"Once glorious, now desolate"—this phrase aptly describes the current state of social e-commerce players. Beidian reported a "bomb" last August, and Alibaba's Tao Xiaopu, JD's Dong Xiaodian, Tencent's Xiao E Pinpin, and Xiaomi's Youpin Youyu have also been shut down due to business strategy adjustments. The capital market is more sorrowful, with Yunji's stock price hovering at the delisting threshold, and Onion's KOC model in question. Just recently, another social e-commerce platform, "Gongxiaoshe," was fined over 16 million yuan by regulators for suspected pyramid selling. As regulations become increasingly stringent, the previous social e-commerce model of "recruiting people + multi-level distribution" is facing great challenges. Many platforms have gone quiet after setbacks, and many have pivoted to membership e-commerce, C2B reverse customization, community group buying, live-streaming e-commerce, etc., but with more thunder than rain, and few have returned to their peak. Humble Beginnings Before the "rectification," social e-commerce experienced years of野蛮 growth. Starting in 2012, with the gradual improvement of the WeChat ecosystem, the influence of social factors on shopping decisions became increasingly obvious. Many people moved offline agency models to WeChat, which also fueled the development of WeChat business (weishang). However, as regulatory red lines became clearer, the main force of WeChat business began to shift. They leveraged their accumulated communities, teams, and other resources to start platform-based operations, becoming the "regular army." From 2016, distribution-based social e-commerce evolved from the WeChat business model began to enter people's视野. This business model is called S2B2C (S: supplier, B: channel, C: end consumer), represented by the "recruit people + multi-level distribution" model. Founders like Yunji's Xiao Shanglue, Future Market's Wu Zhaoguo, and Global Catcher's Li Xiao all have WeChat business backgrounds. However, although social e-commerce is a new model, for the initial entrepreneurs, it was using the "skin" of social e-commerce to practice the "reality" of WeChat business. In the absence of effective regulation, social e-commerce grew wildly, and the industry was chaotic. In the overall business chain, typically, users purchase membership products of varying amounts to become small B store owners. Small B store owners can continue to develop downlines for commissions, and also sell directly to C-end consumers. Taking Yunji as an example, early Yunji members were divided into different levels such as store owners, mentors, and partners, and recruiting new members could earn commissions. Platforms like Huasheng Riji had up to 51 levels of membership, with members continuously developing downlines to earn commissions endlessly. This is essentially a pyramid scheme structure of "recruiting people + membership fees." In March 2019, Huasheng Riji was ordered to rectify by the Guangzhou Administration for Industry and Commerce for suspected pyramid selling, with cumulative fines and confiscations of 74.56 million yuan. For distribution-based social e-commerce, the commission model for users (agents) differs from the CPS model. The CPS model integrated with platforms like Taobao and JD is essentially an advertising incentive from traffic distribution. The problem with the former is that if the price and commission system are not set reasonably, it can easily become a "recruiting people" business. When the commission income from developing downlines is much higher than selling goods, most people will prefer to recruit people and develop multi-level downlines, thus crossing the pyramid selling red line. In terms of selling goods, to get more commissions, with limited customer acquisition capabilities, they must provide more commissions in the product price system. The main feature of social e-commerce is cost-effectiveness, and playing with product prices also leads to rampant counterfeit issues. As early as May 2017, Yunji was fined 9.58 million yuan by the Hangzhou Binjiang District Market Supervision Administration for suspected pyramid selling; in March 2019, Huasheng Riji was fined a total of 74.56 million yuan by the Guangzhou Administration for Industry and Commerce for suspected pyramid selling; In September 2019, Future Market had 13 bank accounts frozen for suspected pyramid selling; in November 2019, Global Catcher was rumored to have fled, with the financial director transferring over 260 million yuan of company assets for personal gambling... In 2020, "Yige Yougou" related companies were frozen over 420 million yuan for suspected pyramid selling; "Zhang Yuge" was forced to forfeit over 1.74 million yuan for suspected pyramid selling; "Su Dian" was fined 2 million yuan for recruiting people in pyramid selling; "Mingyi Chupin" was sealed for suspected pyramid selling; "Aiweigou" pyramid selling case netted over 40 people on site; "Zebra Member" related companies were frozen 30 million yuan for pyramid selling; Tao Xiaopu's operator was frozen 44 million yuan for suspected pyramid selling funds... Overall, distribution-based social e-commerce is controversial but only the tip of the iceberg. In addition, group-buying social e-commerce like Pinduoduo, Jingxi, Suning Group Buy, Taobao Special Edition, community social e-commerce (Xiaohongshu, Xianyu), guide-type social e-commerce (Smzdm), and tool-type social e-commerce (Youzan, Weimob) are all important parts of the social e-commerce ecosystem. However, the development of social e-commerce cannot escape the essence of e-commerce development: acquiring traffic through content marketing and social sharing at the front end, occupying user minds with clear brand positioning, and also deeply cultivating supply