Live-streaming e-commerce is essentially an enhanced version of Pinduoduo. Huang Zheng (Colin Huang) certainly did not anticipate that Pinduoduo's biggest competitor would be the streamers on Douyin and Kuaishou. Since its inception in 2015, outsiders have been looking for its rivals. But in Huang Zheng's view, Pinduoduo had no rivals before. Pinduoduo is an e-commerce platform, and at the time, the e-commerce giants Alibaba and JD.com already existed. Huang Zheng believed that these two companies were like Baidu in e-commerce, focusing on search, with the underlying logic of people finding products. Pinduoduo, on the other hand, focuses on matching and recommendation, with the underlying logic of products finding people. This business model is different from Alibaba and JD.com, making them different species. In other words, in the e-commerce field, Pinduoduo and Alibaba/JD.com are in off-position competition. So, are there competitors with the same model as Pinduoduo? When appearing on the program "Cai Yue Ni," Huang Zheng also believed there were none. Because Pinduoduo grew too fast, reaching 300 million users in three years and then going public. "Pinduoduo has been exploding, not staying at any one stage for too long, so it hasn't left opportunities for others to imitate and catch up." Even so, Huang Zheng still believed that every day of Pinduoduo's growth was a fierce battle, because e-commerce is a red ocean. Of course, the opponents in Huang Zheng's fierce battles were more about the misunderstandings and criticisms from the outside world. For example, Pinduoduo is low-end, Pinduoduo sells counterfeit and shoddy products, Pinduoduo exploits human nature, amplifies the psychology of getting a bargain, and harvests the network of acquaintances, etc. Huang Zheng was troubled by this and tried to explain.

-01-

Why Could Pinduoduo Succeed?

External analysis suggests that most of Pinduoduo's users come from outside the Fifth Ring Road, belonging to the sinking market. In an interview with Caijing, Huang Zheng stated that Pinduoduo is not about the so-called sinking market, nor is it about consumption downgrading. In his words, "Consumption upgrading is not about letting Shanghai people live like Parisians, but about letting people in Anqing, Anhui have kitchen paper and good fruit. Only people inside the Fifth Ring Road in Beijing would say that the third wave of mobile internet population brings sinking crowds. Pinduoduo focuses on the vast majority of ordinary Chinese people." Zhang Zhen, founding partner of Gaorong Capital, was an investor in Pinduoduo's Series A, B, C, and D rounds. He also endorsed Huang Zheng's view. In an interview with Tencent's Yidian, Zhang Zhen said, "In the consumer field, people usually like to discuss 'consumption upgrading,' but we prefer 'consumption inclusiveness.'" Consumption inclusiveness lies in consumption stratification and consumption fairness. The consumer field is one that constantly oscillates in specific times and spaces. Business formats and consumption trends that appeared elsewhere decades ago may reappear in another place with a slightly different appearance. Although the history of e-commerce is not long, it still belongs to the consumer field with continuous oscillation attributes. In fact, Pinduoduo has indeed improved the overall consumption welfare of some citizens based on the logic of consumption inclusiveness. Huang Zheng also disagreed with the claim that these users come from an incremental market and do not overlap with Taobao and JD.com users. He said that Pinduoduo's users also follow a normal distribution. "There is no one who has never heard of Taobao or JD.com and is a Pinduoduo user." Some believe that Pinduoduo's first batch of users came from the dividend of the mobile internet, that is, people who previously had no computer at home or didn't know how to use one, but after using smartphones, they learned to shop online and became Pinduoduo users. In fact, the wave of mobile internet began as early as 2008. In 2009, 3G was commercialized, and in 2013, 4G was commercialized. As early as 2012, smartphone users in China exceeded feature phone users. By the time Pinduoduo was founded, the mobile internet dividend was almost gone. In 2016, Wang Xing proposed the concept of the second half of the internet. Secondly, WeChat was released in 2011, WeChat Pay was officially launched in August 2013, and during the 2014 Spring Festival, WeChat red packets exploded for the first time. Alibaba also proposed the ALL IN wireless strategy in 2011 and completed Taobao's mobilization in 2016. That is, at the beginning of Pinduoduo's birth, the vast majority of Taobao users had already migrated to mobile. Huang Zheng explained that the first key to Pinduoduo's rise was actually WeChat red packets. "Pinduoduo's rise is 70% luck and 30% effort." During the 2015 Spring Festival, WeChat's "shake" during the Spring Festival Gala distributed 500 million yuan in cash red packets to the whole country. But at that time, offline WeChat Pay was not as widespread as it is now, so many people had money in WeChat but nowhere to spend it. Pinduoduo's appearance gave everyone an affordable place to consume. WeChat's divine assist came from Pinduoduo's unique business model, which is the origin of the name Pinduoduo. "More savings, more fun" is Pinduoduo's slogan, and these two "mores" are achieved through group buying (pin). The label of group buying previously belonged