On December 20, at the 10th anniversary of the Geek Park Innovation Conference, Zhang Peng, founder of Geek Park, Li Xiang, the editor-in-chief of Get App, and a few old friends, worked together to review the “Internet of Technology” of the previous decade. During the Spring Festival, Geek Park will release the reviews of these companies one after another here to review with you the companies that have had a significant impact on the entire industry and even society as a whole — trying to go back to the truth in the story and see the rules and science, methodology, and worldview behind the results.

The sinking market is neither the starting point of Pinduoduo nor the end of Pinduoduo.

Today's post is the second in the Frontier Thinking Forum series. What I want to talk about is related”Pinduoduo”'s replay.

When it comes to Pinduoduo, one word that cannot be avoided is “sinking market,” but if Pinduoduo's success is only attributed to its capture of the sinking market, it is clearly biased. In my opinion and Li Xiang, the sinking market is neither the starting point of Pinduoduo, nor the end of Pinduoduo. What is the truth about its growth? I'm sure today's article will inspire you.

E-commerce scenario transformation

Huang Zheng, the founder of Pinduoduo, is a serial entrepreneur. The real starting point of Pinduoduo is Pinduoduo, founded by Huang Zheng in 2015.

Putting together good goods is also e-commerce. At the time, because of Taobao,JingdongAs for the popularity of e-commerce, e-commerce is already very developed, but there is one category that has not been covered very well by e-commerce, that is, fresh food. What is done to sell good goods is fruit e-commerce. The target is not a sinking market, but the real urban population.

Putting together the goods goes directly to the production area and cooperates with the fruit farmers, and uses a group model, so the fruit on the goods is particularly cheap. One boxapplesThat's about ten yuan.

The question is, Huang Zheng's last entrepreneurial project was a game. Why did he start an e-commerce group for agricultural products? The origin of his thoughts at the time actually came from the huge new opportunities brought about by the rise of WeChat.

In 2015, WeChat had 700 million monthly active users. Huang Zheng saw that 700 million users is a huge new traffic pool.

Back then,AliIt has developed so well with JD. Some people say they want to build a new e-commerce platform, and people will definitely say that he is crazy. In fact, Huang Zheng didn't expect to build a platform at the time. His idea of assembling good products was very simple: the fresh product category was not covered, and WeChat also had a huge traffic pool. There might be a different, more efficient way to play here, and he wanted to try it out. After trying it out, I actually tried a different way to play.

The Merchandising Team was interviewed and said, “If users work hard, they will get used to it.” What does that mean? Some users probably like to eat durians. They often buy them in groups on the best products, and they get to know each other after a hard time. This means that while trying to sell good products, Huang Zheng discovered that in the WeChat social scene, the way e-commerce is played is changing. Unwittingly, they have stepped on a critical point of change in the e-commerce scene. What exactly are the changes in this scene?

Remember, what are the steps to go to Ali or JD to buy something? Open the app, enter what you want to buy in the search box, and select the appropriate item from the results. Simply put, it's a product search engine.

In the “ancient times” of the Chinese Internet, that is, before 2008, people bought things by going to Baidu, searching directly for Taobao or excellent products, and then going to e-commerce websites to place orders. A major change occurred in September 2008, when Taobao officially blocked people fromBaiduThe search link.

You may be curious, Baidu can divert traffic to Taobao, why is it disconnected? First, many channels are not free. Second, if users are used to searching for products on search engines and going to e-commerce to place orders, then e-commerce platforms are only the back end of shelves and distribution.

Being separated from user demand by search engines is dangerous. What should Baidu do about e-commerce? Baidu doesn't do e-commerce, and you don't stand out in the back end. Taobao realized the potential risks — not become a shelf, connect directly with users, and have its own traffic.

As a result, Taobao immediately took the opportunity and cut off its connection with Baidu. This choice is correct. It has made Taobao the world's largest product search engine and the “all-rounder Taobao” today.

When we went to Taobao to search for things, it became Taobao traffic. Taobao no longer needs to pay a higher cost to get traffic from outside. Structurally, it avoids the risk of being “cut off” by search engines.

All of these are e-commerce scenarios from the previous era, called “e-commerce in the search scenario.” The characteristic is that users always have clear goals, search for products on the platform, and compare prices and make choices.

However, when Huang Zheng tried e-commerce using social attributes on WeChat, a communication platform called WeChat, he discovered that there was a social e-commerce scenario, and this scene was not the same as the e-commerce search scenario.

What is the process for us to buy things in a social setting today? Family and friends, the WeChat conversation will give you a link. Maybe you have a bad group, or maybe you never thought about this product before sharing the offer. Your social relationships helped you determine your purchasing needs.

As you can see, shopping and social networking are becoming linked. In the social scene, buying is no longer a search process that determines requirements, but rather an act that is stimulated in the sharing and recommendation process.

