Xu Ji's return to the essence of consumption during Double 11 has once again brought growth to e-commerce platforms and merchants. However, the e-commerce agency operation companies that were once thriving have now fallen completely silent. Brands are strengthening their e-commerce capabilities, and platforms also have needs to deepen their services. As the middle link in the e-commerce market, the 'water sellers' are destined to be marginalized. This is an inevitable trend as e-commerce matures. After all, from the beginning, the pain point that e-commerce solved was eliminating middlemen. Now, it's just pushing this trend further.

E-commerce: Ice and Fire The e-commerce market continues to be hot. Latest data shows that in the first three quarters of this year, national online retail sales reached 10.9 trillion yuan, up 8.6%; among which, physical goods online retail sales were 9.1 trillion yuan, up 7.9%. The fiercely competitive 2024 'Double 11' saw platforms return to value, with more discounts and fewer tricks, finally gaining recognition from most consumers again, with continuous reports of success. However, similar to the 'squeeze growth' and 'structural prosperity' faced by most industries in the stock era, in the e-commerce market, platforms and top merchants continue to rise; while the middlemen who originally played a connecting role are facing increasing squeeze—the excitement belongs to them, but I have nothing. In previous years, e-commerce service providers, led by e-commerce agency operators, would also release related reports. This year, most of them remained relatively silent. In fact, the current silence in the sector is just a microcosm. The Nokia moment for e-commerce service providers has long arrived. More than 20 years ago, e-commerce began to rise, and the penetration rate of platforms like Taobao, Tmall, and JD.com gradually increased. More and more brands began to penetrate e-commerce channels. Merchants lacked professional e-commerce operation capabilities, thus giving rise to the e-commerce agency operation industry, which evolved from the initial 'helping brands open online stores' to deepening services in the e-commerce service market. At the same time, e-commerce platforms' thirst for precise traffic also allowed content and discount-focused platforms like grass-planting and shopping guides to run their business models through traffic diversion. What is Worth Buying (SMZDM) and Fanli.com successfully broke through. They can be collectively called the 'water sellers' of the e-commerce market. This is an almost entirely new industry created by the rise of e-commerce channels, with founders mainly born in the 1980s. With the rapid development of the e-commerce market, e-commerce agency operators and traffic diversion platforms achieved high growth and went public in waves around 2019-2021. E-commerce agency operators like Baozun, Liren Lizhuang, Ruoyuchen, 1 Wang 1 Chuang, Kaichun (301001.SZ), Qingmu Technology (301110.SZ), and traffic diversion platforms like SMZDM and Fanli Technology successively listed on the A-share market. The brightest fireworks always fall first. No one expected that within just a year or two, the e-commerce water sellers would fall from the peak to the bottom. E-commerce agency companies collectively fell into business crises, with declining performance or even losses becoming the norm. Currently, almost only Ruoyuchen (003010.SZ) maintains a growth trend. In the first three quarters of 2024, SMZDM (300785.SZ) reported revenue of 1.012 billion yuan, up 5.54% year-on-year, and net profit attributable to shareholders of 3.8046 million yuan, down 72.94%. Fanli Technology (600228.SH) has fallen into internal and external troubles. After backdoor listing via Changjiu Biochemical in 2021, the company's performance commitment completion rate for 2021-2023 was only 40.57%; meanwhile, its core subsidiary had its basic account frozen due to cooperating with a P2P case investigation, which will affect business stability to some extent. In 2023, the company's revenue was 302 million yuan, down 40.77% year-on-year, and net profit attributable to shareholders was 25.4352 million yuan, down 62.61%. In the first three quarters of this year, revenue and net profit attributable to shareholders were 193 million yuan and -3.2836 million yuan, respectively.