to Meituan. Huang Zheng explained that Meituan's group buying is for local services, which are virtual. Pinduoduo's group buying is for physical goods, which are real. The two are different. In addition, Meituan is still a traffic business. According to Wang Xing, Meituan does e-commerce for local services. The business model is that Meituan communicates with merchants, provides discounted products, and then users purchase and go to offline stores to consume. Meituan collects money from users and then purchases from merchants. So for Meituan, users and traffic are the most important, while merchants are just suppliers that can be replaced at any time. In Meituan's business, the users who group buy together are strangers. But in Pinduoduo's business, the users who group buy together are acquaintances. In Huang Zheng's view, group buying among strangers is just about getting a bargain. But group buying among acquaintances can satisfy everyone's feeling of getting a bargain. That is, when getting a bargain, Pinduoduo's method provides a stronger sense of pleasure. In Pinduoduo's prospectus, Huang Zheng defined this model as Costco + Disney. Costco is the largest membership-only warehouse club in the United States and the third-largest retailer in the U.S. and ninth-largest in the world. Its core competitiveness is high cost-performance. The products sold there are basically close to cost price, but quality does not decline. In terms of price and cost control, Costco has two hard rules internally, which are still in effect today:

  1. The gross profit margin of all products does not exceed 14%. If it exceeds this number, it needs to be reported to the CEO and approved by the board of directors. 2. For external suppliers, if they offer a lower price elsewhere than Costco, their products will never appear on Costco's shelves again. Costco is the source of Huang Zheng's "consumption inclusiveness" idea and the concrete form of "more savings." To achieve Costco, Pinduoduo needs extremely strong supply chain management capabilities. That is, Pinduoduo must have strong bargaining power. This is also the fundamental reason why in the early days, Pinduoduo was almost all white-label, knockoff, or counterfeit products, and rarely had big brands. Disney is easy to understand. It is an amusement park, a place where consumers spend money for fun. Many people observing Pinduoduo say that gamification of e-commerce is an important factor in its success. According to Zimu Bang, gamification refers to the use of game design elements and game mechanics in non-game fields to enable users to have a game-like experience and make behaviors similar to those in games. This concept began to spread widely around 2010. In a 2013 survey, more than 70% of Forbes Global 2000 companies said they planned to use gamification for marketing and customer acquisition. Gamification became a trend largely because after the rapid development of the internet, a large amount of real, panoramic user data was accumulated. Based on this data, various mechanisms required for gamification could be designed. Huang Zheng is no stranger to games. Before founding Pinduoduo, Huang Zheng founded Leqi, an e-commerce agency operation company. In 2013, some core employees of Leqi began to get involved in games and established Shanghai Xunmeng. This company mainly focused on the overseas market for the development and publishing of web games and mobile games. Pinduoduo was incubated from Huang Zheng's game company. When appearing on China Business Network's "China Operators" program, Huang Zheng said, "Games are consumption upgrading for boys, and shopping is the biggest game for girls." In this sense, Pinduoduo is set up as a game product. Therefore, it has many game scenes and elements to meet users' needs for pleasure during shopping. This is also the concrete manifestation of "more fun." Looking back at Pinduoduo's development, Huang Zheng thanks the rise of social networks, mobile payment, and the nationwide logistics system. Huang Zheng once explained the original intention of Pinduoduo's birth. "With the popularity of smartphones, people spend more and more time on social platforms, especially WeChat, but on the other hand, there is very little commercial behavior converted from social traffic." Pinduoduo organically combined e-commerce and mobile social networking, but Huang Zheng also said that there is no such category as social e-commerce. No one buys things for socializing, or socializes to buy things. Many people say that because Tencent is a shareholder, Pinduoduo is born within the WeChat ecosystem and effectively avoids Alibaba's fire. Huang Zheng disagreed with this. In an interview with Caijing, he said, "I don't think Tencent supported Pinduoduo. We have been blocked many times." "Creating a sharing scene on WeChat was an important reason for Pinduoduo's early rise. In the early days, we had no data, so we used WeChat to understand people, what characteristics you and your friends have. But WeChat is not the only or ultimate scene. When we fully understand users, I can create new scenes without WeChat through the platform, using machines to replace 'friends' in making judgments and pushing the most suitable products to users. What you see now is just the initial stage of Pinduoduo." Combining human emotions with shopping cost-performance, this scene did not exist before Pinduoduo. In the end, Pinduoduo's success is the victory of its model.