chain and logistics at the back end to bring consumers good products and differentiated experiences. Problems to Solve In fact, the criticism of distribution-based social e-commerce lies in the fact that most platforms initially use the multi-level distribution system of recruiting customers and store owners, and developing downlines. Whether it has a "three-level distribution" system is a common method to distinguish pyramid selling from direct selling. Direct selling must be approved by the Ministry of Commerce to obtain a direct selling license, directly selling products to end consumers outside fixed business premises, with no more than three levels of development, and actual goods. However, this also means that the difference between the purchase price and selling price of direct selling products must be very large to ensure sufficient profits are distributed to downlines and sub-downlines. According to the "Regulations on Prohibition of Pyramid Selling," pyramid selling behaviors usually have three types: first, profiting from head fees; second, profiting from entry fees; third, team commission type. Distribution-based social e-commerce is mainly reflected in "recruiting people + membership fees." Taking Yunji as an example, in the early days, becoming a store owner on Yunji Weidian allowed you to share product information to Moments or directly to friends. When friends purchased through the link, the store owner could earn a commission. After a friend successfully purchased, they could be invited to become a new store owner under you, and you could then earn sales commissions from the new store owner's purchases on the platform. This distribution model helped Yunji Weidian rapidly expand its scale. From 2015 to 2017, Yunji Weidian experienced explosive growth for two consecutive years, with annual sales growth exceeding 500%. Image/Yunji official website In the early development model of Yunji Weidian, WeChat business people had to pay a membership fee of 365 yuan first to sell goods on the platform and develop downlines. In essence, it still relied on "social e-commerce" based on strong social relationships like WeChat friends, but because it required continuously developing downlines for more returns, the line with pyramid selling gradually blurred. At that time, Yunji Weidian had 4 levels of downlines, with an interest distribution system between upper and lower levels, and the payment for developing people was greater than the profit from actual product sales. This way of recruiting "store owners" was already suspected of pyramid selling. This multi-level "recruiting people" method is still effective today. Recently, a social e-commerce platform for daily chemical products, "Weiyuntao," was exposed for exaggerated product promotion and a multi-level agency marketing model suspected of pyramid selling. In the exposure, Weiyuntao's 5.0 model profit table showed that purchasing any 1 box of self-operated products on the Weiyuntao mall could make you an agent, and then you could purchase products at lower prices. After accumulating 50, 500, 1000, 6000, and 24000 orders, you could gradually become district agent, county agent, city agent, provincial agent, and director, with levels increasing. Overall, Weiyuntao uses a multi-level agency model. Some analysis says that from Weiyuntao's operation model, the layer-by-layer fission is a project with huge profits and minimal investment. But in reality, Weiyuntao makes agents pay entry fees in the guise of purchasing products, encouraging members to vigorously develop downlines, which does not conform to normal business operations. Its apparent two-level agency, but in reality N-level distribution with geometric multiplication and infinite generation commissions, still conforms to the definition of pyramid selling in the "Regulations on Prohibition of Pyramid Selling." At the end of last year, Zhang Ting and her husband's WeChat business brand TST Secret was investigated and punished by market regulators for "suspected pyramid selling," with related companies and personal accounts frozen for 600 million yuan. In the view of Chen Yijun, deputy secretary-general of the Zhejiang E-commerce Promotion Association, from barbaric expansion to refined operations may be the development direction for distribution-based social e-commerce. The essence of business is sustainability. On one hand, it is necessary to deeply cultivate the supply chain and technology; on the other hand, focus on single-customer value, break through at the industry end through user data insights, and better serve consumers. In the long run, the low-threshold nature of social e-commerce is also conducive to flexible employment and promoting common prosperity. Mid-term Transformation From the platform model perspective, social e-commerce platforms run a self-operated business, which makes procurement, warehousing, logistics, and other costs higher, and also requires inventory turnover, which is closely related to the stability of traffic acquisition. As regulations tighten and platform players continuously rectify, this business is no longer attractive. Taking Yunji as an example, the change in the distribution model directly affected Yunji's development. The three-level distribution system is no longer, affecting the speed of Yunji's traffic fission. Once fission slows down, the platform's lifecycle will be greatly shortened; After the "0-yuan store owner" plan was implemented, new users no longer need to pay registration fees, and platform membership revenue dropped significantly; without subsidies and high rebates, it is also difficult to continuously attract store owners to sell goods. In 2018, Yunji announced its transformation from social e-commerce to membership e-commerce. Yunji CEO Xiao