---
title: "The O2O Failure Caused by 'Fake Demand'"
description: "In the era of mass entrepreneurship, the low entry barrier of O2O created a paradise of hope for entrepreneurs. However, many O2O companies died because they mistook 'needs' for 'demand', leading to unsustainable business models and eventual capital chain rupture."
author: "陈崖枫"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-06-30"
language: "en"
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# The O2O Failure Caused by 'Fake Demand'

> In the era of mass entrepreneurship, the low entry barrier of O2O created a paradise of hope for entrepreneurs. However, many O2O companies died because they mistook 'needs' for 'demand', leading to unsustainable business models and eventual capital chain rupture.

**In this era of mass entrepreneurship, the low entry barrier of O2O has created a paradise of hope for entrepreneurs. Stories like 'A post-90s college student receives 20 million yuan in investment' and 'A startup valued at over 100 million yuan after two months' shine brightly in the eyes of young entrepreneurs.**
**Why can't I do it?**
Within just a few years, countless O2O companies were born. Terms like angel investment, VC, Series A, Series B, Series C, and the New Third Board—once unfamiliar and pretentious financial jargon—became everyday buzzwords. Talking about entrepreneurship is inevitable, and when talking about entrepreneurship, O2O is inevitable. This has become the norm in the business world, with the capital market pouring massive amounts of hot money into it.
**The good times lasted for a full year. In the second half of 2015, China's O2O industry hit a turning point. Like mowing grass, O2O companies announced their deaths in droves.**
On the road of O2O industry development, ahead lie piles of bones; behind are naive newcomers; and in the middle are a group of entrepreneurs who, backed by capital, are teetering on the edge of death yet full of ambition. You might hear that a young man became a billionaire in a few months, but you won't know that millions of young people went bankrupt; you might hear that it's an era of mass entrepreneurship, but you won't know that the failure rate is 95%; you might hear that China has 21 unicorns (startups valued over $1 billion), but you won't know that none of them are profitable.
In the autopsy, the cause of death is clearly written: capital chain rupture. A perfectly good child starved to death. However, when we review the short lives of these companies, we find that capital chain rupture is the cause of death, not the root cause.
**These companies ultimately died, just as they were born, due to one reason—fake demand. Capital chain rupture is precisely the manifestation of demand being disproven.**
We don't need to over-define fake demand, as the literal meaning sufficiently reflects its connotation. Perhaps it's more meaningful to categorize fake demand and analyze it through specific cases.
**Four Types of 'Fake Demand'**
1**'Need' is not 'Demand'** **Insufficient willingness to pay**
**Treating users' 'needs' as demand is the cause of death for more than half of O2O companies.**
Do you need to get fresh fruit delivered to your door without leaving home?
Do you need someone to wash your car at your doorstep?
Do you need someone to pick up and drop off your kids without leaving home?
Do you need someone to do... for you without leaving home?
Of course you do—if you don't have to pay for it.
**The difference between need and demand is that demand is not just a need, but also a willingness to pay for it. For many, staying at home is a need, but they will never bear the cost difference between home consumption and in-store consumption. That is fake demand.**
The most typical example is **fresh produce and meat delivery O2O**. When people shop in stores, they can pick and choose, so the quality of the vegetables and meat they buy is usually above average—at least the buyers think so. Therefore, they have the same expectation for home-delivered products. To get them to pay, you must provide products of above-average quality.
On the other hand, they believe—or are educated by such O2O models to believe—that they don't need to pay extra. This creates an awkward situation: on one hand, you must provide better quality products; on the other hand, you cannot make consumers pay extra costs, while the product provider must maintain its own profit. The high loss rate of fresh products causes huge costs; relying on third-party logistics costs money; building your own warehousing and logistics center also costs money. What to do? The only option is subsidies.
Therefore, behind the booming fresh delivery business lies a fundamental original sin—that fresh delivery to the door is only a need, not a demand. Even if a market forms, it is not a product of supply and demand but purely built on subsidies. If you think about reducing or canceling subsidies after the market matures, the entire market will collapse. Moreover, in today's subsidy arms race, whoever cancels subsidies first will be immediately eliminated.
Similar is **breakfast delivery**. Breakfast has a low average order value, which cannot cover delivery costs. Unless people accept more expensive breakfasts, this model will forever remain a need, not a demand. The most typical example is 'Dai'e Breakfast'. It can be said that Dai'e Breakfast never had any problems before it died. Good promotion, many users, good stickiness—the only problem was that it didn't make money. The more users, the more losses. And then there was no 'then'. Similarly, snack delivery and fruit delivery have similar issues.
Also similar is **door-to-door car washing O2O**. One-yuan car washing has become an industry standard. This model, which only has input and no output, has no other outcome but bankruptcy.
