Click to read the original text for details. On May 3, 2019, Yunji went public, becoming the first social e-commerce stock in China! On May 8, 2019, Beidian officially announced the completion of 860 million yuan in financing! Since the beginning of 2019, the vision of mainstream capital and media in China has returned to social e-commerce, focusing on the leading players such as Yunji, Beidian, Mia, and Pinduoduo. So does the capital market need or recognize a second or third Yunji? Where is the future of social e-commerce after Yunji's IPO? I think it is necessary to have a simple discussion. Outsiders watch the excitement, insiders watch the craft. Many industry "experts" only focus on the surface of the iceberg, crunching numbers and piling up words, but no one dives deep underwater to explore. So I will call this article "The Unofficial History of Social E-commerce in China" to record what has happened and what is currently happening. Taking history as a mirror, one can know the rise and fall. Where is the next turning point in history? Do we have the opportunity to participate? Note: This article will be long and complex, mainly covering the following stages: 1. Social and e-commerce, 2. Direct selling and pyramid schemes, 3. Micro-business and three-level distribution, 4. Current social e-commerce, 5. Small ecosystems in social e-commerce, 6. Capital behind social e-commerce, 7. The future of social e-commerce. All models mentioned in this article are based on a business perspective, with no personal preferences. It is expected to take about 20 minutes to read, and I hope it can inspire you about social e-commerce. Social and E-commerce Social e-commerce is a phrase with a modifier-head structure. First, we must clarify whether social e-commerce is the e-commercialization of social or the social-ization of e-commerce. Chinese people tend to be reserved and introverted, generally speaking, a bit "闷骚" (secretly passionate). This determines that social interaction in China is time-consuming and laborious, especially for social butterflies who can freely switch between different groups, often seen as dissolute or not rigorous. Before the Internet era, every sales particle and physical business was an information island, with word-of-mouth and customer flow as their fragile connection points. Those who connected these islands and particles were often those who were well-versed in social interaction. When there was no Dianping, Meituan, or local public accounts, local catering and club industries were often operated by high-status individuals. Often when a restaurant opened, the owner would invite high-ranking officials and businessmen from the surrounding area to feast for a few days, and then these high-status people would entertain those around them. Soon, the population of the area would complete information transmission through a series of banquets, and the restaurant's business would break through the Matthew effect, entering a positive cash flow stage. E-commerce, on the other hand, has been a huge change in retail logic over the past decade. In traditional Chinese retail, there are a large number of first-level wholesalers, second-level wholesalers, and third-level wholesalers. The core significance of these wholesalers is to complete the transmission of goods to the terminal, optimize the manufacturer's cash flow, and absorb friction costs. In the past decade, countless B2B giants such as Zhongshang Huimin, Gongxiao Daji, Alibaba Retail, and Meicaitong have tried to challenge this seemingly cumbersome and naturally formed market, but they have all been ruthlessly slapped in the face by the results. The most meaningful core essence of e-commerce is that the goods do not physically move; instead, products are displayed to end consumers through images and product descriptions via the Internet, and the transaction is completed through offline logistics and express delivery. Especially since the mobile Internet era, with the improvement of mobile phone functions and the rapid increase in network speed, the complexity and richness of information that e-commerce can carry is increasingly astonishing. Since 2018, short video and live streaming e-commerce have extended the traditional market scene to every corner of the world through mobile devices. So what exactly is an e-commerce platform? If we regard consumers as the sky and products as the earth, then between the sky and the earth are vast particles that collide with each other. How to make it convenient and efficient for consumers to obtain products (people find goods), and how to quickly match high-quality products with the people who need them (goods find people), is the embodiment of a platform's value. An e-commerce platform needs to continuously optimize its ability to intercept traffic, monetize traffic, and improve the efficiency of matching products and consumers. Modern Social Commerce – Direct Selling and Pyramid Schemes After World War II, many American families moved into villa residential areas, and housewives found it less convenient to buy daily necessities. So some shrewd housewives would wholesale daily necessities from manufacturers and distribute them to their neighbors. This model, called "direct selling," was originally closer to the "group buying" that emerged in China a few years ago, i.e., selling products directly to consumers. In ancient China, we called it "itinerant merchant." But this was introduced by some unscrupulous merchants into the operation mechanism of "Ponzi schemes," gradually evolving into pyramid schemes. In 1964, William Patrick first turned direct selling into a pyramid scheme that recruited people, naming his organization "Holiday Magic Company," which sold various daily necessities to housewives in layers. In the first year, the company's turnover was only $520,000, but by 1970 it had reached $250 million. Stimulated by the myth of "Holiday Magic," various pyramid schemes sprang up across the United States. According to the U.S. Federal Trade Commission, by 1971, more than 40 so-called direct selling companies, such as "Glen Turner" and "Galloway," were suspected of "multi-level pyramid selling." In 1975, the U.S. Federal Trade Commission cracked down hard, suing four companies suspected of pyramid schemes on charges of fraud, and three of the lawsuits ended in victory for the FTC. The "pyramid scheme era" in the United States came to an abrupt halt. The only company that won because the FTC had "insufficient evidence" was Amway. Ironically, this