Is the position of the domestic e-commerce leader about to change ownership? It's hard to say yet, but changes are happening fiercely.
On the evening of November 29th, Pinduoduo briefly surpassed Alibaba's stock market value, surpassing Alibaba's $191.5 billion with a value of $192 billion, making it the most valuable Chinese concept stock in the US stock market. Just three years ago, Alibaba's market value was still at a super high of $860 billion, while Pinduoduo hovered around $108 billion, with a market value only one eighth of the former.
This has caused many Alibaba executives and employees to have a sleepless night.
A post posted by an Alibaba employee on the intranet represents the voice of most people: "It's hard to sleep at this moment, and I can't even think about it. It's really a shock. That inconspicuous guy is about to become a big brother."
Jack Ma also responded unusually on the intranet, congratulating Pinduoduo on its decisions, execution, and efforts over the past few years, and acknowledging that today's Alibaba stands in the winter: "I firmly believe that Alibaba will change, Alibaba will change. All great companies are born in the winter. The era of AI e-commerce has just begun, and it is both an opportunity and a challenge for everyone."
Back in 2015, when Alibaba and JD.com almost divided the Chinese e-commerce market, Pinduoduo began to grow from the gap between giants. "Our team may be 20 years behind the Alibaba team." In March 2016, Huang Zheng, the founder of Pinduoduo, mentioned on his personal official account that "we may have the opportunity to create a different Alibaba under the new traffic distribution situation, new user interaction forms and new internationalization."
Internet companies represented by Alibaba are particular about attack and expansion, with large and comprehensive businesses. From e-commerce to cloud services, local life, logistics, and entertainment, almost all the businesses that can be tried are still in Alibaba's imperial version. But Pinduoduo, a company that grew up in the era of mobile internet, is different. From the first day on, it has only focused on one thing: the ultimate efficiency of low-priced e-commerce.
For the past eight years, Pinduoduo has almost always followed this logic, replicating from domestic to foreign and launching fierce attacks on opponents in different regions using the same tactics. The overseas version of Pinduoduo Temu, which has been online for only one year, has spread to 48 countries and regions around the world, with downloads exceeding 200 million. According to a report by 36Kr, Temu's sales in the third quarter of this year have exceeded $5 billion, which may exceed the annual GMV of $15 billion. And Temu's rapid sprint is also an important factor for Pinduoduo to surpass Alibaba's market value today.
The "low price" card played by Pinduoduo, a rival that giants once looked down upon, has been proven to be even more effective today.
In 2006, Duan Yongping, founder of Bubugao, took Huang Zheng to attend Buffett's lunch. The biggest takeaway from this meal was his realization of the power of simplicity and common sense.
When Huang Zheng uses "simplicity and common sense" to tear open a sinking market, he may not necessarily think that in today's completely different economic cycle from the past decade, he has stepped on the wind of the times.
Ultimate simplicity and "essence"
In 2015, Alibaba completed the upgrade of e-commerce from Taobao to Tmall, and JD.com went through an early stage of emphasizing product quality. The two sides were in a fierce battle in first and second tier cities.
Pinduoduo quietly went online at this moment. Outside the perspective of giants, there is a large amount of online shopping demand in lower tier cities that has not been fully explored. In addition, the era of mobile internet has formed closed ecosystems, such as the WeChat ecosystem that Alibaba e-commerce is difficult to penetrate.
Seizing these opportunities, relying on Alibaba Cainiao's logistics infrastructure, Tencent's WeChat traffic, and low-priced merchants leaving Taobao in the vast sinking market space, Pinduoduo achieved a breakthrough in revenue from 100000 to 100 billion and user count of over 580 million in just four years.
Pinduoduo has rapidly expanded through viral means of dissemination, with its gamified operation and social gameplay allowing it to establish a "low price" mentality in the minds of users. Huang Zheng once said, "Our core is not 'cheap', but to satisfy users' sense of taking advantage."
On the merchant side, Pinduoduo uses traffic to drive a large number of white label merchants and tail goods to flow into the vast market. From the perspective of platform competition, Pinduoduo first caught small and medium-sized sellers who were unable to gain business on Alibaba and JD.
