(The author of this article, Song Xiangqian, is the founding partner and chairman of Jiahua Capital)
The train of the times roared past, leaving behind a sentence: "Everything that passes by is a prelude.". Someone joked that only by enduring the hardships of the times can one know the goodness of Pinduoduo. It took Taobao twenty years to live like Tmall, but accidentally lost to Pinduoduo - the former self.
In November 2023, Pinduoduo announced its third quarter results, with revenue increasing by 94% year-on-year and net profit increasing by 47%. The strong performance of Pinduoduo has stimulated the US stock market to enter a skyrocketing mode, with a market value of $195.9 billion for three consecutive days, surpassing its big brother Alibaba. Pinduoduo founded Alibaba, the e-commerce leader who has been working hard for 8 years, and the competitive landscape in the industry has been rewritten, forcing the principal to speak out rarely. While expressing blessings to competitors, it also reveals the final stubbornness: everyone is proud, believing that Alibaba will change.
The essence of growth
American physicist Idalgo pointed out in his famous book "The Essence of Growth" that growth mainly comes from the growth of information and order. He used the atomic arrangement order and its utility in the physical world to explain the essence of economic growth. Orderly growth brings the power of the system, thereby achieving true industry growth and progress, and ultimately achieving high-quality organic growth.
This is what I believe is the best exploration of the essence of growth. Just as "entropy" represents a numerical value of the degree of chaos in a system, the more disordered the system, the greater the entropy; The more ordered the system, the smaller the entropy. But from disorder to order, there must be openness, work, and exchange in order to truly achieve growth from disorder to order from entropy reduction. Just as mathematics was introduced into economics, economics became an independent discipline that explains the world. In fact, both physical and chemical economics have sufficient ability to explain the world, and science is about revealing the truth and seeking the essence.
The rapid growth of Pinduoduo today signifies an order that conforms to the beta of the times and caters to the purchasing power level of the people, which indirectly explains the objective fact that China's circle economy is developed. More importantly, behind the 800 million Pinduoduo users lies a real China. The victory of Pinduoduo is a cost-effective victory. In this era of consumer degradation, Pinduoduo was chosen and achieved.
Beijing, Shanghai, Guangzhou, and Shenzhen cannot represent China, as China is like the folding world depicted by Hao Jingfang. The population outside the Fifth Ring Road and the 800 million Pinduoduo population are the real China. After understanding these, we can better understand the bloody dusk of Pinxi Xi from the artistic conception of "the sunset is infinitely good but approaching dusk".
Coins have both sides
The undeniable fact is that twenty years have passed, and Pinduoduo has retraced the old path of Taobao from the bottom logic, picking up the label of being known as a "great country of counterfeits" in the past, with a strong intention of starting over again. In a daze, after twenty years of industrial upgrading and quality revolution, the whole nation was unable to resist the cruelty of the times and the economic depression, feeling even more frustrated and sighing.
Coins have two sides, and we must also see Pinduoduo's keeping up with the times, being more concise, efficient, focused, and emphasizing cost-effectiveness and user experience to the extreme. The success of Pinduoduo is not simply a butcher style victory in terms of "cutting a knife", "instant purchase+instant refund", and "9.9 yuan free shipping", but a more precise and profound consumer insight and the success of a customer-centric value system. The increasing number of people outside the Fifth Ring Road and the decreasing purchasing power do indeed require this tangible benefit and respect.
From this perspective, Pinduoduo's win is both reasonable and dignified, catering to the huge era of beta and low desire society with insufficient effective demand and consumption degradation, and seizing two major opportunities for reversal: low prices and going global. Duoduo Volume King not only has nowhere to go for his peers in China, but also is sweeping the world like a bamboo pole. Looking at Temu's massive download data worldwide, no one doubts that Pinduoduo's red flag will fill the entire world. However, no one knows for sure whether this order is a temporary or long-term trend, and what systems each corresponds to. No one can clearly know how long this kind of copycat logic, as well as the objective existence of a game where bad coins drive out good coins, can be played.
In the short term, it indeed meets consumer demand and satisfies the competitive logic of market economy fundamentalists that "existence is reasonable". But in the long run, it will ultimately harm economic development, product upgrading, and industrial progress, and ultimately also harm consumer welfare and consumer surplus.
Recently, the Indonesian government issued Minister of Trade Order No. 31 of 2023, which prohibits the use of social media as a sales platform for goods. To put it plainly, it is to ban live streaming sales, and it is a comprehensive and thorough ban. The official statement from Indonesia is that the predatory pricing of these live streaming e-commerce platforms and social e-commerce platforms is threatening small and medium-sized enterprises, and technological development should create new economic potential, rather than stifling the existing economy. This is the choice Indonesia has made in the face of long-term economic and healthy development, and I believe that more and more countries will make similar choices in the future.