-02-

Pinduoduo's Real Opponent

Today, the model that Pinduoduo relied on for success is facing strong challenges. Interestingly, this challenge does not come from e-commerce platforms, but from short video platforms, from the current hot live-streaming e-commerce. In the view of Li Hao, CEO of Mars Culture, live-streaming e-commerce is a typical product-finds-person model, and it is also a consumption behavior triggered by content or KOLs, with a stronger sense of pleasure. In the product-finds-person model, the source of recommendation information is crucial. Lin Yilun, founder of the brand "Fanye," believes that the product-finds-person model has existed for a long time. Flyers delivered door-to-door and advertisements placed on various media are all product-finds-person. Wang Xing once said that SNS is the best source of recommendations because it has the highest credibility and can form a good reputation. Meituan used this method extensively in its early promotion and customer acquisition. Pinduoduo further strengthened the credibility of the recommendation source by using the network of acquaintances. A product may sell for 29 yuan on Taobao, but on Pinduoduo it might sell for 19 yuan. If you can find five friends to buy with you, you might be able to buy it for 9.9 yuan—and with free shipping. Before the popularity of smartphones and mobile payment, this practice was difficult to scale. Pinduoduo caught the right time. Huang Zheng deeply tapped this demand, and the market repaid with an explosion. But compared to a recommendation from an acquaintance, streamers are more powerful. If you participate in group buying for a product recommended by an acquaintance and there is a problem, at most you complain to the acquaintance, and you have to handle the follow-up yourself. But with a product recommended by a streamer, it is different. On May 15, Luo Yonghao recommended a product from Huadian Shijian during a live-streaming sale, and there was a major problem in the later delivery process. Starting at 5:30 pm on May 20, Luo Yonghao forwarded 28 related complaints or discussions on his Weibo, saying 28 times, "Received, very very very sorry. We are seriously investigating responsibility (there is an agreement in advance). If they don't give everyone an explanation in time, we will also. Please rest assured." Luo Yonghao also made a harsh statement: "Huadian Shijian is still worried about 'brand impact,' which is ridiculous. If you have the guts to send thousands of rotten flowers, are you afraid of 'brand impact'? If this matter doesn't satisfy both consumers and us today, Siemens is your lesson!" Subsequently, Zhu Yueyi, CEO of Huadian Shijian, first publicly apologized on Weibo, and in the early morning of May 21, she also stated on her personal WeChat Moments: "We have received all the criticism. Sorry; we are working hard!" Lin Yilun also encountered a similar problem. He once recommended a small steamed bun in his live stream. Fresh food requires cold chain transportation throughout. Due to a power outage, storage was not proper, causing some consumers to receive spoiled products, leading to complaints. He communicated with the brand in the first time and refunded all consumers. "Whether you received a problematic product or not, we refund you." Compared to ordinary acquaintance relationships, the relationship between fans and streamers is also closer. Many streamers treat fans as family. For example, Xinba cherishes his fans very much. During one live-streaming sale, he mistakenly said an electric toothbrush that needed charging used batteries. When he realized his mistake, Xinba flew into a rage on the spot, scolding the staff, believing it was their mistake that caused him to deceive fans. Lin Yilun treats fans as fans of his music, saying, "Fans love me, and I must love fans." He has established dozens of fan groups and regularly enters the groups to interact with fans, and sends red packets during festivals. "Recommending good products to everyone, I am happy if everyone is satisfied. If it were just about selling goods, I might have given up long ago." In Pinduoduo's model, the strong relationship attribute of acquaintances is criticized because many users participate in group buying unwillingly, feeling coerced. This is also the main reason Pinduoduo is accused of being low-end. But in live-streaming e-commerce, all