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What’s Pinduoduo?

Pinduoduo, or PDD, is a social commerce app founded by Colin Huang, an ex-Google engineer, in September 2015. Only a couple of years old, PDD has become the fastest growing ecommerce company in China. It raised $100 million in 2017, is backed by China’s Banyan Capital and Tencent, and valued at a whopping $1.5 billion.

Source: Crunchbase

As of Feb 21, 2018, PDD ranks #3 overall in the Chinese iTunes app store ranking for free apps, after popular apps like Tik Tok (Douyin) and WeChat, and ahead of other shopping apps like Taobao. PDD went from 100 million yuan ($16 million) GMV a month in early 2016 to 4 billion yuan ($630 million) GMV a month by 2017, putting it in fourth place behind Alibaba, JD and Vipshop.

How does Pinduoduo work?

Users can download the PDD app or access it within WeChat. Like any ecommerce platform, PDD offers products across a wide range of categories from food to fashion. However, unlike Tmall and JD, PDD incentivizes users with discounts to invite friends to buy in groups.

 

For example, one container of Similac Advance Infant Formula Powder costs 59 yuan if you buy alone but only 35.5 yuan if you can get one other person to buy it too. In the screenshot below, a total of 1,822 pairs have “group-purchased” this item already.

 

 

In addition to group discounts, PDD also incentivizes customer acquisition. Getting users to follow the PDD WeChat Official Account, install the app, and sign up via WeChat login will earn them free products.

PDD also offers cash red envelopes worth 5-20 yuan to users for each friend they get to download the app and register. The entire system is then gamified through a public leaderboard.

Wait, is this new? Didn’t Groupon invent social commerce?

Groupon did arguably pioneer the group buying concept. In its early days, a certain number of users had to sign up for the same deal in order for everyone to receive the voucher. But unlike PDD, there wasn’t a direct incentive; users had to sit back and wait for anonymous users to tip the scale.

This mechanism was quickly abandoned to scale faster with minimum thresholds that acted more like gimmicks.

Groupon was labeled “social commerce” at first but in its later years, lost its social aspect.

Source: wiredtech on Flickr.com

Let’s take a step back and look at the definition of social commerce, according to ConversionXl:

“Social commerce is defined as the ability to make a product purchase from a third-party company within the native social media experience.”

Groupon emerged in the pre-mobile age of 2008 when most consumers still transacted via desktop, especially in the company’s US home market. Back then, less than 1% of ecommerce transactions were via mobile acquisition channels.

In addition, the company’s main distribution channel was email newsletters, a slow and high-friction medium and payments weren’t seamless either as users relied on a credit card or PayPal.

Now looking at 2016 in China – PDD’s first full year in operation – WeChat is the country’s dominant “super app” and leading medium to socialize online with 889 million Monthly Active Users (MAUs) by year end.

71% of ecommerce now takes place on mobile, creating a flattering backdrop for the rapid rise of PDD, which started out as an app on WeChat.

Paying for products on PDD is also remarkably easy because the app makes it automatic. After the first payment, users can opt for one-click payment via WeChat Pay that don’t require passwords.

Desktop usage, clunky email newsletters, and credit card payments limited Groupon’s true social commerce potential. Where Groupon failed, PDD is succeeding because of an ecosystem of mobile-first users and WeChat’s features that make it a super app.

Will PDD come to Southeast Asia?

Why not? Southeast Asia ecommerce is already being carved up by Alibaba and Tencent. Lazada and Tokopedia, two companies owned and invested in by Alibaba, dominate the B2C and C2C space on one end and Tencent-invested JD, Shopee, and Go-Jek are on the other end.

With Southeast Asia’s horizontal ecommerce market being consolidated into a few properties like Lazada, Tokopedia, JD and Shopee, there isn’t as much opportunity in the space as before.

New ecommerce players have to focus on dominating a specific, vertical category or provide a competitive advantage through means other than outspending peers in advertising and/or coupon subsidies.