A white brand merchant focusing on the low and medium price market mentioned that many cost-effective products sell very well in Tiktok and Pinduoduo, and even can drive the activity of platform users in the reverse direction, but such products are not available on Taobao Tmall at all. "We contacted Taonei anchors, but they all looked down on them, saying that the prices were too low and the anchor company's commission was low. Most of the live broadcast rooms of Taonei's top anchors were branded products, rather than high cost-effective functional products.".
This also reflects a reality that Alibaba's traffic allocation mechanism can only allocate limited traffic to the merchant brands with the highest output ratio, and their advertisements can directly bring revenue to the platform. Pinduoduo has chosen more low-priced white label merchants.
Relying on this strategy, Pinduoduo has won most of the low-priced user base in China and even developed a high level of user loyalty.
A Pinduoduo merchant told Interface News that during this year's Double 11 shopping festival, as major platforms were competing for the price performance market, Pinduoduo users gradually showed the characteristics of price insensitivity. "Other platforms must roll up to the lowest price to have quantity, but even if we add a little price to Pinduoduo, users will still stay here."
As Huang Zheng put it, "We also sell iPhone X, and low prices are just a temporary way for us to acquire users." When low prices become a stable user mentality, these users grow with the platform. When user usage frequency increases, they can naturally provide the platform with higher transaction volumes.
Duan Yongping once commented on Huang Zheng as follows: If someone persists in doing the right thing for decades and strives to do it right, there is a high probability of a good outcome.
In a sense, Pinduoduo has fulfilled the mission of Taobao, truly allowing some long tail goods to circulate throughout the country. This company's operations, billions of subsidies, and traffic distribution all revolve around this goal and remain unchanged.
To manage these tens of thousands of white label and tail goods merchants well and organize their goods to operate efficiently with consumers, another well-known competitive advantage of Pinduoduo is to use "people" to the extreme in organization and management.
An employee who participated in the early development of Duoduo Maicai told Interface News that within Pinduoduo, new strategic projects (Duoduo Maicai, Temu) have corresponding project stocks, encouraging employee turnover to support the toughest frontline businesses.
In the early days of Duoduo Maicai Kaicheng, everyone from the management to frontline employees slept in the warehouse, dealing with suppliers, external carriers, and mainline dispatch workers every day. In his opinion, this approach of going deep into the frontline and being grounded can better help Pinduoduo maintain a clear strategic thinking and avoid deviation.
In the early stages of Temu's expansion, Pinduoduo recruited employees from SHEIN with a 50% or even double salary increase, and internally transferred personnel from Pinduoduo's main website to Duoduo's grocery shopping and other businesses. So far, Pinduoduo has 13000 employees and Alibaba has 225000 employees. Pinduoduo's employees generated an average income of 12.22 million yuan per person in the first three quarters of 2023, which is 7.07 times that of JD during the same period and approximately 4.17 times that of Alibaba.
In this company, working 13 hours a day is not an implicit provision in the contract. The closing time for most departments is after 10 o'clock, sometimes it may be 0 o'clock, and it is normal to work continuously for half a month during major promotional events.
The "simplicity" value pursued by Huang Zheng is reflected in employee management, known as "responsibility". This is a company culture that is often mentioned internally - to complete what you need to do, and not to worry or cross boundaries with other departments and colleagues.
Unlike other technology companies that can see clear organizational management structures, Pinduoduo's self built internal management software only displays flower names in the address book, without any information such as departments and positions. Within the company, there are incidents of employees mistakenly sending messages to senior management, but employees may find that even if they send messages to senior managers, they will still be "read" within a few minutes - "From many things, it can be felt that your leaders are fighting on the front line of the business."
In addition, its information isolation is also done to the extreme. Almost all employees have two phones because after installing internal software, the AirDrop function on their work phones will be blocked. Most business departments do not hire interns, and in the recruitment process, those who have a tendency to become self media bloggers are not selected, and employees are also prohibited from disclosing their work content on all social media platforms.
The eyes of the human resources department will always be on you.
Temu's sudden rise
While the domestic business has basically established itself, in September 2022, an overseas version of Pinduoduo called "Temu" was launched. With the slogan "Team Up, Price Down", it first sparked a trend of "cutting the knife" in the US market.
At this time, the domestic market trend has undergone subtle changes. In the past year, Pinduoduo has started to reduce its investment in e-commerce business, and the most important new growth curve, "Duoduo Maicai," has slowed down and entered a confrontation with its main competitor, Meituan Youxuan.