streamers are followed by fans voluntarily, and the purchase behavior is actively participated in, so the sense of pleasure is much stronger. That is to say, one of Pinduoduo's core concepts, "more fun," is actually not as good as live-streaming e-commerce. And Pinduoduo's other core concept, "more savings," is exactly the focus of live-streaming e-commerce. The lowest price on the entire network is the core attribute of live-streaming e-commerce. Unlike show live streaming, e-commerce live streaming revolves around products. Many top e-commerce live streamers also solidify fans by securing "the lowest price on the entire network." According to The Beijing News, taking Viya, the "No. 1 e-commerce live streamer," as an example, Viya's team requires merchants to sign a price guarantee agreement during product selection, ensuring that the price provided (the price of products sold in Viya's live room) must be the lowest on the entire network within a certain period. Luo Yonghao also publicly stated on Weibo: "Most of my products are the lowest prices on the entire network before June 18 as promised by manufacturers," "Trust Brother Long (Luo Yonghao's self-proclaimed nickname) to get the lowest price forever," and in a Douyin promotional video, he mentioned "fighting for the lowest price on the entire network for fans in the live room." Lin Yilun said that live-streaming e-commerce must pursue the lowest price on the entire network because the benefits must be given to fans. Once, Lin Yilun recommended a product that was originally the lowest price on the entire network, but on another platform, because the platform subsidized 50 yuan, the price was lower. After learning about it, Lin Yilun immediately discussed with the brand and proposed two solutions: one was to return all sold products, and the other was for the brand to subsidize. After negotiation, the brand chose the latter. Previously, the Pinduoduo team also approached Lin Yilun to list Fanye products on Pinduoduo. After repeated communication, both sides felt it was impossible. "Pinduoduo required us to give them the ex-factory price, and the platform also subsidizes, selling at the lowest price on the entire network to create a hit product. But Fanye has many other channels and cannot disrupt the price system. According to our price, Pinduoduo cannot do it either." Fanye is a microcosm of brands, and Lin Yilun's choice is also a consensus. The pursuit of "more savings" made Pinduoduo a dumping ground for white-label and knockoff products in the early days when its bargaining power was weak. Some brands may choose Pinduoduo when clearing inventory, but for new products, they mostly put them on Tmall or JD.com. Due to quality issues, Pinduoduo has received many complaints. In media reports, it seems that counterfeit and shoddy products are everywhere on Pinduoduo. Huang Zheng also explained, "In fact, the problem of knockoffs and counterfeits is mixed together. In terms of sales proportion, the amount that can be defined as counterfeit is definitely less than the media imagines. Because it is largely determined by the average order value. Making a fake for 40 yuan also has costs. The problem of knockoffs is more serious than counterfeits. Some white-label products ride on traffic, and consumers do not get benefits." Today, Pinduoduo's GMV has exceeded 1 trillion yuan, making it an important e-commerce platform. Many brands have also started opening stores on Pinduoduo. Since brands are unwilling to lower prices, but Pinduoduo must maintain the concept of "more savings," the billion-yuan subsidy was born. After Pinduoduo went public, it addressed issues like knockoffs, and with the increase in revenue items, many white-label and knockoff products were forced to migrate. Live-streaming e-commerce, especially on Kuaishou and Douyin, has become their next stop. Investigations by reporters found that there are indeed many selling high-quality fakes and knockoffs on Douyin and Kuaishou live-streaming platforms, leading to many complaints. An international big brand even publicly criticized top streamers like Xinba for this. However, more small brand owners regard live-streaming e-commerce as the next opportunity to get rich. Compared to other online and offline platforms, doing live-streaming e-commerce on Kuaishou or Douyin can control operating costs between 40% and 50%, with huge profit