Obviously, this is completely different from the purchasing and conversion mechanism of e-commerce in the search scenario. This is a change in the environment, just like Teacher Li Xiang is analyzingXiaomiAs I said at the time, changes in the environment will bring new opportunities.

In this opportunity, in addition to the new gameplay brought about by scene changes, it is more efficient. There was also an even bigger dividend at the time. That is, WeChat is a new social scene where traditional e-commerce giants are not involved.

After the rise of WeChat, Ali also feared that it would become a shelf. Following its approach to search engines at the time, it actively disconnected from WeChat. Everyone knows that sharing Taobao links on WeChat is very troublesome.

Although JD entered the WeChat platform in 2014, it's just another mobile page. Essentially, it's still a search scenario mentality. Using WeChat traffic, there are no new ways to play. At this point, we saw that a new continent is emerging on the e-commerce planet: it stems from WeChat, a new traffic pool. Because of the involvement of social relationships, e-commerce purchasing mechanisms are also different, and even, this mechanism is likely to bring higher efficiency. What's more critical is that it is still one step away from the existing e-commerce giants”Atlantique”.

Huang Zheng's search for good goods was to go to India to make some money. He accidentally discovered a new continent in America. This new continent is e-commerce in the social scene.

A new balance between supply and demand

After a few months of collecting goods, Huang Zheng started a different e-commerce called Pinduoduo.

To sell good products, we do fruit e-commerce, B2C model, targeting urban people. Pinduoduo has a different style. It sells not only fruit, but also more daily necessities. The users are not just urban people, but the core is the same, that is, it is super cheap.

In a year, Pinduoduo has reached 60 million users, and Pinduoduo has gained 100 million users a year. In September 2016, Huang Zheng merged the two. Said it was a merger; in fact, he shut down the fight for good goods and fully invested in Pinduoduo. This was an important turning point. Why did Huang Zheng do this?

Back then, 700 million WeChat users and 300 million e-commerce users, where were the 400 million users that didn't match? These are users from the third, fourth, and fifth tier, what we call a “sinking market.” Obviously, Huang Zheng thought that the starting point of e-commerce was not a sinking market, but a sinking market gave him greater opportunities.

At the time, these 400 million users were already using WeChat. This shows that they are already connected to the mobile Internet, and WeChat red envelopes have also cultivated payment habits; e-commerce development has gradually improved the logistics system. Essentially, these users are already in an “e-commerce ready” state.

In fact, no one is involved in such a huge e-commerce Ready crowd, so turning off the e-commerce market and focusing on Pinduoduo is reflected in Huang Zheng's insight — in the new e-commerce continent, there are not only opportunities to segment categories, but also great opportunities to establish new e-commerce platforms.

However, it is not that easy to activate this huge market. These new users already have WeChat and are in an “e-commerce ready” status, but at the time they did not match products that were low enough for these users. After all, even though these new users used WeChat, there was still a gap between consumption capacity and urban users. This gap was a huge obstacle.

Actually, it's not that the giants haven't thought about this kind of market. Ali launched the Thousand Villages Project in 2014 and invested 10 billion dollars over 3 years to subsidize and promote e-commerce in rural areas, but the results are not obvious.

Ten billion dollars in three years is actually not that much. Now for a double 11, Pinduoduo will subsidize 10 billion dollars. So at the time, this kind of investment was really not enough to open up this market. At the same time, there is also a reason why the giants have not insisted on doing this because they are all busy upgrading their consumption.

The establishment of Tmall by Ali in 2012 was inspired by JD. Its B2C strategy is very much in line with the trend of urban population consumption escalation. Ali's focus has also started with Taobao's C2C, and has made every effort to promote B2C.

The two sides have been in a state of intense competition for the next few years. Although JD was unable to disrupt Ali, it attracted most of Ali's attention. At the time, the focus of the two giants was to compete for big brands to enter and expand B2C business. When it comes to upgrading consumption and experiences, “going up the mountains and going to the countryside,” you can only try it out.

Every move by the giants will have a ripple effect. Previously, the so-called “copycat,” “white card,” and “$9 free shipping” on Taobao's C2C platform were ignored or even abandoned by the platform because the focus at the time was “upgrade.”

The platform can quickly adjust business strategies, but it is impossible for such a large group of commercial power and a huge manufacturing ecosystem to disappear in an instant.

On one side are users in huge third-, fourth- and fifth-tier cities that are already “e-commerce ready,” and on the other side, products that are not accepted by mainstream e-commerce platforms and are cheap enough have appeared. At that point in time, Huang Zheng not only saw opportunities for e-commerce to enter the social scene, but also discovered the possibility of a new balance between supply and demand in such an untapped market. This is an important reason for Huang Zheng to turn off Pimp Good Goods and focus on Pinduoduo.