This is where a model like PDD fits snuggly.

It also helps that one of PDD’s biggest investors is Tencent, which already has its eyes set on the rapidly growing Southeast Asian market.

Will the PDD business model work in Southeast Asia?

To determine if the PDD model would work in the region, we need to identify the criteria that were conducive to its success in China:

1. Lack of distribution channels / expensive distribution channels

If you strip away all the hype, PDD’s competitive advantage is in its customer acquisition strategy. Instead of relying on expensive channels like display advertising or paid search (e.g. Baidu ads), PDD is paying its users to get more users. For example, CPCs alone on Baidu can range from 5 to 25 yuan. Note these are clicks, not even users acquired.

Southeast Asia (excl. Singapore and Malaysia) is very similar to China in terms of lack of channels, due to a similar “no-tail” ecosystem. Whereas entrepreneurs in China had to pick their poison between Baidu, Sina and Sohu back in the day, startups in emerging Southeast Asia are limited to Facebook Ads, Google Search, and portals like Detik in Indonesia and Sanook in Thailand.

Early entrants like Lazada took advantage of low cost-per-clicks (CPCs) back in 2013 but given the raging ecommerce “bloodbath”, online ad CPCs have gone through the roof.

Having saturated online channels, Lazada started exploring offline advertising channels like TV and out-of-home media.

Others like Pomelo Fashion tapped into physical stores as a more cost-efficient way to acquire users and simplify last-mile logistics.

PDD social and viral customer acquisition strategies could work quite well.

2. High mobile commerce penetration

The majority of ecommerce transactions in China now take place on mobile. In 2016, 71% of ecommerce GMV was on mobile. In the US, this number was only 20% in 2016.

In Southeast Asia, companies like Lazada and Shopee today see over 65% of their orders coming from mobile (with 21.6% using both mobile and desktop to shop), according to a recent survey by ecommerceIQ.

Needless to say, high mobile penetration in Southeast Asia along with high mobile ecommerce usage will provide a fertile ground for a business model like PDD to gain traction here.

3. Frictionless mobile payments

One of the drivers of PDD’s success is its seamless payments through WeChat Pay.

This will be a challenge for PDD in Southeast Asia as only Singapore and Malaysia are credit card dominated whereas the rest of the region is mainly a cash-on-delivery market.

Source: ecommerceIQ

Despite efforts to come up with a universal mobile payment standard, no one has succeeded as of today. Efforts like Sea’s AirPay, Ascend’s True Pay, and LINE Pay have hit a wall due to lack of distribution, lack of use case, and a plethora of other issues.

Right now, most eyes are on Go-Jek’s Go-Pay, which has a massive distribution channel by leveraging Go-Jek’s 40 million install base and 10 million Weekly Active Users (WAUs). In addition, and more importantly, Go-Jek addresses emerging Southeast Asia’s unique lack of both credit card and bank account penetration — users are able to top up their Go-Pay accounts by handing cash to Go-Jek drivers that essentially act like mobile ATM deposit machines.

While still a poor-man’s WeChat Pay, Go-Pay offers hope for business models like that of PDD to thrive in Southeast Asia.

4. Attachment to popular social platform

Without the WeChat ecosystem, PDD wouldn’t have been the company it is today. Being embedded in WeChat, PDD was able to quickly get massive distribution by tapping into the potential 889 million MAUs of WeChat.

In Southeast Asia, Facebook, Instagram, WhatsApp, and LINE are highly popular, however, none are considered super apps that offer seamless integration.

The closest to WeChat in Southeast Asia would probably be Indonesia’s Go-Jek.

While Go-Jek hasn’t entered ecommerce yet (it’s positioned only as a services marketplace and offers delivery for partners through its GO-MART product), it wouldn’t be surprising if PDD decided to leverage the Go-Jek platform, given the similarities to WeChat in China. Like PDD, Go-Jek also counts Tencent as an investor.

With an estimated third of ecommerce in markets like Thailand happening on Facebook, Instagram and LINE, the user behavior of buying through social channels already exists.