Shanglue issued an internal letter stating that membership e-commerce would be the mainstream form of "social e-commerce" in the future, and Yunji would transform from social e-commerce to membership e-commerce. Some industry insiders said that many platforms transformed to membership e-commerce not only to avoid the sensitivity of the previous model but also because the incremental market has slowed down, and they need to find value in the existing market. However, the logic of the membership system lies in achieving membership revenue growth by launching differentiated products and services. Among these, product strength and service experience are key. For social e-commerce platforms with long-standing problems, product quality, after-sales, and service are all disaster areas for complaints, let alone differentiation capabilities. Yunji's Q3 2021 financial report showed revenue of 438 million yuan, a year-on-year decrease of 59%, and adjusted net profit of 76.3 million yuan, profitable for three consecutive quarters. However, Yunji's turnaround is mainly due to business contraction leading to a significant reduction in operating costs. Since its listing, Yunji's stock price has fallen from a high of $18 to the current $1.01, still facing delisting risk. This also shows that its membership transformation has not been recognized by the capital market. Taking Beibei as another example, it switched from maternal and infant e-commerce to social e-commerce, then from reverse customization to private brands, switching multiple tracks. Beidian reported a "bomb" last August. It is said that this was because Beibei Group transferred Beidian's traffic and resources to its private brand Ximei and finally chose to abandon Beidian. After all-in on Ximei, whether Beibei can get out of the mire is still unknown. In October 2019, Beidian launched a C2B reverse customization model, claiming an initial investment of 200 million yuan, planning to help 500 excellent factories achieve annual sales exceeding 10 million yuan within 3 years. Beidian's logic was to use platform resources and community users to create a systematic service platform for small and medium-sized manufacturing factories, providing traffic support, reverse customization, and word-of-mouth building, but no more news has been heard since. C2B models have been laid out by Pinduoduo, Suning, Alibaba, JD, etc., but for these transforming social platforms, whether in scale or resource investment, they cannot compare with the leading platforms. In addition to reverse customization, Beibei also targeted community group buying, testing "You Tuan You Xuan," but it fizzled out. The latest story is that many social platforms are eyeing the live-streaming e-commerce business. For example, Beidian and Zebra Member have launched live-streaming functions. Zebra Member founder Li Xiao once said in his video live stream that in the future, they would use live streaming as a path to lay out brand incubation business. In fact, every trend in the e-commerce field, social platforms have hardly missed. But these explorations have not effectively improved their own situation. Players are in a dilemma, struggling in the mud. Essentially Competing for Traffic As of December 2021, China's internet users reached 1.032 billion, with the year-on-year growth rate slowing from nearly 30% in 2009 to 4.3% in 2021. With traffic nearly peaking, the social e-commerce model with social interaction as the core, high frequency, and low cost has gained market attention. In essence, social e-commerce is the combination of social traffic and e-commerce transactions. In traditional e-commerce platforms, the vast majority of B-end merchant resources are concentrated in systems like Alibaba and JD, while social e-commerce is a new gap and a landing platform for social content traffic to realize e-commerce monetization. In the past, Pinduoduo, represented by social group buying, and Yunji, represented by distribution, both achieved significant growth in user numbers and GMV. The core was using WeChat's acquaintance relationship chain to achieve product sales through group buying, distribution, etc., while also focusing on retaining users within their own systems. As traditional e-commerce platforms and Douyin, Kuaishou, etc., have entered the game, the situation for original market players has become more difficult. In fact, under the high customer acquisition cost in e-commerce, e-commerce traffic sources have begun to spread to social platforms. The sinking market has become a new growth point for major giants. Whether it is discount e-commerce, group buying, or group purchase, the real purpose behind the business is that those who get traffic get the world. All platforms are trying every means to compete for users' limited attention. Through social relationship chains, user activity growth can be achieved. And the continuous layout on the supply chain side can also lay the foundation for long-term growth space. It is foreseeable that with the continuous competition for traffic, the social e-commerce field will see more new stories. Written at the end: It is worth mentioning that although the social e-commerce industry has chaos and some sub-sectors have faced defeats, the traffic cost of social e-commerce is better than other channels. The core is "people." Everything is about using people as new sales channels, and the future traffic competition will not stop. However, how to choose in the social fission model also concerns whether the track can develop long-term. In essence, social e-commerce is an innovation in e-commerce sales channels and models. Social e-commerce is still attractive, and more new models will emerge in the future. Source: Lianshang.com Information (ID: lingshouzixun) __-END-**_