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Chinese business history has never been as chaotic as it is today; no company can claim to be safe. Even Alibaba, with a market value exceeding 100 billion, and Ma Yun, who became the richest man, are deeply concerned about the future. Traditional giants like Wanda, Lenovo, Haier, and Gree are all actively seeking transformation in anxiety and difficulty, trying to break the deadlock and implant internet genes into their enterprises. On the other hand, "Lei布斯" (Lei Jun) and various "Jiajia" figures are still shouting for disruption, although their pancakes and beef brisket are not tasty, a storm of decentralization and de-platforming is about to hit.
This is the crazy 2014, where stories of capital exhaustion, waning enthusiasm, and relentless struggle have turned from eternal vows to lies. Some are proud, some are exiting... But before dust returns to dust, because there is still tomorrow, those with a vision are still exploring how to take the next step. Does the next e-commerce world still resemble yesterday? How far is the capital trend from the new entrepreneurs? If you don't know how to live, at least know what leads to death. Let's listen to Huang Ruo's review of the past 10 years of e-commerce; it may not be a final verdict, but it could be beneficial.
Do you still have feelings for e-commerce?
Huang Ruo does. As an observer, e-commerce in 2014 showed the following characteristics:
The winners won, the losers lost, the earners earned, and the losers lost money. The discussions about e-commerce over the past years have basically come to a conclusion this year, and the dust has settled.
To use an analogy, people tend to mistake dust for volume, but dust is not volume. Imagine a wilderness where dozens of horses run by, raising a cloud of dust—how spectacular! But just wait; when the dust settles, it amounts to very little. This metaphor applies to e-commerce: over the past years, e-commerce companies have risen and fallen, but looking back, very few have truly accumulated.
Two years ago, we often said e-commerce was at a turning point. Between 2010 and 2011, there was crazy investment, and in 2012, people turned to superstition. But this year is a year of conclusion. Successful ones like Alibaba, JD, Jumei, and Vipshop; those like Lefeng.com that should be sold were sold; Letao and Vanke, those that should fail, failed. In the big trend, the scene of the past is basically over. After 10 years of e-commerce, some years have passed; those that work, work; those that don't, don't. According to the data I have, in these years, there were 700 to 800 companies that received venture capital, of which maybe 1% went public (7 to 8 companies), maybe 5% developed their own characteristics and can continue; the remaining 90% basically washed up and went to sleep.
If we compare the 2014 e-commerce IPOs to a watershed, the surviving companies may become stronger and stronger, with scale, capital chain, brand awareness, and influence rising; other companies may become increasingly difficult. That's how the world is: the rich get richer, and the poor get poorer.
What force caused this differentiation?
Huang Ruo: There are several reasons.
First, the e-commerce industry is basically driven by venture capital. In 2014, 95% of venture capital reached the redemption period (most companies have a redemption period of 8 to 10 years). Typically, the return cycle for an investment project is about 6 to 7 years, with the first three years used to find projects, totaling about 10 years. So, most e-commerce companies have reached the stage where investors need to cash out; if they don't redeem, they can't explain to LPs. For a company that hasn't gone public, the investment cannot be liquidated, making it equivalent to garbage.
Second, since last year, the entire U.S. capital market has been overvalued, so stock prices have continued to rise. This objectively encourages people to cash out quickly. It's like when the sun is strong, you quickly take out your quilt to dry, in case there's no sun in a few days. The capital market is cyclical; if you miss this cycle, the next one might be three or four years away. Why did Alibaba go public this year? Because of their bet agreement with Yahoo, they had to complete the IPO before 2016. If they missed this year, and the market is bad next year, they would have no cards to play.
Third, the e-commerce industry requires a large influx of capital. Too many companies have gone through rounds of financing and rounds of losses. Investors' interest in this story has waned. So when no one is there to replenish their blood, they can't survive on their own; they either devalue or go bankrupt. To put it cruelly, over the past 10 years, the e-commerce industry has almost never had the ability to generate its own blood; it relied on others to supply blood. Suddenly someone says, "Sorry, I won't give you blood," and you immediately fail. As a company, if it doesn't have the ability to generate blood in the first 12 or 24 months, investors can understand, but not if it doesn't generate blood for five or six years. If you just keep telling investors you need more funds, find more customers, and do more marketing, investors won't buy that model. So when the tap is turned off, you're done.
Venture capital has represented the market direction in the past few years. Where investors put their money might be the next trend. After 10 years of e-commerce, with investors' interest greatly reduced, will there still be exciting opportunities in e-commerce?
Huang Ruo: I previously mentioned the investor's three-cup-of-tea theory. When an investor talks to you, the first cup of tea looks at the innovation of the business model; if not, switch to the second cup, look at whether your operational efficiency is better than others; if you say no, switch to the third cup, look at whether customer retention is very good.
How does an investor decide to invest in a project? First, they are most willing to invest in something that gives them the highest multiple of profit, which is investing in a model. If your model is unique and you've discovered a new model, investors are most willing to invest. For investors, it could be hundreds of times the return, but the risk is also relatively high. After so many years of e-commerce, what you've played, others have played too. If you replay Taobao or Vipshop's model, it's not fresh at all, so you can't attract investors with a model.
