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there is not much time left for all platforms to get out of the "huang zongzhi moment"

arts/wei xia

editor/liu yuxiang

"high-income growth is actually unsustainable," said zhao jiazhen, pinduoduo's director and co-ceo, at the second quarter earnings conference at the end of august, which was keenly captured by investors. soon after, this "crown jewel" of chinese stocks fell by us$55 billion overnight, handing over the top spot in china's e-commerce market value to someone else.

this phenomenon is considered extremely rare for company executives to personally short sell, and some even speculate that this is because huang zheng did it on purpose because he did not want to be the richest man. from the performance of various data in the second quarter, pinduoduo was not bad at all, with total revenue and net profit attributable to shareholders increasing by 86% and 144% year-on-year respectively. moreover, although temu is facing various challenges in going overseas, it has just left the coastline after all.

but what zhao jiazhen said is actually not wrong. after all, he did not give a timetable for the end of the high-growth cycle. if you jump out of the curve of this young e-commerce company, it is not difficult to find that as far as the entire e-commerce industry is concerned, as the overall competitive environment continues to intensify, the growth curve will indeed slow down fatefully.

objectively speaking, other e-commerce companies are no more insensitive than pinduoduo when it comes to growth anxiety. starting roughly from the beginning of 2023, all companies have begun to follow pinduoduo's example and shifted the focus of their strategy to pricing power.

today,almost a year and a half has passed, and at least from the perspective of gmv, low prices have not continued to be the magic potion of the e-commerce industry.the truth is, in the second quarter, except for pinduoduo, whose year-on-year revenue growth rate was still widening, the growth rate of other mainstream e-commerce platforms has slowed down significantly.

take taobao, china's largest e-commerce platform, for example. its revenue in the second quarter was 113.373 billion yuan (about 15.6 billion u.s. dollars), down 1% from 114.953 billion yuan in the same period last year. taobao's ebita also fell by the same proportion. among alibaba's seven major businesses, taobao is the only business segment that has declined. as alibaba's mainstay, e-commerce business has lagged behind.

becauselow is relative. when everyone's prices are low, the competitiveness of low prices will no longer exist. on the contrary, under the premise of extremely sufficient supply, the growth of demand will slow down, and competition will enter a zero-sum game. market participants will have to show their cards with the mentality of a prisoner's dilemma, that is, even if they sacrifice profits, they must participate in the low-price competition.

a similar story appears in "three or five more bushels of grain" written by ye shengtao. the farmers did not increase their income due to the good year. the back-to-back transactions caused by decentralized competition pushed down the terminal price, and ultimately no one could profit from it.

in the book "peasant economy and social change in north china", professor huang zongzhi first proposed the concept of "involution" to describe the economic logic of china's small-scale peasant agriculture. in the early stage, the cultivated land area was abundant relative to the labor force, and there was still a lot of wasteland to be reclaimed. by investing more labor and cultivating more meticulously, more food could be produced, but the total cultivated land area was limited. when the labor/cultivated land ratio reached the threshold, no matter how much labor was invested or how meticulously cultivated it was, more food could not be produced. the marginal return of labor would drop to an extremely low level, and further investment of labor would be of no avail. without new output, the entire land would fall into a particularly stubborn and difficult-to-change small-scale peasant economic system, with repeated hard work but little gain. this is "involution".

just like e-commerce platforms, competing on low prices at the beginning can open up new markets, just like opening up new wasteland and cultivating it intensively. however, when various companies followed suit with low-price strategies, strategies converged, and they continued to increase their investments on the same piece of land, the input-output ratio soon reached the threshold, and not only did they fail to create new value, they also consumed resources.

in the second quarter of 2024, judging from the financial reports, the chinese e-commerce industry, which has been developing for more than 20 years, has ushered in the "huang zongyi moment".

01

low price was the keyword for major e-commerce platforms in the first half of this year.

alibaba mentioned in its financial report that taotian group achieved high single-digit year-on-year growth in gmv in the second quarter, and double-digit year-on-year growth in order volume. this shows that taotian's average gmv per order is declining, and it is indeed low-priced.

although everyone generally agrees with the concept of "small profits but quick turnover", there is actually a critical point as to whether low prices can bring a win-win situation for the platform and users.the average unit price is lower, and the commission and advertising revenue that can be contributed from each order will be smaller. therefore, if the platform wants to achieve the previous income level, it needs to sell more goods. however, sales efficiency is not completely proportional to price power. there will be a critical point. beyond this point, the increase in sales efficiency will be greater than the loss in per-order income level.