5. Access to cheap product sourcing

If you browse through PDD, you’ll notice that most of the products sold bear similarities to many of those sold on Taobao. In other words, a lot of “mass” and non-branded products. PDD thrives in China because of easy access to a supply of these products manufactured locally.

However, in Southeast Asia, these kind of products (typically sold on social media and C2C platforms) are imported from China, which leaves less margin for PDD to play with in terms of discounts and customer acquisition.

To sum up, emerging Southeast Asia meets several of the criteria behind PDD’s success in China but poses some unique challenges:
ecommerceIQ

What will happen next?

In the analysis, we’ve identified some of the drivers of PDD’s rapid rise in China and also their presence in emerging Southeast Asian markets at an earlier stage.

Given this opportunity, we can expect the following scenarios to play out over the next few months and years:

1. Local and Chinese entrepreneurs will launch PDD clones across the region

Ever since opening up to the world in the 80s, we can describe China having gone through the following three stages, with the third one still progressing as we speak:

1. Made-in-China (1980-2000)

China perceived as manufacturing base for (often cheap, low-quality) export products

2. Copy-to-China (2000-2015)

Chinese entrepreneurs, some foreign educated, bring back models that worked in the US, e.g. Search (Google -> Baidu), Portals (Yahoo -> Sina, Sohu)

3. Copy-from-China (2015-2030)

Birth of unique Chinese Internet business models (e.g. bike-sharing, payments, live streaming, social commerce, O2O). Increasing media focus on Chinese tech innovation and locals outside of China looking for Chinese models to copy

We are witnessing stage 3 happening right here in Southeast Asia. Below is a Thai post on Facebook looking to recruit staff to work on what looks like a PDD clone:

It doesn’t have to be local talent copying PDD from China to Southeast Asia. With the influx of Alibaba, Tencent and JD into the region, there are plenty of Chinese employees who’ll be noticing the similarities between Southeast Asia today and China, and jump on new opportunities.

2. PDD will enter Indonesia through Go-Jek (helped by common investor Tencent)

If PDD were to follow Alibaba and Tencent’s steps and enter Southeast Asia, we expect them to join forces with Go-Jek. By embedding itself inside Go-Jek, PDD is executing the same game plan that led to its rapid initial growth within the WeChat ecosystem. Fostered by a shared investor — Tencent — Go-Jek would be the perfect launch partner for PDD in Southeast Asia.

3. Existing players will adopt the PDD business model to compete against horizontal ecommerce plays

Local ecommerce players like MatahariMall, Konvy, and Orami could pre-empt PDD by adopting its customer acquisition strategies to compete with regional giants like Lazada and Shopee.

For Konvy and Orami, two female-focused ecommerce platforms, this move could make a lot of sense since the majority of PDD’s users in China are female, over 40 year old, and living in smaller cities.

Play on players.

There are 854 million mobile subscriptions across the region – more phones than people. So does this mean that all businesses should have a mobile app?

Not necessarily. Despite the everyday use of a phone, a mobile app is only suitable for a handful of verticals, like fashion and electronics because of their ‘discovery potential’ and purchase frequency.

Source: Deloitte

A mobile app is also used for proximity marketing or to send out push notifications. For example, a business could target users with ‘location finder’ enabled on their phone, send a message to offer a discount at their nearest offline location, and increase foot traffic offline.

If a business can benefit from a mobile app, below are some pointers to know before building.

Native vs. Hybrid. What’s the main difference?

Native apps are built separately for either iOS or Android devices.

Hybrid apps are built on one framework that can be used for both iOS or Android devices.

Choosing one or the other is vital to a business’s performance depending on its goals. eIQ talks to Mandy Arbilo, Regional Project Manager at aCommerce, Southeast Asia’s leading ecommerce service provider, to find out the key features and differences between native and hybrid apps.

