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When Pinduoduo, the Chinese low cost purchasing 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 mixture of a recreation arcade, a shopping center and a social community. Its primary promoting level was decrease costs for buyers who recruited different patrons to make group purchases. Customers might move the time by taking part in video video games or earn cash by logging in day by day to browse the app.
Now, nobody is taking the corporate evenly.
Pinduoduo is the sister firm of Temu, the discount purchasing app that has amassed tens of thousands and thousands of customers exterior China, together with within the United States, the place it’s spending billions of {dollars} on promotion. Americans who haven’t used Temu but have in all probability seen its Super Bowl adverts or Instagram posts.
Like TikTok, Temu is the international model of a extremely profitable Chinese firm. As its recognition has grown within the United States, 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 can be made in China utilizing pressured 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 well-liked vacation spot for cheap groceries and home items, 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.
Last month, PDD Holdings, the guardian 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 firm referred to as the consequence a “pivotal chapter” in its historical past.
Pinduoduo has efficiently capitalized on one in every of China’s greatest financial challenges: sluggish client spending and falling costs for meals and different objects. As the nation’s development 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 fast development over the previous a long time had instilled confidence that an increasing center class would proceed to flex its newfound wealth with lavish spending.
Around that point, Alibaba opened a series of supermarkets, promoting king crab legs, 30-year-old single malt Scotch whisky and different luxurious objects. JD began an e-commerce portal referred to as Toplife for premium manufacturers.
“The greatest mistake on the time was this perception that China had change into stuffed with middle-class customers, and that it could simply go up and up into the longer term,” stated Robert Wu, editor of the Baiguan e-newsletter, which is targeted 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 making an attempt to fulfill not simply China’s nouveau riche but additionally folks exterior of “Beijing’s fifth ring,” a colloquialism for financially struggling individuals who stay 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 provided 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. Within 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.
Shoppers on Pinduoduo deal instantly with suppliers, farmers and producers to get low costs. The firm retains its charges to customers and sellers low, and has prevented heavy investments by outsourcing its logistics to different firms. Mr. Huang as soon as stated he wished Pinduoduo to be like Facebook for purchasing, 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. Every e-commerce app options stay purchasing with influencers testing new merchandise and responding to person questions. Some of China’s greatest social networks are purchasing locations. These embrace 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 value per field is lower in half if one other individual joins to make a “staff buy.” A dozen rolls of five-ply rest room paper price 80 cents. Both are delivered free.
In its early days, Pinduoduo was overrun with knockoffs. It took aggressive steps to handle the problem. Buyers 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 teacher in Beijing, stated she was a loyal Pinduoduo shopper for day by day objects equivalent to fruit, greens, rice and yogurt. She will get even greater reductions by paying for a $1.50 month-to-month membership.
Ms. Wang stated she cherished the low costs, free transport and beneficiant return coverage. There was once extra reductions, she stated, however she is going to proceed to buy there as a result of “its stuff remains to be low cost.”
For sellers, the massive visitors to the app is the draw. Marcus Ding, normal manager of a sporting items firm, stated he made extra money on Pinduoduo due to its decrease vendor charges. But 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. Last 12 months, about two-thirds of its income got here from sellers paying for product listings to look prominently.
The promoting mannequin was most 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 trade, Mr. Huang, who left Pinduoduo in 2021 however stays its greatest shareholder, began a letter by declaring that “Pinduoduo isn’t a standard firm.” Fourteen years earlier, Larry Page and Sergey Brin, Google’s founders, famously opened their I.P.O. letter in the identical means.
Google declared that one in every of its rules was “Don’t be evil.” Mr. Huang echoed that sentiment, too. “We might not all the time be understood, however we all the time do issues out of fine will and do no evil,” he wrote.
Such statements of altruism run at odds with among the firm’s techniques, critics say. Last 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 among the most downloaded apps within the United States and increasing into dozens of different international locations.
Temu doesn’t promote groceries, specializing in garments, magnificence merchandise and devices. Much like Pinduoduo’s clients in China, Temu’s buyers purchase merchandise instantly from producers and distributors. It might be 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 the United States and $9 to $10 per order for shipments to Europe and Australia, in response to Robin Zhu, a Chinese web analyst at Bernstein Research.
Last month, Chen Lei, PDD Holdings’ co-chief govt and chairman, advised analysts that Temu’s international growth was at an early stage with many uncertainties. But it’s working off a lesson from China: Consumers all the time need extra financial savings.