history, after clever packaging, has been used by many as evidence that pyramid schemes are legal in the United States. Setting aside legal and moral considerations, looking at pyramid schemes purely from a business perspective, it is indeed a technique and strategy for quickly organizing a sales team, without even having to pay employee wages, and the organizers at the top of the pyramid can indeed accumulate a large amount of wealth in a short time. Contemporary Social E-commerce – Micro-business and Three-Level Distribution It can be seen that the core reason why pyramid schemes can cause snowball fission is the entire incentive model and system. In the glorious era of Amway, Mary Kay, Herbalife, and Infinitus, participants in direct selling and pyramid schemes often had to open an account at the local office, which would help determine the upstream and downstream relationships and feedback on their performance. But by 2013, with the increasing popularity of WeChat and its friendly experience for all ages, WeChat not only became a real-time communication tool for the general public but also became a CRM (Customer Relationship Management) tool for personal customer management. For an excellent salesperson, WeChat's tags, notes, and groups can efficiently classify target customers, while WeChat groups, Moments, private messages, and public accounts serve as carriers of traffic and methods of dissemination. If WeChat friends are all relatives and friends, you can sell agricultural products such as native eggs; if they are high-net-worth individuals, financial products are the best recommendation. When the micro-business model first emerged, it was often small agricultural players like "Egg Brother" and "Vegetable Sister" who entered people's view because of novelty. But as the model evolved, smart operators discovered that using WeChat's own system plus some trust endorsement could break through the constraints of the Amway and Infinitus systems. Coupled with the absolute dividend period of WeChat's installation volume, they swept in a large number of users not previously covered by direct selling or pyramid schemes – the "mask micro-business" was born! Many people still cannot understand why the first wave of micro-business in China all did masks? The answer is actually very simple: when mobile direct selling (pyramid schemes) rose, in order to motivate the next-level agents, they had to stock up on goods. Sheet masks have the characteristics of high unit price, high gross margin, fast consumption, and high frequency. At the same time, Chinese women were in a period of learning about big brands and open-shelf cosmetics, and a little packaging design could easily confuse women's judgment of product value at the time. Data shows that during 2013-2016, nearly 3 million female micro-businesses in China had stocked up on masks that could not be sold for more than 2 years. This scene is very similar to the Amway distributors who stocked up on health products and mobilized the whole family to eat Nutrilite, and the fresh graduates who sold insurance but couldn't sell it, so they had to "bleed" all their relatives to meet the minimum performance requirements. (It is said that Ping An Insurance has issued insurance consultant offers to a total of 100 million people.) During the heyday of micro-business, a group of top micro-business operators emerged in China, such as Wu Zhaoguo, Sang Xixi, Huang Zishan, and Fu Zi. Looking back today, the abilities of these micro-business operators are very similar to the top agents of Amway and Mary Kay. They often have strong personal promotion and packaging abilities (the origin of "happy to pick up a luxury car" posts), extremely strong goal decomposition abilities, good goal tracking abilities, the ability to set and replicate team benchmarks, and of course, a strong trend of self-wealth desire. From the first day, micro-business operators knew they were playing with a cotton that was golden on the outside but rotten on the inside. For them, micro-business was a business, and cash in hand was the real deal. In contrast, entrepreneurs in Beijing and Shanghai were accustomed to making deals and creating momentum to harvest the capital market, disdaining such "small money" businesses. This explains why Guangdong and Fujian were the hardest-hit areas for micro-business. By 2015, the micro-business business entered a historical turning point. First, more and more micro-business teams began to adopt refined management methods, requiring detailed recording of level advancement and timely feedback of performance data to agents. Second, with the progress of the WeChat ecosystem, the payment interface permissions of WeChat became larger, and the daily activity of WeChat red packets and transfer modules increased. More and more agents began to resist stocking goods themselves, wanting only to connect through their personal networks or distribute materials. Order statistics and recording needed to be automated, and a drop-shipping content distribution system was imminent. At this time, the three-level distribution system was born! In 2015, the three-level distribution system was definitely epoch-making. First, agents in the system no longer needed to stock up on goods; all products were shipped from the central warehouse. Every sale's profit and the addition of lower-level agents would be notified through WeChat service account template messages and SMS channels. This meant that every large direct selling team and brand had a set of advanced management systems. The first batch of merchants to use the three-level distribution system were some consumer goods e-commerce owners. In my personal memory, the first to use three-level distribution was a factory in Anhui that produced pre-packaged small seafood. They quickly expanded a group of agents through the three-level distribution system. Seeing this model, I also imitated it in my junior year and built my own three-level distribution system to sell fruit. But what really brought three-level distribution into the mainstream view was Sherry's Little Black Dress. The boss, who claimed to be a former short-track speed skater, began to try using black dresses as a carrier and three-level distribution as a tool to promote the culture of black work dresses. Due to good design and excellent promotion ability, Little Black Dress had good cash flow as soon as it launched, making it the first three-level distribution project invested in by the Beijing venture capital circle.