We do not need to blame the rise of Pinxi Xi for changing consumer habits, nor do we need to blame its "cheap and low-quality" products for shamelessly trampling on "brand and intellectual property". It is a slap in the face of China's just beginning quality revolution, nor do we need to worry about the desperate pursuit of "cutting a knife" for profit, which is a cheap sale of family and friendship, nor do we need to dwell on and suffer from the prevalence of counterfeit culture where bad currency drives out good currency, and the ruthless decline of commercial values where successful and defeated pirates thrive. It only proves one truth: the capital market is short-sighted, and the business order is sometimes disorderly. The encounter of "good quality" and "affordable" is, in a sense, more difficult than the meeting of Cowherd and Weaver Girl. Great companies are always so difficult to find, and Mr. Buffett only said after careful consideration: time is the scale of enterprise value, and money is a byproduct of doing the right thing. We all need to learn to make bullets fly for a while. Waiting is sometimes a virtue, there are always people and things worth waiting for.
Taobao, Tmall, and JD.com have also had their own splendid scenery and order. While cheering for the growth of Pinduoduo, it seems that everyone should ask more about the order behind this growth, and what does it mean in the long run?
The answer is still order
As the saying goes, "You reap what you sow.". The development of mobile e-commerce platforms led by Pinduoduo has reached a crossroads in history. What kind of order to establish, what kind of system to form, and whether it has sustainable and high-quality development is no longer a multiple-choice question, but a must answer question. In the future, they will continue to be questioned for a long time:
The challenge of long-term and short-term benefits. Pursuing short-term explosive performance growth and market value growth, neglecting the coordinated development of quality and industry health, and only enjoying the dividends brought by the so-called "Giffin's Law", will inevitably face the backlash of the market and long-term interests of the enterprise. The development that cannot unify "quality" and "price" will be short-lived.
Choose to gain profits from short-term monopolies and market dominance, or choose long-term dividends formed by balanced and healthy industry development. Do we truly understand the value of long-term ism and harmonious and healthy industrial ecology, and form a broad view of "taking a sip of water from three thousand weak waters" or a profit and value system that accumulates and develops slowly, or do we blindly rush and fish with all our might? This is essentially a multiple-choice question made in the context of absorptive systems and inclusive development.
The challenge of orderly capital expansion. The healthy and orderly expansion of capital must be based on supporting industrial development. Expansion based on the construction of a competitive order that is friendly to both online and offline businesses, especially physical businesses. We cannot simply and crudely rely on the network effect, scale effect, and Metcalfe effect of the Internet to form a so-called winner take all index growth, gain monopolistic dominance, rely on sufficient capital strength, rely on traffic, and squeeze the survival space of physical commerce and quality products through subsidies.
The challenge of standardized, healthy, and sustainable development of the platform economy. The platform economy should serve high-quality development and high-quality life, respect the contributions of all participating entities, lead the economy, and achieve shared development. Platform enterprises have formed a monopoly advantage with obvious market dominance. If the transformation from simple traffic monetization to value creation is not achieved, it will no longer rely on user dividends and business model dividends, but rather deeply integrate with the real economy to create value, leverage data advantages, and achieve the efficiency leap of the industrial value chain and the maximization of consumer welfare. This not only benefits consumers, but also makes producers profitable. Not only does it enable entrepreneurs to succeed, but it also enables brands to transform from internet celebrities to long-lasting ones, reducing the cost of circulation throughout society and achieving shared development. Not only does it not hinder fair competition in the market, but it also enhances the legitimate rights and interests of consumers and businesses, reduces the negative externalities that platform enterprises bring to consumers and society as a whole in the operation process. Only in this way can the development of a healthy and friendly business order have vitality and vitality.
The answers to these questions determine what kind of order we have, which in turn determines whether we can achieve what kind of growth and the quality of growth. To some extent, it also determines our future lifestyle and living standards.
So we can't help asking: is the implied business logic of the rise of social e-commerce such as Pinduoduomen, Tiktok, and live streaming goods really only "cheap", the convergence of a low desire society and the victory of the sinking world? When did our quality and affordability meet. Why can Eagle Sauce, the pioneer of e-commerce and internet economy, and its less developed neighbors in East Asia, serve as a demonstration benchmark for the unity of quality and affordability.
Whether the Chinese counterparts of Copy It right have forgotten the values behind the copy model, or whether the values behind the order cannot be copied, or whether the disorderly expansion of capital does not require us to think about these long-term issues, these are precisely the questions worth pondering after the rise of Pinduoduo. What kind of system will the implicit arrangement of social and economic order develop into, and where will it lead the giant ship of society? This is worthy of our profound questioning. Is it possible for us to achieve an order that is both "good in quality" and "affordable", in order to break the high-quality growth code that possesses the "beauty of the system", and truly implement a rational prosperity that is "intertwined with time and fragrant".
I sincerely hope that not only did Pinduoduo win, but the whole society lost.