2**I want a traveler, not a woman** **Misreading consumption scenarios**
Several years ago, Ma Yun, feeling the pain of e-commerce logistics, created Cainiao Network, leading to the concept of sky network and ground network. Another big shot, Wang Wei, despite being the king of logistics, was burdened by the labor-intensive and capital-intensive nature of the industry, so he went the opposite direction and did e-commerce. In 2014, **SF Hi-K** was born.
Today, SF Hi-K has long returned to dust. 1 billion yuan burned, stores closed, even the official website is inaccessible. This outcome is not surprising because, even in the most aggressive months of SF Hi-K, for most end consumers, it was a store you visit only once in a lifetime.
The project's logic was as follows: warehousing and freight and last-mile delivery are two major nodes in the logistics industry. There are roughly three forms of last-mile delivery: courier franchise stations, convenience store pickup/drop-off, and self-operated delivery stations. From this, we can infer the logic behind SF Hi-K.
SF, as a representative of relatively high quality in the circulation field, naturally wanted self-operated stations, but the cost of self-operated stations is high. So they thought: how can we offset the cost of opening stations while ensuring self-operation? Since convenience stores can do courier pickup and drop-off, as the last 100 meters to home, can we consider reverse-operating as a convenience store? The problem is that if we operate as a convenience store, limited by store space and different operating systems, a delivery station cannot become a strict convenience store. However, we have SF Best (SF's e-commerce platform), so we can use it as an offline store for brand display, thus avoiding SKU and convenience store management issues. So SF Hi-K became a trinity of 'courier pickup/drop-off station + community convenience store + offline experience store'. As a convenience store, SF Hi-K had no inventory, only a small amount of physical items for display.
 _You want a Coke? Okay, we have a picture here. Order online, and it will be delivered in an hour! What, you want it now? Sorry, here you can only order, not take it. Go home and wait..._
**Thus, the traditional convenience store model of 'money in hand, goods in hand' was transformed into a model of 'look at pictures, order online, go home and wait'.**
**The scenario logic of SF Hi-K was this**: Before getting off work or before square dancing, you pass by SF Hi-K, pick up today's packages, pay utility bills, then select some items you might need on a large screen, order and pay, and then go about your business. The question is: does such a consumption scenario really exist? The SKU configuration based on the assumption of square dancing and the consumption scenario design kept young people away; the payment model based on online purchases kept the elderly away. Wang Wei spent 1 billion yuan to teach all O2O industry practitioners in China an expensive lesson.
Another type of O2O made the same mistake, though less obvious, but equally fatal. For example, **many O2O-based convenience stores and fast-food restaurants.**
**Convenience stores and fast-food restaurants have not been eliminated by e-commerce precisely because they can satisfy immediate consumption needs.** Admittedly, online ordering satisfies the need to stay at home, but it also costs waiting time. The faster the pace of life in a metropolis, the harder it is to accept the latter. Of course, if the delivery point is close, it can also meet immediate needs, like a small shop downstairs. But the question is: does such consumption really need O2O? Isn't it better to pick up the phone, give your room number, and have them deliver it upstairs, with money and goods exchanged hand in hand? Pick up the phone: 'Unit 2, Room 301, one Kung Pao Chicken rice, one Coke.' A 3-second ordering process—is it really less convenient than opening an app?
**The fundamental purpose of O2O is to cater to users' mobile internet usage habits, not to graft all offline models onto mobile internet to cause trouble for users.**
There's also **emergency apps**. In theory, using phone GPS and one-click ordering is more convenient than picking up the phone, dialing 120, and anxiously giving your address. But why does it sound so unreliable? The reason is that online ordering is asynchronous communication; information exchange requires a cycle of 'send-wait-receive-send-wait...', while in emergency scenarios, users have extremely high priority on immediate response. Entrusting a very urgent matter to asynchronous communication with uncertain response time destroys users' psychological need to control the situation. In contrast, synchronous communication like phone calls gives users a sense of control, in other words, good user experience. Of course, the defect of emergency apps is not only poor user experience but also low usage frequency, which will be detailed below.
Additionally, there's **door-to-door beauty services**. For women who frequently visit beauty salons, the concept of going to the salon might be more important than the beauty treatment itself. On one hand, they enjoy the service and environment; on the other hand, salons have a lot of equipment (whether these devices are useful is not discussed here). For the salon side, most of China's beauty industry treats sales as the core business, not service. Door-to-door beauty services make it impossible for beauticians to sell in a sales context, and the sales model of using customer-attraction projects to drive profit projects completely fails in this environment, making it even more counterproductive.
3**The art of dragon slaying** **Low-frequency consumption fake demand**
To explore the bottom line of the O2O industry's unreliability, we might deliberately search for **door-to-door locksmith** and **funeral services**. We find that these two businesses not only have O2O services but even dedicated apps.
Do people need door-to-door locksmith services? Of course. But would you let an app occupy the limited space on your phone for years, enduring its constant push notifications, just in case you might lock yourself out?
Do people need funeral services? Of course. But would you stay loyal to an app through countless phone changes, letting it occasionally remind you: 'Great deals on cremation urns now! Buy one for your parents, leaders, friends, children. This holiday, no gifts, only urns'—just in case you or a loved one might pass away in the next twenty years and need cheap funeral services?