Today's Pinduoduo's performance proves that Huang Zheng was correct in his judgment and choice of opportunities at the time. By the time Pinduoduo went public in 2018, we saw an important message from its prospectus: it lost 1.35 billion but won 350 million users, and each user lost less than 4 yuan. For comparison, in 2018, if you want one user to install a Taobao or JD, the cost is at least 200 yuan.

What is the concept of 4 yuan? 1 yuan of tissues, 2 yuan of fruit, 3 yuan of clothes, it is these 9 yuan 9 free shipping resources that have enabled Pinduoduo to win 350 million users.

If Huang Zheng saw new opportunities in e-commerce in the social scene, then focusing on Pinduoduo and choosing to sink as a breakthrough was really his sharp “first cut.”

This is a very classic example of a startup's insight into opportunities and path choices. At the Geek Park Innovation Conference last year, I had a very in-depth exchange with Huang Zheng. At the time, he expressed an opinion with me at the time, which impressed me very much.

Summarizing his expression, Pinduoduo is just an inevitable with some chance. Can such a difficult thing as starting a business be simply summed up as inevitable? That sounds so awesome. But I know he's not someone who likes to talk big.

Li Xiang and I also thought during the reopening, what must this be? It was later discovered that what Huang Zheng said is inevitable is not that Pinduoduo will succeed, but that at that point in time, there are several inevitable opportunities.

When WeChat, a new traffic pool, rises, how come there are no opportunities? Putting together a good product comes from this thought. When you discover a new scenario, it is very likely that there is a new traffic conversion mechanism in it. Consumption methods and decision-making methods are not the same, so there is a new way to play, which is more efficient than before.

Establish a new connection between supply and demand. This kind of connection has not been established before, so of course there is an opportunity to establish a new platform.

Looking back, if we say that Pinduoduo only relied on sinking markets to win, we would only see one image, but in reality, we have not been able to think and interpret it more deeply. So, at this time, I'll say again that the sinking market is just his sharp “first shot”. The sinking market is neither the starting point of Pinduoduo nor the end of Pinduoduo. Everyone can agree at least half of it, right?

I also mentioned earlier that a sinking market will not be the end of Pinduoduo.

How do you understand this sentence?

Increase supply and consumption confirmation

One question you can think about is the only price-sensitive user in a sinking market?

In fact, both cities and villages are price sensitive. Pinduoduo, one phone is more than 1000 cheaper than anywhere else, I am very sensitive. Paper towels are one or two yuan cheaper, so I probably won't transfer coupons to my friends.

Different market users have different definitions of cheap. A sinking market may be two yuan cheaper, making people want to join a group. The urban market needs 200 yuan cheaper for users to share happily.

Pinduoduo has already gone public. It must not be satisfied with eating up the sinking market. Its focus must be an opportunity to become a new type of e-commerce platform in the social scene, but it must continue to break through boundaries to grow and gain more users. What is its core engine? At the end of the day, it's definitely still the cheaper one.

Some people will say that if you buy a phone on Pinduoduo, it's for subsidies? The question is, can you win over users all over the country with the subsidy? Another point, won't the consumption of users in the sinking market be upgraded? Previously, the 9 yuan 9 free shipping resources were used to match the needs of users in the declining market, but they also needed to upgrade. When they upgrade and the 9 yuan 9 free shipping resources no longer match, how can Pinduoduo satisfy them while keeping itself cheaper?

This is the biggest challenge for Huang Zheng's team. Pinduoduo has actually put a lot of thought into this area. A few months ago, the park interviewed a glass manufacturer in Anhui. They make glass products. The company is quite large and is already on the market. As a leading glass product company, their demand is the same as that of all manufacturing companies, that is, more orders.

When Pinduoduo found this company and asked for cooperation, they were quite skeptical, but they still tested a “1 yuan flash sale” glass with Pinduoduo. After Pinduoduo launched, the results were very good, selling over 150,000 units in one month.

This incident gave them greater trust in Pinduoduo's abilities. Next, the two sides collaborated on two more kitchen utensils. In terms of this cooperation, Pinduoduo gave important suggestions and guidance. Pinduoduo said that judging from user data, users are sensitive to “being big, thick, and resistant to high temperatures.” Of course, they still need to be “cheap” to meet these requirements and have the chance to become explosives. After testing this time, it went viral again. The total sales volume of the two products was over 300,000.

In fact, this company also sells on other e-commerce platforms, but this trial allowed its sales volume on Pinduoduo to account for one-third of its e-commerce sales. What can we smell from this story? Pinduoduo is not a simple channel; it can reverse guide the production side based on user needs.