Native Apps

Time to build: 3-4 months per platform (iOS or Android)

Cost: $30,000-35,000 per app

Good if you need: Integration with third party applications such as Google Maps, including payment platforms such as Samsung pay, Android pay or Apple pay. Also recommended if the business requires functions such as store finder or a directory, as they are more accurate when integrated into a native app.

To note: Some brands are building an iOS app first to target the more affluent Apple device users that typically spend 2.5x more on in-app purchases than Android users. But if the aim to reach a wider demographic, building an Android app will be more effective in Southeast Asia.

Source: Deloitte

Native App Advantages

  • Faster, more responsive and reliable user experience than Hybrid
  • Allows push notifications to alert users when attention is needed in the app, this experience cannot be replicated in a Hybrid app.
  • Better integration to leverage device functionality i.e. camera, microphone and swipe functions
  • Native apps work with the mobile device’s built in features, so they are easier to work with and perform better on the device.

Native App Disadvantages

  • Dedicated developer to manage a codebase for each platform because iOS apps will not run on Android and vice versa
  • More expensive to build as brands would have to build two. Costs for maintenance can also be high.
  • Have to submit their app into the App store/Google Play store

Examples of Native apps:

  • Pokemon Go – Mobile game
  • Season – Thailand e-marketplace (mobile only)
  • Pomelo – Fashion brand

Hybrid Apps

Time to build: 3 months

Cost: $30,000 per app

Good if you need: Relatively affordable price to start your business and deploy an app into the hands of more customers as soon as possible. A hybrid is an MVP; a minimum value product and is a good cost-effective solution for brands that would like to target both Android and iOS users but are short on resources.

To note: The best way to explain a hybrid app is that it’s a fusion of a native app and a web app.

Users install a hybrid app like they would with a native, but it is actually a browser bundled inside the app. A hybrid app allows you to add new functionalities to both versions of your app through one codebase.

The process is similar to building a simple, responsive website.

The speed of your hybrid will depend on the user’s internet browser speed whereas native apps are less dependent on internet connection to work.

Hybrid Advantages

  • Development for hybrid apps are often less expensive than native app development
  • Hybrid apps are easier to scale onto another platform such as a Windows Mobile
  • Saves time and money because the one base requires less maintenance but the speed of the app will depend on the user’s internet browser speed

Hybrid Disadvantages

  • Performance is the hybrid app’s biggest setback because hybrid apps load in a browser like function called webview and are therefore only as good as the webview.

The webview is responsible for displaying the UI and running javascript. Google and Apple did not give webview the same engines used by their mobile browsers, Chrome and Safari, and therefore hybrids have not reached the level of a Native app’s performance.

  • The hybrid app needs to be tested on each platform to ensure it is properly responding as it has less access to the device’s functionalities
  • The UX of the app will suffer because the app’s components can not be customized to suit the behaviors of Apple or Android users exclusively.

“By building a hybrid app, you won’t be able to please both camps. Try too hard to customize the app based on the platform and it may end up costing the same as two native apps,” says Mandy.

Examples of Hybrid Apps

However, the following examples show that a hybrid app can be high functioning too (thanks HTML5).

  • Evernote
  • Amazon App Store
  • Uber
  • Instagram

Uber app

The final verdict?

“If you were to build an ecommerce app, or deploy a functionable platform with a decent sized budget, it’s advisable to go with a native application because of its high performance, integration with third party applications such as Google Maps app, and offline capabilities” says Mandy.

For those with smaller budgets, build a hybrid app first to test traction and if it shows potential for scale, dedicate resources into a native app. Facebook did it.

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Here are some of today’s biggest ecommerce news.

1. BlackBerry Messenger reveals its plan to fight back in Indonesia

With help from Emtek, BBM is revamping itself by inserting multiple integrations: ecommerce, entertainment, and consumer service, while still keeping its identity as a chat app. It’s adapting an app-within-an-app model.

BBM will serve as the main social platform for people to purchase items from Bukalapak, reserve plane tickets from Reservasi and more.