The same goes for emergency services mentioned above. Similar are apps for home appliance repair. If your need for such services reaches the point of installing an app, then I recommend a phone number: 12315, which solves all these problems once and for all.
As a business model, O2O should be sustainable and have a certain usage frequency. Currently, O2O is taboo to talk about 'enclosure', but enclosure is necessary. Daily active users and weekly active users are meaningful, but monthly active users and yearly active users are really of little value. Low-frequency consumption cannot support the daily costs of offline services. Therefore, such needs might be better served as a platform, but that is beyond the scope of this article.
4**Liu Yan's are breasts, Chun Ge's are pectorals** **Non-homogenized fake demand**
Why did Didi Kuaidi succeed?
Around the end of 2013 and beginning of 2014, replicating Didi's taxi-hailing model to other O2O verticals was a very hot trend. There were attempts in the hotel industry, the restaurant industry, and they all quickly disappeared.
What's the difference?
**The real difference is that taxi-hailing apps provide a homogenized service, or standardized product.** Homogenized products mean consumers have the same expectations and can get a satisfactory experience. But services like hotels and restaurants are all heterogeneous. Then, success largely depends on whether a good credit evaluation system can be established within the O2O ecosystem. If not, it's fake demand. This also determines that in some highly heterogeneous verticals, only one or two can survive.
A typical example is **door-to-door massage apps**. Scenario one: The technician's service satisfies the user, so next time they privately call to book. Scenario two: The technician's service does not satisfy the user, so next time they use the app again. If satisfied the second time, they switch to scenario one; if not satisfied the second time, they uninstall the app.
Of course, there is another type of O2O that cannot be classified into the above categories. For example, **agricultural machinery sales O2O**. This is not just a fake demand problem but a fake market. In rural areas, where the overall O2O business environment is lacking, any O2O project is just a concept-based money game.
**Finding demand may still lead to death**
Is finding the right demand close to success? Of course not.
**Saying goodbye to fake demand only finds the market direction at the consumption level; success requires establishing your position at the competitive level. Indeed, some companies died because of capital chain rupture.**
The most typical case is **Weiwei Pinche** (carpooling). Carpooling is undoubtedly a huge market. Weiwei Pinche accurately grasped this demand and launched a carpooling app. By burning over a million yuan a day, they acquired a significant user base, with a valuation of up to 1 billion yuan.
However, the company's leaders ignored one thing: such a business model lacks entry barriers. Once BAT (Baidu, Alibaba, Tencent) enters forcefully, all market expectations for them would turn pessimistic. Reality confirmed this concern. With the strong entry of Didi Kuaidi, Weiwei Pinche became worthless overnight. After struggling for a month or two, they finally ceased operations.
In this era dominated by BAT, with Jingdong, Xiaomi, and 360 (the 'Beijing Three') eyeing covetously, lacking technical barriers and sufficient financial support makes it hard to laugh last. For such entrepreneurs, the best strategy might be to sell if the price is right.
**Another point to note: don't court death.**
**Yidao Yongche** suddenly released a poster on June 14, 2016, with a bloody background and the words: '**Sorry, we're not playing anymore! On June 21, Yidao invites you to witness this farewell.** ' Of course, many thought Yidao was going bankrupt. But as expected, the farewell on June 21 was to announce that after LeEco took over, Yidao would be renamed.
Using this method for event marketing is not unprecedented, but Yidao seemed to forget that it had a prepaid consumption cash flow structure! This information release directly led to:
1. Complaints from prepaid users demanding explanations;
2. Existing users clearing their prepaid balances and stopping deposits;
3. After the answer was revealed, users were outraged at the insult to their intelligence and decisively uninstalled the app.
Any of these would cause fatal damage to Yidao. This behavior is like a bank announcing it's about to go bankrupt to seek attention, which can only lead to a bank run and bankruptcy. Here, I express twelve points of pessimism about Yidao's marketing philosophy and future prospects.
**Advice on O2O**
For friends new to O2O, if you want to avoid failure, it's best to do the following:
First, during project initiation, carefully check against the fake demands listed above to see if you've hit any. If you hit even one, calm down and re-examine the demand.
Second, when you truly find market demand, also examine whether your market is large enough to support your survival and small enough that internet giants won't develop an appetite. If you can achieve that, then the rest is about attracting funds.
At the same time, cherish your reputation. Don't treat users as fools and dance on the edge of a knife like Yidao or the earlier Shenzhou Zuche.
Of course, if your entrepreneurial idea is to believe that someone believes this thing can make money, and your investor's idea is to believe that someone believes that someone believes this thing can make money, and you push this logic down, determined to run a Ponzi scheme, then I must advise you: you've missed the best opportunity.
**Now and in the future, the O2O field will inevitably be a market where demands are constantly disproven and common sense gradually returns.**
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