This guidance also comes from the accumulation and judgment of user data. Using this data for production is more likely to produce explosives than before when manufacturers turned to channel vendors to shoot heads for production. The explosion is very exciting, why? Less inventory, fewer products, more value, who doesn't want it? If it can do this, as long as it sells well and has fast turnover, why not be cheap?

Of course, glass bowls are just one case. At the end of 2018, Pinduoduo launched a plan called “New Brand” to help more manufacturers like glass bowl companies to use C-side data to guide manufacturers to produce explosive products that better match demand, so that they can sell at a lower price but make more money.

Looking at it now, many of them are still everyday items such as glass bowls and tissues. Pinduoduo hopes that the case can be replicated in more fields and connect more businesses.

There is also a problem here. If you want to talk about data, e-commerce platforms actually have them; they should have tried it too; they may find that this data is still limited. To have a greater and more lasting effect, greater breakthroughs in data are needed. How to do better with data is a huge challenge for Pinduoduo.

At the Innovation Conference at the beginning of the year, Pinduoduo CTO Chen Lei proposed a new idea called “distributed intelligence.” The term sounds very vague. Simply put, you can imagine that Pinduoduo has assigned a shopping robot to everyone. This robot watches you and records your buying habits and interests. This allows the platform to find products that match you, which is why you open Pinduoduo and push you the coupons you want. This isn't new; e-commerce platforms do it this way.

Everyone should note that Pinduoduo is a social e-commerce scenario, so it adds a layer of thinking about social relationships to the data.

Your shopping robot will communicate with the shopping robots of your family and friends because you have shared offers, got through groups, and had social connections. Pinduoduo doesn't know about your friendship relationships, but judges your connections through behavior. As a result of communication, even though you didn't place an order, your friend placed an order. Because you have social relationships, it also triggers your purchasing behavior, and shopping data is getting richer as the robot communicates.

The fission of social networks is an advantage of e-commerce in social scenarios such as Pinduoduo. Similar purchasing behavior and data collection are difficult to occur in traditional e-commerce systems. Obtaining more data through social relationships to better guide manufacturers to create explosive products is definitely an important development direction for Pinduoduo.

What he sees today is not just a market, but an increase in certainty between supply and consumption. This certainty is the key to long-term cheaper prices.

Huang Zheng is actually a person who loves to think. He has written a public account, where you can see the origin of his thoughts. In an article called “More Markets, More Plans,” he wrote his thoughts on certainty.

He wrote that if we can guarantee everyone's definitive needs, know what people really want, and actually place orders, then in turn, it can reduce the uncertainty of organizing production.

There is no need to test many products and directly produce what you want. Essentially, you can achieve a more effective allocation of resources and capital. To put it bluntly, the efficiency is higher, the cost is lower, and the result is cheaper! This was written by Huang Zheng in September 2017.

As can be seen, what Huang Zheng is thinking now is definitely more than sinking the market. When Li Xiang and I resumed trading, we felt that in the past 15 years, e-commerce has improved distribution efficiency and brought a better experience. Future opportunities for e-commerce, according to Huang Zheng, may be in the direction of improving supply-side efficiency.

If data can guide production through more efficient manufacturing and production, it can bring about the release of newer value. This kind of release of value can only support the establishment of a new type of e-commerce platform.

Forget sinking, improve technology

After talking about Pinduoduo's development history, everyone should be able to understand my summary of Li Xiang and I — sinking, is neither the starting point of Pinduoduo's birth, nor the end point of Pinduoduo's thinking. Sinking the market is just Huang Zheng's sharp first move.

This incident is an important inspiration for us: when it comes to sinking, we can't help but think of “segmentation,” “simplification,” or even “downsizing,” but the Pinduoduo case gave us a new perspective: when e-commerce changes from search scenarios to social scenarios, it contains more efficient gameplay. It makes e-commerce value not limited to the distribution side, and even has new possibilities for improving efficiency on the supply side.

To a certain extent, this is not a decline in e-commerce; it is more like an upgrade in the e-commerce model. This is a very regular thing.

Because technology is always on the upswing, we should not chase the concept of “sinking” and use technology to find opportunities for upgrading. This is also the case of Pinduoduo, which brings us important inspiration when thinking about market choices.

Speaker: Zhang Peng

Thinking partner: Li Xiang

Editor: Luo Deng, Jing Yu, and the Geek Park content team

10th anniversary of the just-concluded Geek Park Innovation Conference:

Together with Ni Xingjun, Wang Xiaochuan, Fu Sheng, Mi Wenjuan, Chen Rui, Liu Zuohu, Fan Deng..., before we enter the next decade — we talked about the things that “we work with” are concerned about. Where are the directions, opportunities, and methods?

We may not be able to accurately predict what the future will look like, but we can bring more independent thinking, more mature perceptions, and a better version of ourselves to the next decade.

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