If you don't have model innovation, you need to pursue operational efficiency. Under the same market competition, if your output is higher than others, or if you both do 500 million but you lose 20 million and I profit 10 million, then investors will naturally invest in me.
If operational efficiency is not satisfactory, can you retain customers? That's the bottom line to attract investors.
So, overall, investors are not as enthusiastic or crazy about e-commerce as before; on the surface, it's a return to rationality. In fact, investors are fundamentally rational animals. A few years ago, you could use e-commerce as a new concept to get money from investors, but now it's a cliché; investors are used to it and not interested, which is natural.
If you can't convince others with the above three points, investors will gradually drift away, and the so-called "rationality" emerges.
Opportunities have been exhausted by predecessors; finding a new takeoff point is difficult. Even those e-commerce companies that received large financing may have copied foreign models, had rough operations, and bought customers with money. The e-commerce companies that survived are not necessarily excellent but were lucky and had weak competitors.
Huang Ruo: In the past 10 years, Chinese e-commerce has gone through three stages.
The first stage was the era of counterfeit goods. In the wild stage, what sold well online? Counterfeit goods. That is, LV bags for 200 yuan, Rolex watches for 300 yuan... Although low-end, it was actually characteristic because those who spent 300 yuan on a fake Rolex never expected it to be genuine; they knowingly bought fakes. This stage reflected users' unfamiliarity, distrust, and lack of familiarity with online shopping. So they chose the lowest-cost category to try online shopping. They knew it was fake, so the disappointment was only about how similar the imitation was.
Correspondingly, this stage started with Taobao online, from 2003 to 2006, which I call the early Chinese e-commerce.
The second stage was the era of smuggled goods and standard products. For example, airline tickets, hotels, and books are typical standard products. The biggest feature of standard products is high standardization and high price transparency. Smuggled goods are basically high-end, like 3C digital, cosmetics, and international big brands. The good sales of smuggled goods and standard products show that customers have taken a step forward from buying fakes to price-driven purchases. What is the basic driving force for buying standard products and smuggled goods? Cheap! Standard products are easiest to compare prices, purely price-based. The first stage was a taste test, knowingly buying fakes; the second stage was to buy genuine goods but at lower prices than offline.
In this stage, JD and Dangdang began to emerge in the market, and Amazon started integrating after entering China, around 2007 to 2008. Category killers and vertical e-commerce also began to emerge in this stage.
The third stage is the rise of impulse-buying categories. What are impulse categories? Clothing, bags, shoes, hats, accessories, cosmetics—things that girls wear. The characteristic of such products is that having one more doesn't hurt, and having one less doesn't matter. If you see a good picture and a good price, you want to buy. In contrast, the demand for standard products is very fixed. Why have these things become popular online in recent years? First, these brands are relatively fragmented, giving more space for internet marketing. Second, these products have high gross margins, allowing for discounts and promotions within their profit margins. Third, more and more consumers have become online shopping experts; they started by buying a few fakes to try, then bought smuggled goods and standard products for cheap, and found they couldn't live without the internet. So the consumption process goes from shallow to deep.
I believe this is the most basic outline of the development of Chinese e-commerce over the past 10 years. As for what's next? My answer is that the next hotspot will definitely come from FMCG.
What are fast-moving consumer goods? They are the categories in supermarkets. What is the biggest difference between FMCG and clothing, bags, phones, and airline tickets? Several characteristics: first, they are daily necessities; second, they are purchased repeatedly on a cycle; third, the overall gross margin is relatively small.
A girl who quarrels with her boyfriend today can go two months without buying clothes, but she can't go two months without buying supermarket items. When hungry, she needs to buy rice; in the morning, she needs milk. So it's a daily necessity, a rigid demand.
As for repeated cyclical purchases, the consumption cycle of FMCG is fixed. When oil runs out, you buy oil; when water runs out, you buy water. No one can say the cycle for buying clothes or shoes is fixed; it could be three months or three years.
With these three points, FMCG will be hot.
Huang Ruo: Why? The answer is simple. China's online shopping population is basically post-80s or post-85s. These people were still young boys and girls 5 or 8 years ago, not yet married. When people are not married, they don't think about grain, oil, rice, and flour; no one cares about the kitchen stuff; that's what parents and uncles worry about. Now that the post-80s and post-85s have basically started families, their shopping needs have changed greatly, shifting from purchasing as individuals to purchasing as households, so household needs have become prominent. FMCG is precisely based on household needs. So from the consumer group perspective, it's exactly this age group; this is the most obvious reason.
As for JD and Tmall both doing supermarkets, an important reason is that the internet has never effectively solved the problem of customer churn. Besides the objective facts that the internet has no boundaries and users "float around," there's also a point related to the categories operated. No matter how much money you spend to attract customers, can these categories bring customers back? The most typical example is buying diamonds; a person buys diamonds only once in a lifetime, so this type of product has no customer return rate. That's why Tmall and JD are both doing supermarkets. Their basic demand is to use this magnet-like category to attract customers in.
Source: First Marketing Network