On March 22, just five years after its establishment, pinduoduo has replaced Alibaba as the largest e-commerce platform in China.In the latest quarterly financial report, pinduoduo claimed that by the end of 2020, the company had 788.4 million users, higher than Alibaba's 779 million users.
Although pinduoduo's annual revenue last year was only US $9.1 billion, which is still insignificant compared with Alibaba's revenue of US $72 billion in the same period, it almost doubled compared with 2019. In the field of online consumption in China, pinduoduo is consolidating its role as a challenger between Alibaba and Jingdong.
Pinduoduo boasts itself as an online hybrid of Costco and Disney, or a combination of value based shopping and easy entertainment, which leads the popularity of social e-commerce in China. As the pioneer of new e-commerce, pinduoduo combines shopping with social media, effectively turning shopping into a game.
US media said that on an e-commerce platform, users usually browse without specific purchase targets. The app allows friends and strangers to combine to buy at a higher discount. Among them, social interaction is the primary purpose. Friends gather on pinduoduo to play the built-in game of this app, watch the live stream, share transactions and shop together.
One of the most popular games is Duoduo orchard. Players earn shopping vouchers and tangible prizes by cultivating virtual fruit trees, such as real mangoes and praise from friends. The game has sparked fierce competition among players, many of whom are obsessed with looking after their virtual orchards.
Pinduoduo's practice reflects the Gamification trend of the technology industry, which makes the trading of technology stocks attract attention. For pinduoduo, keeping people on its platform is to attract them to play games, which helps to increase user stickiness and attract users to browse and shop.
Pinduoduo said that Huang Zheng recently transferred the post of chairman of the board to Chen Lei. After leaving office, he focused on research projects in the field of life sciences. However, Huang Zheng is still the controlling shareholder of pinduoduo. After the news of Huang Zheng's departure, the company's share price fell about 11% in early trading.
As Alibaba copes with various challenges, pinduoduo is on the rise. Alibaba said it was cooperating with regulators in the investigation and would reassess and improve its business practices.
In the past year, the value of pinduoduo's NASDAQ listed shares has soared, and its market value has surpassed that of its competitor Jingdong, reaching a peak of about $250 billion in February. According to Hurun, a research firm, the growth has pushed Huang Zheng's personal wealth to $69 billion, making him the third richest person in China, surpassing Alibaba founder Jack Ma.
However, 2021 will also be the most difficult year for pinduoduo. As the government moves to control the country's big technology companies, Chinese regulators have fined pinduoduo and several other e-commerce companies, accusing them of violations. In response, pinduoduo said the company attaches great importance to government intervention and is committed to solving these problems.
Pinduoduo will lose us $1.1 billion in 2020, despite the strong growth of China's e-commerce market. According to emarketer, a market research firm, China's online retail sales are likely to increase from $354bn last year to $549bn by 2025.
Pinduoduo first combines e-commerce and social media, and is improving it. Chen Lei said that in the summer of 2015, he and Huang Zheng and others ran a company specializing in fruit sales, and they filled the only warehouse near Shanghai with lychees. They advertise on wechat, which is their first big deal.
Chen Lei and Huang Zheng met at the University of Wisconsin Madison, where they both studied computer science 20 years ago. He recalled that the managers met in the devastated warehouse and finally decided to subvert the business model. Instead of preparing its own inventory, the company will become a third-party platform connecting businesses and consumers, just like Alibaba, while investing heavily in software, logistics and infrastructure to avoid a repeat.
However, this incident does confirm Huang Zheng's intuition that social media and e-commerce can be combined strongly. Most people who buy lychees learn about the deal from their wechat friends. They also encourage people in their circle to unite to buy large quantities of lychees at a discount.
To make money through advertising, pinduoduo has spent nearly $13 billion on subsidizing goods. In fact, it is paying businesses to lower their prices and provide eye-catching cheap goods. In order to achieve long-term success, pinduoduo must find a way to reduce subsidies without losing a large number of users who are attracted by cheap goods.
According to Chen Lei, pinduoduo's plan is to continue to use its revenue for subsidies until it replaces Alibaba as the default shopping platform for 1 billion Chinese consumers. In theory, the company could cut subsidies while attracting more advertising money from businesses to achieve sustained profitability.
However, pinduoduo may have to adjust faster than expected after being criticized recently for the use of subsidies, and regulators also criticized this practice for distorting market competition and harming the interests of consumers.
Another disadvantage of pinduoduo's game oriented business model is that most consumers don't spend much.For example, some people mainly use the platform to buy cheap snacks and tissues. In 2020, pinduoduo users will spend an average of $324. Although this number has been increasing, it is still less than a quarter of Alibaba's average user spending.
To narrow the gap, pinduoduo is doubling its investment in fresh food and raised more than $6 billion last year to fund an ambitious agricultural project. Fresh food, which has not been developed by e-commerce, is exactly the field pinduoduo hopes to dominate, because users may place orders every day.
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Link to the original text:Netease Technology
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