH, NFLX, OPEN, PINS, POSH, PTON, ROKU, SFIX, SNAP, SPOT, UBER, W. Please feel free to ping us for further detailed breakdown
Great piece! It’s going to be very interesting to see what kind of resources ByteDance puts into Lemon8 this year...