margins. In summary, live-streaming e-commerce is essentially an enhanced version of Pinduoduo. Moreover, since merchants cooperate with streamers, the corresponding costs are also lower. According to the siphon effect, it is expected that more and more small and medium-sized merchants will embrace live-streaming e-commerce, which will greatly shake Pinduoduo's foundation. "People are divided into groups based on relationships, and different factories provide corresponding production services for the needs of different groups." This is how Huang Zheng described Pinduoduo. Is it more suitable for live-streaming e-commerce? Some may say that Pinduoduo's user base and transaction volume are here, and live-streaming e-commerce is at most a challenge, not a danger. According to Huxiu, as of the end of March 2020, mobile monthly active users reached 846 million; annual active users (users who made purchases in the past 12 months) reached 726 million, a net increase of 72 million compared to the same period in 2019, an increase of 11%. The latest data for annual active users of the three major e-commerce platforms are: Alibaba 730 million, Pinduoduo 630 million, JD.com 390 million, totaling 1.75 billion, about twice the number of existing e-commerce users in China. It is worth noting that at the beginning of this year, Douyin announced that its daily active users exceeded 400 million, and Kuaishou announced that its daily active users exceeded 300 million. Subsequently, due to the impact of the epidemic, this data will further increase. That is to say, the combined active users of Douyin and Kuaishou are also approaching the number of mobile users. It is a recognized fact that users are highly overlapping across platforms. That is to say, at the beginning of Pinduoduo's establishment, there was still room for off-position competition, but today, it is a fierce battle in the stock market. Last year, Taobao Live's GMV exceeded 200 billion yuan. According to statistics, Douyin and Kuaishou combined are about the same. Li Hao predicted, "In 2020, the transaction volume of live-streaming e-commerce will approach 1 trillion yuan." Recently, according to 36Kr, 36Kr learned from multiple informed sources that Kuaishou's live-streaming e-commerce business has a GMV target of 250 billion yuan in 2020. Douyin's live-streaming e-commerce GMV target is as high as 200 billion yuan. As is well known, Taobao Live relies on Tmall and focuses on big brands, which is in fact off-position competition with Douyin and Kuaishou. Only Pinduoduo's market share is what Douyin and Kuaishou can grab. Compared with Alibaba and JD.com, Pinduoduo's business is much thinner. It has no logistics, no finance, and no payment system of its own. Although, according to Huang Zheng, this is because Pinduoduo focuses on mining user needs and transforming supply chain production, it is also an indisputable fact that Pinduoduo's ability to withstand attacks is relatively poor. On May 27, Kuaishou and JD.com signed a strategic cooperation agreement. According to the agreement, the two parties will conduct in-depth cooperation in the supply chain. JD Retail will provide advantageous category products to Kuaishou Store, and the two parties will jointly build a high-quality product pool for Kuaishou streamers to select and sell. Kuaishou users will be able to directly purchase JD self-operated products in Kuaishou Store and enjoy JD's high-quality delivery and after-sales services. If there is a shadow of Tencent behind this cooperation, perhaps Huang Zheng will complain again, "If I die, Tencent will not die. Tencent has thousands of sons." After obtaining JD.com's supply chain, it is expected that Kuaishou will explode in live-streaming e-commerce. Why doesn't Kuaishou cooperate with Pinduoduo? Perhaps in Su Hua's mind, Kuaishou can create another Pinduoduo by itself. Jiang Fan is a person with a very keen market sense. He previously said that if Taobao could only do one of short video and live streaming, it would give up short video. Because only by doing live streaming well can it effectively curb Pinduoduo. Unfortunately, Taobao always lacks traffic and cannot achieve this. Now, Douyin is a better weapon. How will Alibaba use it? Once Douyin obtains Alibaba's supply chain support, the most dangerous time for Pinduoduo will come. Source: Lieyunwang (ID: ilieyun), Author: Lin Wenlong