Cross border retail was once a business that Huang Zheng had shelved in order to ensure the development of the main website, but going abroad and restarting meant that he had a new judgment on this opportunity in this field. A subordinate who has been following Huang Zheng for many years said that Huang Zheng's time and energy will always be invested in the things with the highest returns.
The domestic dividend is at its peak, and the overseas market means a new increment. So, Temu became another strategic project of Pinduoduo, with a higher business priority than the domestic main site and Duoduo Maicai, led by Pinduoduo Group Chairman and Co CEO Chen Lei (flower name: Tudou) and COO Abu.
Compared to Pinduoduo in 2015, Temu not only has capital advantages, but also has accumulated basic e-commerce capabilities and supply chain links. It is already proficient in the most complex backend product technology processes such as operations, transactions, and payments.
In response to the shrinking internal competition of the domestic internet, Temu has launched a rapid expansion overseas. For over a year, it repeated the scale model of the golden age of mobile internet: burning money, growing, transforming, and growing again, with its footprint in 48 countries and regions, and its download volume exceeding 200 million times.
The employees and executive team who had previously bet on community group buying were collectively transferred to Temu. This time, they continued the traffic model of Pinduoduo main station stacking and burning money to attract new customers in terms of gameplay. Logistics relied on their old partner Jitu, while the supply chain side replicated the previous centralized logic. A industry insider familiar with Pinduoduo told Interface News that Pinduoduo's centralized logic gives it the core voice of the entire supply chain system. The underlying mechanism of this system is "roll", and any industry chain can be transformed by relying on traffic.
For example, a pair of leggings with a monthly sales volume of millions is enough for Pinduoduo to reverse track its origins, meticulously cutting through dozens of raw materials and processes, and "rolling" it to the lowest price. "In the end, the things it produces are not even cost-effective enough to be sold in any ordinary factory," said the industry insider. "But Pinduoduo relies on small profits and quick sales to ultimately achieve profits, which is the ultimate goal of quantity based maintenance."
Beyond these, the "full hosting" approach is one of Temu's most important underlying decisions. It imitates SHEIN's approach in the fashion category, equating merchants with suppliers. At the moment when the platform warehouse completes the receipt of high cost-effective products, the remaining pricing, sales, marketing, logistics distribution, after-sales and other links are also taken over by the platform.
For the small and medium-sized groups of cross-border merchants, this has smoothed out the operational complexity brought about by opaque freight forwarders, cross-border logistics, etc., and is truly a way to catch them on the fast train of going abroad.
The spirit of "Roll King" has accelerated the custody process, allowing Temu to achieve the results that SHEIN only achieved in ten years within one year. Taking the example of promoting products on TikTok, merchants can confirm products within three to five days of communicating with Temu buyers, and even put them on sale. "However, the same thing can be stuck for a month on TikTok, and their procurement, warehousing, and personnel allocation are not yet perfect."
Similar to the domestic path, low prices and subsidies are buried in the consumption minds of overseas users like leads. At the same time, Temu invests in advertising agents regardless of cost. In the early stages of investment, platforms such as Google, Meta, and Twitter shared Temu's marketing expenses of at least $100 million per month. And with Temu's grand appearance in the American rugby final Super Bowl, these already buried leads were completely ignited.
In February of this year, after a month of intensive preparation by the project team, the rumored million dollar advertising slogan "Shop like a billionaireare" made it to the North American "Spring Festival Gala" Super Bowl. With $14 million and two 30 second advertising slots, Temu's massive spending has set a new record for the advertising value of the Super Bowl at $230000 per second.
This fire is lit warmly and directly. According to a report by LatePost, on the night of advertising placement, Temu's download volume surged by 45% and the number of daily active users increased by 20%. In March, Temu experienced a complete sell-out.
This explosion also exposed the hidden dangers and weaknesses left by Temu's rapid expansion. Except for its refined operations in key markets such as the United States, Temu's operations in most other countries and regions are almost just a one click copy of a language and currency settlement version, resulting in significantly rougher operations. In terms of warehousing and logistics, at that time, 12 warehouses were simply unable to cope with the growth of 38 front-end countries.
