A Blog by Jonathan Low

 

Sep 12, 2019

Pinduoduo: The Chinese Ecommerce Giant No One's Ever Heard Of

China continues to churn out tech and ecommerce giants even as western regulators start to rein their's in.

But the question is what it will take for these Chinese companies to be able to overcome what has been, so far, an inability to transfer domestic success to the global stage. JL


Kyle Mullin reports in Wired:

Shoppers (who are) price conscious and far from China’s big cities have made Pinduoduo China’s hottest ecommerce player. Its 366 million monthly active users trail only Alibaba, outranking JD.com. Its $40 billion market value exceeds eBay’s and places it among China’s five most valuable internet companies.Analysts attribute the company’s success to its rock-bottom bargains based on group buys that prod users to recruit friends, and a design that relies more on browsing than search.
Li Suzhi scrolls through the front page of Chinese ecommerce app Pinduoduo, browsing T-shirts, electronics, and fruit, all priced at a fraction of the cost of similar products on other platforms. “I have to be careful not to use this app too much. It has so many deals that I want to spend all my time and money on it,” says the 46-year-old housewife and ayi (the Chinese term for nanny) from rural Inner Mongolia.
Shoppers like Li—price conscious and far from China’s big cities—have made Pinduoduo China’s hottest ecommerce player. Its 366 million monthly active users trail only Alibaba, outranking better-known rivals such as JD.com. Last month, Pinduoduo reported that second-quarter revenue had more than doubled from a year earlier. Its $40 billion market value exceeds eBay’s and places it among China’s five most valuable internet companies.
Analysts attribute the company’s success to its rock-bottom bargains, discounts based on group buys that prod users to recruit friends, and a design that relies more on browsing than search. Rebecca Fannin, author of three books on China, calls Pinduoduo “a Chinese Groupon on steroids.”
Ashley Dudarenok, coauthor of the recently published New Retail: Born in China Going Global: How Chinese Tech Giants are Changing Global Commerce, says Pinduoduo tapped an opening to “educate rural users to use online shopping.” She says rural Chinese are less brand-conscious than their urban counterparts, and so more amenable to Pinduoduo’s browsing-based system.
Still, Pinduoduo remains unprofitable, and critics accuse it of essentially buying revenue with heavy marketing spending. Sales and marketing expenses in the first half of the year nearly equalled revenue, and even the most optimistic analysts don’t expect the company to post a profit before the middle of next year.
“I doubt they will turn a profit in 2020,” says Cathy Roberson, president of Logistics TI, a research and consulting company. She says Pinduoduo will have to continue steep spending on marketing to compete with Alibaba and JD.

“Pinduoduo has been very successful with their ‘team buying’ model, and by offering products at the lowest prices, but they need to expand beyond these for long-term sustainability,” says Michael Zakkour, coauthor with Dudarenok of New Retail. He says Pinduoduo needs to “break free from the idea that they are a ‘one trick pony.’”
Victor Tseng, Pinduoduo’s VP of corporate affairs, says the company “will continue improving and iterate fast.” As a 4-year-old company, “we should be investing more aggressively,” he says, but adds the company is learning to invest more efficiently.
Not all Pinduoduo shoppers are in rural backwaters. Wang Xiu Ping, who tailors suits in a Beijing wholesale market threatened by ecommerce platforms like Pinduoduo, says she likes the app because it has “so many cheap items.” She sometimes opens the app for one product, and finds herself browsing others, such as rice bowls marked down to a third of their regular price, recommended to her based on her prior buying and viewing habits.
Unlike most ecommerce platforms, Pinduoduo’s search bar is hidden at the bottom of its front page, making it browsing-centric rather than search-centric. Recommended items are placed front and center, a list tailored to each user from an algorithm developed by 100 of the company’s 700 engineers, according to one online tutorial.
That addictive, playful element makes sense, given founder and CEO Zheng “Colin” Huang’s prior experience heading Xunmeng, a studio that made online-based role-playing games. Xunmeng’s players often teamed up to score points and reach new levels. Pinduoduo encourages a different type of teamwork—recruiting friends or joining strangers to take advantage of the app’s group-only discounts via ubiquitous Chinese social media app WeChat, part of Chinese conglomerate Tencent, an investor in Pinduoduo. Tencent is a powerful ally, as WeChat blocks links from rivals, including Alibaba. Xue Yu, an analyst at IDC, says the absence of Alibaba links on WeChat aided Pinduoduo’s rise.

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