Continuously Eliminating Middlemen In 2003, Taobao, the first truly e-commerce platform in China, was founded. Subsequently, JD.com entered, and Alibaba launched Tmall, gradually ushering China's retail market into the e-commerce era. The fundamental reason e-commerce has thrived over the past 20 years is that it eliminated many intermediate links. In the traditional commerce era, products went from factory to general distributor, multi-level distributors, and offline stores before reaching consumers. In the e-commerce era, it's like Taobao, Tmall, or JD.com opened a huge virtual mall where all merchants can sell. The platform's self-operated business is like a supermarket, where the platform buys goods and sells them uniformly to consumers. In the early days, the main driver of e-commerce market operations was consumption habits. Platforms attracted merchants to join, and through product supply and user subsidies, they continuously attracted consumers, getting nearly a billion consumers into the habit of e-commerce shopping, which in turn attracted more merchants, eventually forming a positive cycle. Later, with the rise of new internet platforms like short video, under the mindset of traffic monetization, a new social e-commerce model of live-streaming带货 was born. For a few years in between, the main driver of the e-commerce market shifted from consumption habits to traffic. Whether it's Douyin or Kuaishou's live-streaming带货, or Pinduoduo's 'cut a knife' (referral discount), they are all traffic monetization based on social trust relationships. Compared to traditional e-commerce, social e-commerce essentially compresses the intermediate links in the e-commerce transaction chain. Pinduoduo focuses on the first half, turning ordinary people into users; Douyin and Kuaishou focus more on the second half, converting traffic into consumption. With the support of traffic, the decision cycle for e-commerce transactions shortens, and the originally complex intermediate links of traditional e-commerce are optimized. Currently, with the continuous iteration and upgrade of the e-commerce market, the main driver of the industry is also quietly transitioning to technology-based service upgrades. Behind more precise matching, simpler links, and more efficient services, AI, supply chain, digital e-commerce logistics, and other systems are playing increasingly critical roles. The M2C model that has emerged in the e-commerce market in recent years is pushing the principle of 'eliminating middlemen' to the extreme. Even after entering the e-commerce era, if manufacturers and brands want to achieve sales, they still need intermediate service providers like e-commerce distributors, e-commerce agency operators, and traffic diversion platforms; self-operated e-commerce seems efficient, but from purchasing to sales, it is also relatively complex, and can even be seen as a centralized internetization of traditional distribution channels. However, platforms like Taobao's Taofactory and Pinduoduo's Temu semi-managed business achieve a simpler and more efficient e-commerce structure than traditional B2C or self-operated models through embedded complementary advantages. This directly deals a fatal blow to e-commerce water sellers. After all, for merchants, they no longer need high e-commerce operation capabilities; platforms can help solve most problems like traffic, operations, warehousing, and logistics. For platforms, excessive traffic investment and user subsidies cannot solve fundamental problems. What consumers want is simply better products and more favorable prices; merchants' goals are also clear: sell goods, make profits, and achieve long-term development. To maintain balance, in the long run, there is almost no better way than removing middlemen who earn the price difference; it is the most direct solution.

Way Out Around 2019, the e-commerce market was at the tail end of the last golden age, and e-commerce agency companies were at their peak, queuing for IPOs. The crisis was already apparent then, clearly shown in their financial reports—dependence on e-commerce platforms and big brands. For example, Baozun (09991.HK) and Liren Lizhuang's dependence on e-commerce platforms, and 1 Wang 1 Chuang's (300792.SZ) dependence on major client Pechoin, etc. However, the warnings of that time were not taken seriously by the industry. Or rather, the excitement of continuous growth and waiting for listing masked these hidden crises. Later, as predicted, things developed as expected. Initially, merchants strengthened their capabilities in operating e-commerce channels. Within a few years, e-commerce channels became standard for many industries. The good days for e-commerce agency companies were over. Later, e-commerce platforms strengthened their service capabilities and began to lead brands directly to consumers. This further squeezed the living space of e-commerce intermediate links. By the time the crisis truly arrived, it was often too late for the best transformation opportunity. Therefore, among e-commerce agency operators and traffic diversion platforms, those that were most prosperous at the time have lagged in transformation and achieved the worst results so far. Currently, the mainstream transformation direction for e-commerce agency companies is almost only one: becoming a brand—since you can't beat them, join them; if you can't become a platform, make your own brand. Liren Lizhuang (605136.SH) launched food brand Xunwei Archives, tea drink brand Xuhuan, and skincare brands Yurongchu and Meiyitang; Ruoyuchen has home cleaning and personal care brand Zhanjia. The former industry leader Baozun was more direct: it acquired GAP's Greater China business, adding brand management business alongside e-commerce. However, GAP, which still cannot make a profit, is like adding frost to snow for Baozun, which has been loss-making for years. Among the industry-wide transformation of e-commerce agency operations, the only one that can be said to have basically succeeded is Ruoyuchen's Zhanjia. Currently, the only company in the industry with a growth trend is also Ruoyuchen. As for those e-commerce service companies that have not yet turned around, it's hard to expect any pleasant surprises. Fanli.com, in internal and external troubles, has made almost no business optimization moves. It mainly relies on its over 200 million existing users and existing business model to achieve weak profitability. What is Worth Buying is relatively 'comprehensive'. On one hand, it uses content AI to gradually replace PGC and GUC, reducing costs. In the first half of 2024, AI-generated content accounted for nearly 40% of the platform's content. On the other hand, it deepens its business. Previously, SMZDM's main business model was to divert e-commerce traffic generated by its content to e-commerce platforms, earning commissions for revenue and profit; now, it not only has content but also brand marketing business, and even sets up its own MCN to cultivate anchors for live-streaming带货. However, from the current perspective, the effect of the comprehensive war is unclear. For Zhangdama (ZDM), whether to advance or retreat, there seems to be no better choice.