  • In August 2015, it received 2 million yuan in angel investment from Hongtai Fund.
  • In 2016, it received Series A investment.
  • On January 5, 2017, Little Black Dress received a new round of strategic financing from Tencent's "Double Hundred Plan" for its innovation space.
  • On January 6, 2017, the day after joining Tencent's "Double Hundred Plan," Little Black Dress was unexpectedly banned by Tencent. Because it had not made any layout outside the WeChat ecosystem, fans and agents were like children who couldn't find their mother. The WeChat incident of Little Black Dress became the official stance of WeChat on three-level distribution, providing a benchmark for subsequent judgments on multi-level distribution in the WeChat ecosystem. During the same period as Little Black Dress, there were also several consumer brands that used the three-level distribution model to grow quietly to this day. For example, Zhufei Paper used three-level distribution and has become a public account with 27 million fans. Every article can break 100,000 reads within minutes. If converted to advertising value, it can also generate over 100 million yuan in revenue a year. From 2015 to 2016, Little Black Dress already had the shadow of social e-commerce. Wang Siming held high-profile new product launches while going down to various cities to start regional traffic layout, holding sharing sessions and exchange meetings to teach the basic gameplay of WeChat groups and Moments through closed training to women in third- and fourth-tier cities who were eager to succeed. Putting it in 2019, the combination of holding high-profile large conferences to enhance brand texture and trust endorsement + city partner landing + distribution system + offline community clubs is still a very clear and effective strategy. Interestingly, after the WeChat public account was banned, on January 8, 2017, Wang Siming began to reflect publicly that the dividend period of the WeChat distribution model had ended. At that time, social e-commerce companies like Maibaoyun, Yunji, and Global Catcher in Hangzhou had just been established for less than a year, and Beidian, which had just received 850 million yuan in financing, was still a year away. If Wang Siming had persisted a bit more, stuck to the model, withstood the pressure of public opinion, and continued to do platform-based clothing brand output with massive SKUs, or at least transformed into a distributor of clothing surplus, then today the first to ring the bell on Nasdaq might not necessarily be Yunji. Wang Siming's starting hand was much better than those merchants in Hangzhou. Sometimes the ability to catch the wind is important, but only by persisting and enduring loneliness can you see the final sun. The Capital of Modern Social E-commerce – Hangzhou To this day, Hangzhou does not have any famous social software, but it is truly the capital of social e-commerce. So from this point, it can be seen that the success of social e-commerce should be the social-ization of e-commerce rather than the e-commercialization of social. As a platform-based social e-commerce company, the key is to output massive SKUs through the platform so that agents no longer need to discover new hot products one by one. Through the agent platform, consumers and lower-level agents become sticky to the platform, so the momentum between hot products is not lost, but instead boosts the platform's goodwill, and good goodwill strengthens consumer stickiness and accelerates agent expansion. Combined with that era, I call it "the regularization of micro-business." Then the core issue becomes the "massive SKUs." Who can introduce suitable high-quality suppliers and products to the platform, and accurately place this inventory in every place it belongs, is a task that tests one's skill. Thanks to the early influence of Alibaba, the e-commerce talent pipeline in Hangzhou is incredibly complete, with abundant talent supply in merchant recruitment, customer service, platform operations, product, technology, and front-end. Similar to the tech coders in Beijing's Xierqi, these e-commerce talents intern, grow, marry, and establish careers in Hangzhou, and finally are "tied down" by buying houses. At the same time, the bosses of these social e-commerce platforms are mostly related to Alibaba. Global Catcher and Yunji were both Taobao big sellers who turned to B2C and finally went to the POP platform model, while Beidian (Beibei.com) and Fenxiang Life were directly founded by former high-level Alibaba employees. Looking away from Hangzhou, Beijing's JD.com, Guangzhou's Vipshop, and Shanghai's Pinduoduo are the only e-commerce talent suppliers in their cities. Coupled with being far from the industrial belt, this also creates great obstacles for talent introduction for new e-commerce projects in these cities. Summary of Social E-commerce Models In addition to information from friends around me, I have listed the projects that have received financing and are truly developing on a large scale as companies. Currently, social e-commerce is mainly divided into the above five types. Currently, the best-performing is the gift package model. The core essence of the gift package model is to reasonably avoid policy risks caused by simply recruiting people to expand the team. To become a distributor, one must first buy a membership gift package. Because the large profit generated by the membership gift package can be promptly fed back to all upstream and downstream agents, it positively stimulates team fission. However, using the gift package model is very easy to trigger policy risks. Despite many risk isolation measures, these companies have also suffered considerable pressure in various aspects during their development. Especially when large companies do internal