When Pinduoduo, the Chinese language low cost buying app, debuted almost a decade in the past, the tech giants Alibaba and JD.com dominated China’s e-commerce enterprise.
Pinduoduo felt extra like a gimmick than a future rival. It was a mix of a recreation arcade, a shopping center and a social community. Its primary promoting level was decrease costs for customers who recruited different patrons to make group purchases. Prospects may move the time by enjoying video video games or earn cash by logging in each day to browse the app.
Now, nobody is taking the corporate evenly.
Pinduoduo is the sister firm of Temu, the discount buying app that has amassed tens of tens of millions of customers exterior China, together with in america, the place it’s spending billions of {dollars} on promotion. People who haven’t used Temu but have in all probability seen its Tremendous Bowl adverts or Instagram posts.
Like TikTok, Temu is the overseas model of a extremely profitable Chinese language firm. As its recognition has grown in america, its enterprise practices have additionally come beneath scrutiny. Members of Congress have questioned whether or not it’s offering a U.S. channel for merchandise which are made in China utilizing compelled labor. It has encountered criticism for its labor practices and failure to implement mental property legal guidelines.
Inside China, Pinduoduo has additionally been gaining extra consideration. As a preferred vacation spot for cheap groceries and home goods, it’s now closing in on JD, China’s second-biggest on-line retailer, when it comes to market share. And when it briefly overtook Alibaba because the nation’s most dear e-commerce agency final 12 months, Alibaba’s founder, Jack Ma, despatched an inner memo imploring his firm to “change and adapt” to maintain up.
Final month, PDD Holdings, the mum or dad firm of Pinduoduo and Temu, reported that its annual income almost doubled in 2023, whereas Alibaba’s and JD’s income grew lower than 10 p.c. The corporate known as the consequence a “pivotal chapter” in its historical past.
Pinduoduo has efficiently capitalized on one in all China’s greatest financial challenges: sluggish client spending and falling costs for meals and different gadgets. Because the nation’s progress has slowed, customers are embracing a way of life of so-called downgraded spending centered on Pinduoduo purchases.
It was completely different when Pinduoduo emerged in 2015. China’s speedy progress over the previous a long time had instilled confidence that an increasing center class would proceed to flex its newfound wealth with lavish spending.
Round that point, Alibaba opened a series of supermarkets, promoting king crab legs, 30-year-old single malt Scotch whisky and different luxurious gadgets. JD began an e-commerce portal known as Toplife for premium manufacturers.
“The most important mistake on the time was this perception that China had turn into stuffed with middle-class customers, and that it could simply go up and up into the long run,” stated Robert Wu, editor of the Baiguan e-newsletter, which is concentrated on funding and enterprise in China.
In a 2018 interview, Pinduoduo’s founder, Colin Huang, who’s now China’s second-richest individual, stated it was attempting to fulfill not simply China’s nouveau riche but in addition folks exterior of “Beijing’s fifth ring,” a colloquialism for financially struggling individuals who dwell removed from China’s primary cities.
Pinduoduo, which didn’t reply to requests for remark, grew by phrase of mouth as a result of it supplied steep reductions. Sharing the bargains on-line was straightforward as a result of Pinduoduo was deeply intertwined with Tencent’s WeChat, a ubiquitous messaging service in China. Inside one 12 months, Pinduoduo had 100 million customers. After 5 years, it surpassed Alibaba with 788 million customers.
In a 2023 report, Goldman Sachs estimated that Pinduoduo accounted for 19 p.c of China’s e-commerce market by worth of merchandise offered, in contrast with 20 p.c for JD and 41 p.c for Alibaba.
Consumers on Pinduoduo deal immediately with suppliers, farmers and producers to get low costs. The corporate retains its charges to customers and sellers low, and has averted heavy investments by outsourcing its logistics to different firms. Mr. Huang as soon as stated he wished Pinduoduo to be like Fb for buying, a vacation spot the place folks gathered with out essentially intending to buy.
After Pinduoduo’s success, social commerce is now the norm in China. Each e-commerce app options dwell buying with influencers testing new merchandise and responding to consumer questions. A few of China’s greatest social networks are buying locations. These embody Xiaohongshu, the nation’s model of Instagram, and Douyin, the app owned by ByteDance, which runs TikTok exterior China.
The primary attraction of Pinduoduo is its shockingly low costs. A 5.5-pound field of cherry tomatoes prices about $4.50, however the worth per field is lower in half if one other individual joins to make a “workforce buy.” A dozen rolls of five-ply bathroom paper price 80 cents. Each are delivered free.
In its early days, Pinduoduo was overrun with knockoffs. It took aggressive steps to handle the problem. Patrons who obtain counterfeit items are eligible for a refund of as much as 10 occasions their cash from the vendor. Sellers present a refund with no questions requested if a buyer is dissatisfied with a purchase order.
Rainbow Wang, an English instructor in Beijing, stated she was a faithful Pinduoduo shopper for each day gadgets similar to fruit, greens, rice and yogurt. She will get even larger reductions by paying for a $1.50 month-to-month membership.
Ms. Wang stated she beloved the low costs, free delivery and beneficiant return coverage. There was extra reductions, she stated, however she’s going to proceed to buy there as a result of “its stuff remains to be low-cost.”
For sellers, the large site visitors to the app is the draw. Marcus Ding, normal supervisor of a sporting items firm, stated he made extra money on Pinduoduo due to its decrease vendor charges. However a few fifth of the income he generates on Pinduoduo goes again into selling his merchandise on the platform. Pinduoduo makes most of its cash from promoting on the location. Final 12 months, about two-thirds of its income got here from sellers paying for product listings to look prominently.
The promoting mannequin was almost definitely influenced by Google, the place Mr. Huang labored as an engineer from 2004 to 2007. Pinduoduo’s adverts are offered utilizing a Google-like public sale system to bid on key phrases.
There are different indicators of Google’s affect.
In a 2018 submitting for an preliminary public providing on the Nasdaq change, Mr. Huang, who left Pinduoduo in 2021 however stays its greatest shareholder, began a letter by declaring that “Pinduoduo isn’t a traditional firm.” Fourteen years earlier, Larry Web page and Sergey Brin, Google’s founders, famously opened their I.P.O. letter in the identical manner.
Google declared that one in all its ideas was “Don’t be evil.” Mr. Huang echoed that sentiment, too. “We could not at all times be understood, however we at all times do issues out of excellent will and do no evil,” he wrote.
Such statements of altruism run at odds with among the firm’s techniques, critics say. Final 12 months, the Google Play retailer suspended Pinduoduo’s app exterior China after cybersecurity specialists discovered that it was laced with malware. And Pinduoduo is prone to face extra scrutiny due to Temu’s success. It is likely one of the most downloaded apps in america and increasing into dozens of different international locations.
Temu doesn’t promote groceries, specializing in garments, magnificence merchandise and devices. Very similar to Pinduoduo’s prospects in China, Temu’s customers purchase merchandise immediately from producers and distributors. It’s in all probability shedding cash on most orders due to its low costs.
With most of Temu’s merchandise originating in China, it prices an estimated $11 per order to ship merchandise to america and $9 to $10 per order for shipments to Europe and Australia, in response to Robin Zhu, a Chinese language web analyst at Bernstein Analysis.
Final month, Chen Lei, PDD Holdings’ co-chief govt and chairman, advised analysts that Temu’s world enlargement was at an early stage with many uncertainties. However it’s working off a lesson from China: Customers at all times need extra financial savings.
