The character of a person determines the fate of a city, and the character of a city determines the fate of a city. Shanghai is not, as many people say, genes are not suitable for the Internet. It's just that Shanghai's advantage is not that it depicts a grand future with PPT in a chaotic industry. However, when the industrial bubble receded, development shifted from quantitative growth to quality improvement, and competition from expansion to internal strength, the market returned to the pace familiar to Shanghai.

1. The new wave of Huangpu River

The air has passed, but some have just taken off.

On December 2, 2019, the Ministry of Industry and Information Technology recently released the “Operation of the Internet and Related Service Industries from January to October 2019”, showing that in the first 10 months of this year, Shanghai's Internet revenue led the East with a year-on-year increase of 37.1%. Considering the current second half of the Internet economy, where traffic dividends are exhausted, the scale growth model has failed, and the cumulative revenue of Shanghai's Internet business has been ranked second in the country for a long time, this rate of growth is indeed invaluable.

Needless to say, in the past, although the scale and pace of development of the Shanghai Internet industry was fair, it has always kept pace with the development of mobile Internet. However, in the last year or two, emerging forces along the Huangpu River, such as Pinduoduo, Bilibili, and Xiaohongshu, have quickly come to prominence, drastically changing the industry landscape.

Take Pinduoduo, the “leader” of the Shanghai Internet, as an example. After a year of being undermined, targeted, and imitated, Pinduoduo is still making great strides. The financial report for the third quarter of 2019 shows that as of September 30, 2019, Pinduoduo had achieved revenue of 7513.9 billion yuan, an increase of 123% over the same period last year, with an average monthly active user count of 429.6 million and annual active buyers of 53.63 million. The net increase of 1508 million over the same period last year, a sharp increase of 53.1 million over the previous quarter, the biggest quarterly increase since listing. Pinduoduo's success has made market sinking and social fission a new outlet. An investor once said, “Now Pinduoduo is the benchmark (benchmark point) in the minds of all WeChat e-commerce entrepreneurs.”

Shanghai's emerging Internet companies, led by Pinduoduo, firmly occupy a central position on the topic of China's new economy, making people feel compelled to reunderstand Shanghai under the spotlight. Why did Shanghai suddenly “get the hang of it” in the latter half of the Internet economy?

2. Pinduoduo: Beyond the Fifth Ring Road

Unlike traditional markets, because the Chinese Internet has a huge consumer population and rapidly increasing penetration rate, startups tend to focus on large scale and efficiency, reburn money to acquire customers over improve services, but since 2016, e-commerce platform traffic dividends have continued to decline. According to financial estimates, in 2018, Ali's customer acquisition cost was as high as 390 yuan, more than double that of 2015.

The cost of customer acquisition has soared. Coupled with the arrival of a cold winter of capital, burning money in exchange for beautiful growth has become a loss-making business. Long before radishes and collecting explosions, many investors already believed that the e-commerce industry pattern had solidified and no longer had investment value.

This assertion is exactly like Kelvin's opinion a hundred years ago that “the physics building has already been completed; future scientists only need to repair the corners.” However, at the point in time that Wang Xing proposed the second half of the Internet theory in 2016, e-commerce also had two areas overlooked by giants, namely the declining market “outside the Five Rings” and the rise of “Gen Z” consumers.

In 2016, the popularity of “1,000 yuan smart phones” brought a group of users who had never been exposed to the Internet into the Internet era. Naturally, this new Internet population also attracted the attention of the e-commerce industry: rural mobile phone netizens accounted for 25% of the country, but the number of mobile shoppers was less than 10% of the country, and there was a huge blue ocean. And Pinduoduo was one of the first navigators in this blue ocean.

Investors later recalled that in 2015, Pinduoduo's Huang Zheng was the first entrepreneur to start talking about WeChat traffic dividends and the first person to mention “new e-commerce.”

New residents of the Internet world, regardless of their mentality, mentality, and level of familiarity with the Internet, are markedly different from those of the Internet generation with network cables in their heads. A significant percentage of them will and will only use WeChat: many have experienced the industrial upgrading of communication with their parents from SMS to WeChat, and are surprised that their parents use emojis more than themselves.

Compared with the long shopping process of traditional shelf-style e-commerce, the social group shopping model does not require you to download and register for different apps, bind to payment accounts, compare products horizontally, and discuss pros and cons with friends in forums. You only need to click on links recommended by acquaintances to measure whether such prices are worth buying, and then use WeChat to pay directly.

