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Alibaba's oldest business needs to solve the most difficult problems

Author: Hanxing

Cover source: Stills from "The Pursuit of Happyness"

Amazon founder Bezos once summarized the many principles that a company needs to follow on its way to success. The first one is "obsessive compulsive focus on the customer" rather than obsession with competitors.

But now, the obsession with competitors is evolving into a low-price "involution" that is sweeping across major e-commerce platforms.

Over the past year or so, major e-commerce platforms have been involved in low-price competition, comparing prices across the entire network, automatically following prices, and only refunding. While providing consumers with more cost-effective products, they have also become a tool for some people to take advantage of them. Long-term low-price competition has also forced many merchants to sell goods at a loss under the pressure of breaking prices, making business increasingly difficult, and even being suffocated by the three major problems of "difficult operation, high costs, and low profits."

As a direct sales platform for source factory goods under Alibaba, 1688 is Alibaba's oldest business and a business with strong B2B attributes, which is naturally closer to merchants. Therefore, it is not surprising that 1688 decided to take the lead in breaking the internal competition.

According to the person in charge of the 1688 platform, in the second half of this year, 1688 will introduce a series of "anti-involution" measures, launch a "efficiency improvement and revenue increase" plan for source manufacturers in the industrial belt, and release a free "AI business assistant" to help merchants continue to operate more simply and with greater certainty.

"Broken Volume"

"The platform's response always lags behind," said a 1688-related person. When more and more merchants complain, criticize and question, the platform must take the initiative to make adjustments.

He Yudi, a "second-generation factory worker" born in the 2000s, runs a fishing line factory in Dongyang, doing OEM for brands. In addition to selling domestically, his products are also sold to more than a dozen countries around the world. As the low-price competition on e-commerce platforms intensifies, the pressure is gradually transferred from sellers to the source factories.

He Yudi found that there are many fishing lines on the market that are priced at 5.9 yuan with free shipping, and it is impossible to make a profit at this price. He was very confused about how these people made money. "Later I heard that many people were giving small game cards to game companies in the packages to earn advertising fees to make up for the losses."

In addition to dealing with price wars, merchants also have to compete for service.

He Yudi revealed that after various e-commerce platforms launched refund-only services, the return rate of the entire fishing line industry increased to 20%, causing costs to soar.

In order to solve the difficulties faced by merchants, 1688 has put forward two measures: "increasing revenue" and "improving efficiency".

In terms of increasing revenue, 1688 implements "double guarantee" for the business results of new merchants, that is, guaranteeing customer acquisition and order guarantee, and ensuring that new merchants obtain at least 50 Class B orders or buyers per month in the first three months. The two types of member merchants, powerful merchants and super factories, can enjoy a green channel directly to the core traffic scene, and no longer set a transaction amount threshold.

In addition, 1688 also plans to launch a traffic subsidy of 10 billion yuan. The exposure of promoted products will increase by more than 40% compared with before, and the average click cost will be reduced by 38%. For every 1,000 clicks, the promotion cost will be saved by 38%.

In terms of improving efficiency, 1688 provides merchants with two business models: self-operation and supply model.

For merchants who choose to operate independently, 1688 will provide them with AI business assistants for free. Merchants who want to ship goods quickly can choose the supply model, and the platform will provide hosting services: merchants participate in bidding through hot-selling bidding, and are given the supply price of the goods. The platform provides pricing suggestions to assist merchants in sales and contract fulfillment.

According to an insider of 1688, the supply model currently does not generate service fees, and merchants do not need to spend time learning 1688's traffic distribution mechanism, but only need to provide products with better quality and price ratio. "For example, after negotiation between the two parties, 1688 will take 20% of the merchant's production capacity for the month, and the merchant will produce and supply according to 1688's standards, and we will reserve at least 10% of the net profit margin for the merchant."

1688 hopes to help merchants break the internal competition and gain higher business certainty by increasing revenue and improving efficiency.

Continue to embrace AI

Founded in 1999, 1688 is the longest-running business within Alibaba Group and currently has over 1 million source manufacturers. In the past year, 1688 has undergone several changes, and its positioning has also become more diversified from the previous B2B platform.

In November last year, Alibaba Group announced the first batch of strategic innovative businesses, including 1688, Xianyu, DingTalk and Quark. Alibaba Group said that 1688 serves the mainstream manufacturers in China's manufacturing industry, has a solid foundation and huge potential for secondary entrepreneurship, and is expected to extend from B2B business to small and medium-sized enterprises and consumer procurement, while also having the service capabilities to support cross-border transactions.

In the process of business exploration, 1688 gradually identified three major tracks, namely the B-end track, the consumer track and the cross-border track.

But problems also arise.

In recent years, substitute consumption has emerged, and young small B businessmen and C-end consumers have flocked to 1688 to "dig for treasure" at the source of factory goods, looking for big-name OEM factories and brand substitute sources. Many merchants who are used to large-scale business are not able to adapt to the needs of these buyers for a while, and are a little unable to cope with the high-frequency small-amount purchase needs, and even have a resistance to small wholesale and lightly customized orders.

In March 2024, 1688 carried out a comprehensive upgrade of the buyer experience, launching services such as 0-yuan ordering, free shipping for one piece, two-three-day delivery, and free return shipping.

A person related to 1688 told Snow Leopard Finance that 1688 was originally a very pure B2B platform. Faced with the influx of C-end consumers and cross-border buyers, the platform made a mistake, which was to require merchants to draw up a line to serve all buyers.

"I was originally in the factory business, and I was taking B orders, but you asked me to only refund, and you asked me to ship every item and wait for it to arrive within 24 hours, which caused great trouble to the merchant."

To solve this problem, 1688 introduced the AI ​​business assistant function.

This AI business assistant is based on 1688's 24 years of knowledge accumulation in the B-class e-commerce field. It has built a digital employee team with professional operation experience. The main members of the team include AI store managers, AI material operations, AI marketing promotion and AI customer management.

During the grayscale test of the AI ​​business assistant, merchants using the product experienced a 60% increase in business difficulty and an average increase in business opportunities of 50%. According to 1688, with the free AI operation capabilities provided by the platform, merchants can now complete tasks that previously required a professional operator with only 0.2 manpower.

At present, the annual fee of similar merchant AI products on the market is generally more than 10,000 yuan, while 1688's feature is free, and all subsequent merchant-side AI products will also be free. With the support of AI technology, platform merchants can better respond to the diversified needs of consumers.

The term "involution" was first proposed by American anthropologist Clifford Geertz, and its original meaning is "inefficient repetition."

In today's e-commerce stock competition, price wars are inevitable, but with more efficient business methods and more advanced technical capabilities, 1688 is trying to find better solutions together with merchants.