Read the rest of the story here

 

2. In China, WeChat wants to kill app stores

WeChat’s newest feature – dubbed “Mini Programs” – allows users to access and utilise an array of apps within the messaging app itself. WeChat parent company Tencent, China’s social media and gaming giant with a valuation of US$239 billion, will be the gatekeeper of these apps.

Read the rest of the story here

3. Singapore ecommerce platform ‘The Fifth Collection’ raises $1.4 million to sell luxury branded goods. 

Calling itself a ‘re-commerce platform’, the money will be used to grow the team and invest in operations, marketing and technology. It also will help finance avenues to help grow sales.

THE FIFTH COLLECTION is a marketplace platform for luxury-goods sellers to upcycle their offerings through a trustworthy platform and for buyers to find high-end products that have been certified and vetted.

Read the rest of the story here

 

Since Pokémon Go’s surge in popularity in the US following the app’s launch this month, many retailers are now looking to seize marketing opportunities while the app is still trending, reports Reuters.

The app looks like it may be set to challenge young internet companies that specialize in increasing foot traffic for small businesses, and may play a role in major brand marketing.

The game, which requires players to walk around real-life neighborhoods to hunt for virtual Pokémon characters on their smartphones, has more than 65 million users in the US after launching in the first week.

The game is already playing a part in boosting foot traffic for restaurants, coffee shops and small retailers.

A pizza bar in Long Island City in New York claims that its sales jumped 75% over the weekend, by activating a lure model feature that attracts virtual Pokémon characters to the store.

The store manager only paid $10 to have a dozen Pokémon characters placed at the location.

This level of instant effect could become a potential threat for companies like Living Social Inc. and Foursquare, and other companies which have revolutionized online marketing for smaller businesses.

People born in the 1980s and 90s  grew up with Pokémon. It’s approachable and reassuring and that’s why it’s gone from zero to millions of users in just a few days.

The app has a chance to disrupt others as there has not been a geo-location social platform that can lure in so many people at once. With Pokémon Go, it is bypassing a lot of the digital marketing channels that brick and mortar shops have been relying on for the past few years.

Pokémon Go users are spending more time in virtual reality than on Facebook, Instagram and Snapchat, according to SimilarWeb.

The thing with overnight hype is that it can eventually fizzle out. Retailers should capitalize the Pokémon Go trend before it becomes a phase that nostalgic adults claim they played for a month or so.

A version of this appeared in Reuters on July 13. Read the full version here.

Alibaba Buys Android App Store Wandoujia

Wandoujia is the Chinese equivalent of an Android iTunes Store. Source: Wandoujia.com

In what seems to be a very busy few weeks for Alibaba, the company made headlines once more for acquiring ‘Wandoujia’, one of China’s most prominent app stores, reported by Tech Crunch.

Media speculated that the deal was worth approximately $200 million. Although a significant amount, it seems small when compared to Baidu’s $1.9 billion acquisition of Android app store 91 Wireless in 2013, which claims its position as China’s top android app store.

In 2014, Wandoujia was valued at $1 billion, but the company has since faced increasing competition from 91 Wireless and Qihoo 360. Reports of internal conflict within the company contributed to its shortcomings and development over the past two years.

Wandoujia's homepage on internet explorer

Wandoujia’s homepage on internet explorer

Wandoujia is currently the fifth largest app store in China, claiming 6% of marketshare.

The site offers mobile based content and products beyond apps. The acquisition means that Wandoujia will become an integral part of Alibaba’s mobile division, which includes browser-maker UC Web. With the company’s resources, the app store will have the chance to be a key distribution platform to engage Chinese consumers through mobile.

Independent app stores have flourished in China thanks to the blockage of Google services.

Google’s search engine and the Play Store is not available in China. The missing gap means that a lot of independent local companies can infiltrate a less dominated market. It also means that these companies have become the point of contact for international developers or startups whose eyes are on entering China.

A version of this article was published in Tech Crunch on July 7. Read the full version here.