The simplified shopping process brings about a shorter shopping decision chain and more concentrated demand: “Let's cut me if it's a brother” is not only a marketing method for social fission, but also a gathering of discrete demand, creating a local scale effect. As countless people with the same needs “get on the bus,” the number of orders purchased at one time expands to the point where it can directly connect with upstream producers.

The upstream and downstream distribution processes have been eliminated, and “no middleman makes a difference in price” has been achieved, giving Pinduoduo an obvious and sustainable price advantage. This is a huge temptation for consumers in a sinking market that does not have strong economic strength and focus on cost performance. Even people outside the 5th Ring Road, few people can resist the 9.9 yuan phone case, 59 yuan thermal underwear, and 299 yuan down jacket. In the 12-month period up to September 30, 2019, Pinduoduo's GMV reached 840.2 billion yuan, and the annual GMV went straight to trillion yuan. At this point, it was only four years since Pinduoduo was founded.

Moreover, in Shanghai, it is not just Pinduoduo that has caught the increase in new crowds.

3. Seize Gen Z

Compared to traditional consumers, Gen Z, born in 95-09, certainly likes cheap and good-quality products, but at the same time, they are also 'performance preferences', a group of people willing to pay for new products and experiences. They grew up with mobile devices, so they don't care about traditional advertising and marketing. Instead, they prefer to use various apps such as short videos, live streaming, and social media as shopping channels.

Compared to traditional domestic e-commerce shopping, Xiaohongshu, which was born in 2013, took the lead in capturing young people's pursuit of high-quality goods from around the world. It started with the “Xiaohongshu Outbound Shopping Strategy” and then quickly became a sharing community gathering UGC shopping strategies. In the subsequent transformation, Xiaohongshu has been strengthening its community attributes. According to the latest statement, Xiaohongshu is already “a lifestyle platform”, and its “planting economy” gameplay has won the favor of young people. Up to now, Xiaohongshu has more than 300 million registered users and more than 100 million monthly active users. Over 70% of these are post-90s users.

Gen Z users not only have very different traditional consumption channels, but are also different from their predecessors in terms of spiritual needs. Since they live in the era of decentralized online communication, they have more hobbies and pay more attention to self-expression and expression. Gen Z users are generally more “home” in the eyes of outsiders, but they have a strong desire for expression in “small circles” with the same interests. Even if they follow dramas and comics, they don't stop watching, but prefer to discuss while watching, and are passionate about deconstructing, editing, and re-creating native works, creating a unique subculture such as “ghosts.”

In the past few years, bilibili has become the representative of new human websites. Its “barrage” function is more suitable for “complaints”. It accurately hits the “Gen Z” demand to express their self-worth while watching videos, so it has a higher audience stickiness. Even many times, after watching TV series on other video sites, users have to go to Station B to watch banners and secondary creative videos.

As the number of non-anime users gradually increased, Bilibili began to intentionally add other content, launch different, personalized video display pages for users with different interests, and continuously introduce other producers of high-quality video content to begin pan-entertainment operations.

As of the third quarter of 2019, the MAU of Station B reached 128 million, a year-on-year growth rate of 38.0%, the number of monthly video uploads reached 3.1 million, an increase of 81% over the previous year, and the number of monthly active subscribers reached 1.1 million, an increase of 92% over the previous year.

Even people who are unfamiliar with the new economy can easily find common ground between Station B and Xiaohongshu. They all cater to the individual needs of Gen Z and have formed a unique business model. Compared to that, Pinduoduo's route that sinks beyond the 5th Ring Road is somewhat earthy. The two are cutting-edge fashion on the one hand and the countryside surrounding the city on the other.

But does Pinduoduo really have no “personality”?

4. The second half of the Internet: “personality” is “commonality”

Admittedly, Gen Z is a generation with rich personalities, but this does not mean that the original population did not have their own consumption views and consumption preferences. Simply because information technology is underdeveloped, and in the past, the market was dominated by sellers who were in short supply, consumers could only passively accept manufacturers' production decisions. At most, they only chose the products they liked in a rich shelf-style product presentation, which is also called “people looking for goods.”

Under this business logic, although consumers have the freedom to choose and vote with their feet, they must also spend a lot of time and effort searching for products they like. Furthermore, manufacturers tend to mass-produce when considering costs, so a large number of products of the same type often flood the market, and the individual needs of consumers are naturally erased.