Afterwards, Temu began preparing for overseas warehouses in the United States, striving to improve the efficiency of final express delivery. "It is expected that popular products can directly enter overseas warehouses, with a delivery time comparable to Amazon. After all, overseas customers only need to wait for two days to buy Amazon's products, but most cross-border platforms in China require 5 to 7 days," said one merchant.
This is indeed Temu's ambition. A Temu insider once told Interface News that Temu's short-term competition is focused on SHEIN, but global expansion ultimately depends on Amazon. This is a seemingly appetizing goal.
It is still too early to assert that Temu can compete against Amazon, but its current success has been indirectly confirmed in the figures of transaction service revenue. According to Pinduoduo's latest Q1 financial report, the revenue from trading services, including Temu's revenue, was 29.152 billion yuan, a year-on-year increase of 315%.
On the day Temu went online, Pinduoduo's stock market value had just reached $90 billion, while its distant rival Alibaba had a market value of $248 billion. At this point, the outside world will only compare them, but no one will think that the two are already evenly matched.
The relationship underwent a turning point one year and three months later. On November 29th during the US stock market session, Pinduoduo's market value reached $192 billion, dramatically surpassing Alibaba, which had fallen to $191.5 billion in ups and downs. On this day, Pinduoduo had just released its third quarter financial report, and the capital market clearly saw the power of Temu - it almost allowed Pinduoduo to grow a new one on top of its domestic main website.
Stepping on the right air vent on the dark side of JD Alibaba
Different eras will push companies towards different fates.
Current consumers are more inclined towards rational consumption and are more sensitive to price perception. This year's Double 11, the key competitive keywords of major e-commerce platforms have become the "lowest price on the entire network". Even JD.com, which previously emphasized consumer quality, has not hesitated to enter the wave of price wars this year.
Pinduoduo was originally competing in a misplaced position outside the attention of Alibaba and JD.com, expanding into lower tier markets. Nowadays, times have changed, and Pinduoduo, standing on the dark side of giants, has suddenly stepped on the wind of the times and achieved growth beyond expectations.
In the business history of different countries, specific economic situations have also given rise to a group of new business formats and their representative enterprises.
In the 1980s, the Japanese economy shifted to a stage of moderate development, and consumer characteristics shifted from mass consumption based on households to personalized consumption based on individuals. During this period, there was a dense growth of new domestic consumer leaders in Japan. In 1980 and 1984, MUJI and Uniqlo were established successively, catering to the demographic characteristics of the new generation of humanity, an increase in working women, and an increase in the proportion of single individuals. They inherited the dividends of the times with diversified, small-scale, and highly self expressive products.
On the other side of the ocean in North America, the story is not very fresh. At that time, the US economy was in a serious stage of stagnation, with high unemployment and inflation coexisting. Low prices and high-quality products naturally constituted the demand of American consumers. In 1983, Costco, a warehouse membership supermarket, was established in Seattle. These high-quality, large packaged, low-cost products with extreme cost performance began to be popular in North America, not only fighting against Wal Mart, a retail giant, but also spreading their influence to the world.
The times have indeed changed. When Alibaba first listed on the US stock market, its market value had already surpassed $200 billion, and three years later its market value doubled. Over the same three years, from 2018 to 2021, Pinduoduo's market value increased tenfold from over 20 billion US dollars to over 200 billion US dollars; However, JD.com has not yet surpassed the market value of 200 billion US dollars.
But as a company that has just celebrated its 8th anniversary, no matter from which perspective, Pinduoduo is still very young, and compared to other giants, it is difficult to say that it has fully competitive ability.
Alibaba and JD.com have long been more than just e-commerce companies. They have already built complex and massive commercial empires, with logistics and payment elements in place. In contrast, Pinduoduo still has many problems to solve. Just like its extensive management style, this year's Temu's continuous stock explosion and the mid year main site "store explosion incident" are both concentrated outbreaks of weaknesses and contradictions.
A Pinduoduo employee believes that growth can cover up problems in the short term, but in the long run it will definitely reach a bottleneck. At that time, the problem erupted, and naturally it was time for adjustment.
After the market value of Pinduoduo surpassed that of Alibaba, a widely circulated argument is that "Pinduoduo's growth is anti branding, it is like drinking poison to quench thirst, and it will become toxic in ten years or less."