Month: February 2019

Tencent and others have tried to challenge Alibaba’s dominance in e-commerce for years. From its investment in JD.com to Meilishuo and Pinduoduo, Tencent has helped an array of companies, giving them “special entrances” on its most powerful app WeChat, while blocking links from Alibaba (e.g. Taobao links).

Tencent’s series of efforts also represents shifts or new forms for e-commerce, at least in China.

Core/Basic Form: Alibaba (Taobao, Tmall), JD – trying to be the everything’s store, the go-to place for shopping

Although they have different business models (record commissions as revenues, record products as inventories and therefore net prices as revenues), they all trying to be the first website that consumers will think of when they want to buy something.

Tencent investments in and supports to JD.com is the direct competition with Alibaba, with some differentiating factors such as specialization in appliances (more quality control, logistics, procurement focus, not just a marketplace to connect buyers and sellers)

When these existing platform is good enough, where are the new opportunities?

Efforts I: To Sell Experiences/Appearances (Influencers)

The idea behind Tencent’s backing for Meilishuo. Mogujie and Meilishuo joined forces together in early 2016, giving them a bigger presence. Mogujie went IPO in December 2018, raising $66.5 million.

But that was only the idea. Selling & buying products is still the main format of user interactions. The difference with the Core/Basic Form is that they list products with prettier models & pics, and with videos/live streaming.

Meanwhile, Xiaohongshu is better at letting users generate authentic experiences and become influencers.

After all, Mogu is where consumers could buy fashion & skincare products with fancy demonstration (my understanding). And Xiaohongshu’s position is where users could share their life/day.

Alibaba led the $300m Series D in Xiaohongshu last May, at ~$3 billion valuation.

With Xiaohongshu’s emphasis on user’s journal/blog (e.g. travel and others, not directly relevant to selling products), it is also more like a social app, for users to build their reputation/followers (and social is where Alibaba is trying to compete with Tencent).

You can’t find an “influencer” on Mogu that is not trying to sell a thing; but many users on Xiaohongshu are not selling anything, while writing their stories, commenting and interacting with other bloggers/influencers.

Effort II: Buying Together, Leveraging Existing Social Network

Tencent’s WeChat has tried to push for the use cases of its Mini-program within WeChat. Pinduoduo might be the most successful one.

By incentivizing users to share with their friends and buy together (at extremely low product prices), Pinduoduo has grown its sales rapidly, currently having a $30+ billion market cap.

Making users as their marketing tools sounds a brilliant idea and is indeed very unique to Tencent. No one else could help to build such a big enterprise within a short period of time. (Alibaba has similarly powerful app such as Alipay but not social – can’t make users part of its marketing)

Plus, through this social marketing strategy, plus the low pricing, Pinduoduo could reach out to the rest of Chinese consumers who use smartphones but not served by existing platforms.

It might be the first time that Tencent could generate revenue on many of its WeChat users.

Effort III: Ads

This is more like what Facebook is doing. Tencent is adding new features and more ads to the Moment feature in WeChat, and also in the Public Accounts’ Feed feature.

While WeChat not directly doing e-commerce, it is leveraging the time users spend on the app to be part of the overall e-commerce economy.

In the time of rising consumer acquisition costs (see a previous post/podcast by a16z on consumer goods), it is becoming a vital part of the overall e-commerce.

Taobao is powerful but probably should not be the first word to describe Chinese retailing and consumers’ choices.

T-mall and JD might be considered as the second generation e-commerce in China, where branded goods are sold.

With the rise of Chinese middle class and their disposable incomes, retailers found that they are willing to pay a little extra to get a sense of some kinds of “premium”.

So there arises a wave of e-commerce efforts that are selective about their offerings, in terms of quality and design. Meanwhile, some marketplace will emphasize on their own brand (website/marketplace), instead of the brands of the products – somewhat similar to “AmazonBasics” but more correctly “AmazonPremium”.

Yanxuan (网易严选), by NetEase (NASDAQ: NTES), might be the most successful one.

It started with products made by original manufacturers who supply to top international brands, hitting consumers’ sweet spot in price and quality.

Xiaomi has a similar strategy but featuring more of its own products or affiliated products. on Xiaomi Youpin (小米有品), independent of its core Mi Store (小米商城).

Alibaba has its response under Taobao’s name called Taobao Xinxuan (淘宝心选), making Xinxuan its own brand.

Updated

• From NetEase 2018 Q4 earnings report, we could see its E-commerce net revenues were RMB6,678.7 million (US$971.4 million), an increase of 43.5%
  compared with the fourth quarter of 2017. (Its e-commerce revenue includes Yanxuan and Kaola)
• 2018 full year net revenues from e-commerce were RMB19,235.5 million (US$2,797.7 million), an increase of 64.8% compared to RMB11,670.4 million for fiscal year 2017.
• And Amazon is in talks to merge its China business with NetEase‘s e-commerce site Kaola, ranked as the No.1 cross-border import retail e-commerce platform in China.
• The new e-commerce unit will be as important as gaming to NetEase, with 3 sub-teams: Yanxuan, Kaola and Amazon China. The latter two might combine into one team.
• And Yanxuan has opened it first offline store in Hangzhou last December