However, after the Internet entered the second half, there was a new consumer trend and oversupply. After the basic needs of the original consumers were satisfied, personalized needs began to dominate. Although Pinduoduo's target customers are not “personalized people” in our everyday context, they have satisfied the “individual needs” of consumers.

Compared to traditional “shelf-style e-commerce,” Pinduoduo places more emphasis on “putting people at the center,” and on the contrary, “goods looking for people.” In the early stages of a group, “help slash a knife” has a strong social recommendation attribute. In order to improve the success rate of the group, consumers of course prefer to recommend “acquaintances” who they think have this need, and then let the acquaintances make their own decisions about whether to buy them. This completes the initial level of “finding goods and people.”

Based on the social recommendation business model, Pinduoduo has further explored the implementation of distributed AI. Traditional Internet platforms are more likely to use “centralized AI”, that is, gather all data, find a certain pattern from the data through algorithms, and serve individual consumers. However, with the rise of mobile internet and social networks, consumers' time is presented in a fragmented situation, and interest has become more random. Therefore, in this scenario, through distributed AI technology, each individual user is equipped with specially signed AI algorithms and computing resources, which will become a trend, and the entire data decision control logic will be restructured.

This distributed AI can help people use segmented consumer groups to learn from each other in a more convenient way, reduce decision costs, and improve transaction efficiency.

Further, this distributed AI can reverse optimize production methods and achieve C2M. The traditional e-commerce chain is generally “production - > brand - > channel - > logistics - > consumer”, while Pinduoduo's reverse C2M customization is centered on consumer needs. After understanding consumer needs, it is then fed back to the manufacturer through the platform. The chain is “consumer - > production - > logistics - > consumer”, which achieves accurate customization according to demand, reduces the risk of inventory loss caused by slow sales of products after entering the market. Moreover, there are no intermediate links or layers of consumption. From the production end to the consumer, this has also become the key to achieving the lowest prices for most Pinduoduo products The reason.

Although the target groups are different, Pinduoduo, like Xiaohongshu and Meituan Dianping, is “consumer-centered,” emphasizes the true feelings of individuals, and focuses on meeting the individual needs of consumers, and has embarked on a path of differentiation in the development of the Internet in Shanghai and the whole country.

5. The flywheel effect of the Mordu Internet

The character of a person determines the fate of a person, and the character of a city determines the fate of a city. Under the new wave of consumption, it is certainly no accident that companies such as Pinduoduo, Xiaohongshu, and Meituan are piling up in Shanghai.

As the retail capital of China, Shanghai is a trendsetter in the Chinese consumer sector. It has the broadest market and the most advanced consumption concept, as well as the most stringent consumers who pay the most. Therefore, the concept of being consumer-centered and meeting user needs is rooted in the core of Shanghai enterprises. It is naturally sensitive to changes in consumer trends and is good at discovering new needs.

At the same time, the spirit of Shanghai is also inclusive and open. It is good at accepting new things, has an innovation-oriented business environment and strong financial resources, and can support Internet enterprises in the new economy to test new models and explore unknown economic fields. This kind of support has now been rewarded with generous rewards. Now, Pinduoduo has innovated their own unique business models and carried forward the consumer-centered concept in Shanghai.

However, this isn't the end of the story.

The wave has not stopped. New consumption is still developing in depth. Bilibili has launched its own pan-entertainment strategy, and Pinduoduo is still promoting the construction of a “Duoduo Orchard” and a “new brand plan”. Emerging forces have placed higher demands on technology and the industrial chain based on their own needs, promoting the further development of Shanghai's high-tech industry, and even driving supply-side reforms.

At the same time, the development of industry and technology has also made the business environment in Shanghai more optimized. Not only are more innovative enterprises being born here, but more and more Internet giants from outside the mainland have also settled in Shanghai. Alibaba, Tencent, Baidu, Huawei, Xiaomi, Shangtang, etc. are pouring in, and Amazon, Microsoft, Apple, etc. have also set up R & D function institutions in Shanghai.

It is conceivable that along with the “landing in Shanghai” of veterans and up-and-comers of the Internet, it will also further consolidate Shanghai's development advantages and form a “flywheel effect,” allowing Shanghai to continue to accelerate the development path of the Internet industry and embark on a brighter future.

Authors: Qian Hao, Mi Zixu