incubation, such as JD.com's Xiangcheng, Xiaomi Youpin, and Meiri Yitao, they often want both a good reputation and to make money standing up! The bosses of Yunji, Beidian, and Global Catcher bet everything on a last-ditch battle, but the business managers of big factories just find some people internally to get things done; this plot is not allowed. At the same time, because it is a decentralized e-commerce model, the platforms incubated by big factories, except for having a better name, have no advantages in any aspect. The lock-fan model, if carefully examined, is actually a castrated version of the previous three-level distribution, with a representative example being Shuaishuai Baby. The lock-fan model can be explained in one sentence: sharing is profit. Distributors spread materials such as QR codes and links with their own tags through WeChat. Once the forwarded person opens the link and completes a purchase, the superior-subordinate relationship is determined. From then on, every time the subordinate purchases, the superior can receive income. Due to the lack of the huge profit incentive of three-level distribution, the designers of the lock-fan model stipulated that one must invite a certain number of people to obtain profit sharing, to help the entire team expand quickly. However, the moat of the lock-fan model's social value is relatively low, and it does not give the platform the opportunity to recruit people, and the ability to reverse optimize the supply chain is also weak. The overall fault tolerance of the project is low, which is why no platform with a turnover of over 10 billion has been born from this model. The fission model of Pinduoduo is, in my opinion, the social e-commerce closest to real social scenarios. It uses absolute price advantages, even at the cost of sacrificing performance and quality, as a basis, and uses WeChat as the fission platform to conduct business. Because in the early days, products on Pinduoduo were self-traffic products when only considering price, and to get lower prices, one had to forward to friends, forming a local positive growth. Coupled with Tencent's strategic investment, the tolerance shown by the WeChat ecosystem towards Pinduoduo is unimaginable for other e-commerce platforms. Through the early unscrupulous fission growth, and after raising huge funds, it began to frantically advertise brainwashing brand ads. Pinduoduo thus stood firm, and its turnover quickly broke through hundreds of billions. Later entrants like Taojiji, because they did not have the tolerance of the WeChat ecosystem, could only buy performance ads through CPS, CPM, etc. However, due to the high traffic costs on various platforms, after creating impressive turnover in the short term, their growth has slowed down. In short, the core of the fission model is that it comes fast and goes fast. The transaction flow between consumers and the platform does not mean that consumers have formed stickiness with the platform. In the later stage, a lot of advertising and operational details are needed to build the brand and form a new entry point. The community group buying model has been a small trend since 2018. It selects community KOLs – community leaders – based on LBS business forms. The leader serves as both the traffic entry point and the logistics fulfillment endpoint. Each time the leader sells an order, they receive about 10% profit sharing. In this seemingly somewhat cumbersome e-commerce model, we can do the math: without considering the leaders, a local group buying company in a city with 40 people (logistics outsourced) can cover 1,200 leaders, and daily turnover exceeding 1 million is not difficult. According to the average daily turnover of 5,000 for convenience stores, it means that 40 people's efficiency covers the turnover of 200 convenience stores. More attractive is that the leader only shares profits after selling, which is in sharp contrast to the monthly rigid costs of over a million for 200 convenience stores. So the most shining point of community group buying is the leader node, but the most fragile is also this node. Many leaders, due to lack of professional training, often have late deliveries, unprofessional after-sales, and untimely logistics during fulfillment. In addition, during capital wars, the loyalty of leaders is low, making the entire track look chaotic and mixed. In addition, community group buying relies too much on local operations. Many centralized e-commerce platform players find that when they enter, they do not have the regional management ability of branch companies, nor the decentralized private domain traffic management ability. Community group buying should have a result by the end of 2019. Who can run to the end or how the industry will develop, let's wait and see. The last model is my favorite in social e-commerce: the discount-sharing social e-commerce model (socialization of the Taoke model), which does not do underlying transactions, only does superior-subordinate agent and membership fee sharing. For a platform-based e-commerce company, the heaviest part from the product and technology level is actually the backend, i.e., transactions, payments, and other underlying links. The Taoke-type social e-commerce gives up the heaviest transaction and supply chain links, and in the early stage, it focuses on traffic and user acquisition. Take Fenxiang Life as an example. It connects the coupon API interfaces opened by platforms such as Taobao, JD.com, Vipshop, Pinduoduo, and NetEase Yanxuan, and then uses the gift package model (membership fee model) like Yunji and Global Catcher to quickly build up distribution teams and membership teams. After the membership density reaches a certain quantity and quality, it considers gradually switching to a self-operated model.