but what if it doesn’t reach this point? the platform will face the situation where the improvement in sales efficiency cannot make up for the average revenue per order, resulting in increased revenue but no increased profit, or even no increase in either revenue or profit.

apparently, alibaba, which has been involved for more than a year, is currently stuck in this mud. the platform's efforts, at least at this stage, have not yet yielded corresponding positive benefits.

taotian group's revenue consists of two parts: china commercial retail and china commercial wholesale. the former's revenue in the second quarter decreased by 2% year-on-year to 107.421 billion yuan. specifically, the customer management revenue (cmr) of the china retail commercial part only achieved a 1% increase, and the revenue of the direct sales and other parts directly decreased by 9%.

alibaba mentioned in its financial report that the reason why cmr and gmv did not grow synchronously was that they were partially offset by the decline in commission rates, while the decrease in direct sales and other revenues was due to the reduction in some direct sales businesses, which led to a decline in sales of consumer electronics and electrical appliances. since alibaba launched its low-price strategy, taobao has begun to implement a policy of reducing fees with a subsidy of 10 billion yuan, with an average reduction of about 70%. some merchants who provide low-priced products on the entire network can even enjoy 0 commission incentives.

this means that alibaba did not gain much benefit from the price war against pinduoduo.

looking at pinduoduo, although the second quarter data is better than other platforms, the growth rate of the two parts of its business revenue is slowing down. pinduoduo's q2 online marketing revenue was 49.116 billion yuan, a year-on-year increase of 29.48%, and transaction service revenue was 47.944 billion yuan, a year-on-year increase of 234%. in q1, the year-on-year growth data of these two parts of revenue were 56% and 327% respectively.

pinduoduo chairman chen lei said in an earnings call that the profit growth in the past few quarters was the result of the lack of synchronization between the short-term investment cycle and the financial reporting cycle, and could not be used as a long-term guide.

it is not difficult to see from the content of the earnings call that pinduoduo will enter a new stage of development and have successfully broken through with low prices. the scale of the platform has reached a certain size and it needs to pay more attention to the demands of merchants. it will enter the stage of "high-quality development" next.

in the field of live e-commerce, douyin is quite aggressive in implementing a low-price strategy. in order to accelerate the introduction of merchants in industrial belts with large room for price reduction, douyin provides cash incentives of up to 50% of gmv. it also provides merchants with price change suggestions based on the price comparison system through traffic commitments. at the same time, douyin also displays the same low-priced products on the payment page to attract users to jump. these measures are beneficial to consumers, but they also make merchants emotional.

douyin's low price also did not bring douyin greater scale value, but instead caused its gmv growth rate to decline beyond expectations. according to media reports, the growth rate after the second quarter has fallen to less than 30%, far lower than the monthly growth rate of more than 50% in 2023.

an obvious but often overlooked fact is:consumers are the customers of the platform, but merchants who contribute real money are also the customers of the platform. there is actually a threshold for the "cultivation" of the latter. when the profits of merchants are squeezed to a certain extent, they lose the ability to expand reinvestment and investment innovation, which means they have reached the extreme of "involution", and the platform itself is also difficult to "continue to harvest".

this is the “huang zongzhi moment”.

02

the next step of the "huang zongyi moment" is the "malthusian trap", where the population cannot exceed the corresponding level of agricultural development, and the population/output has reached the limit. the additional population must always be eliminated in some way.if we talk about e-commerce platforms, when "involution" reaches its extreme, the number and scale of the platforms will have to be cleared out.

to escape this dire prospect, another way out must be found.

you can try to find ways to expand the "plate".it is understood that as early as several months ago, douyin had already begun to weaken its low-price strategy and turned its attention to gmv. moreover, as time goes by, it has become a consensus among almost all e-commerce companies to prioritize transaction scale again. this may be a departure based on the first principles. originally, gmv was the core kpi for e-commerce growth, and low prices were just a means to leverage gmv. in fact, it is also a means to increase transaction volume and repurchase rate. it’s just that for a period of time, everyone went for low prices and forgot why they started in the first place.

"the priority of taobao and tmall is to enhance the user's purchasing experience, thereby increasing the user's purchase frequency and driving gmv growth," said alibaba ceo wu yongming.

for content e-commerce, after live streaming e-commerce has become redundant and its appeal has faded, how to create a new constant space has become a more urgent matter.

wei wenwen, president of douyin e-commerce, said that increasing shelf sales in the second half of the year is still one of the team's key goals. kuaishou adheres to the "user first" strategy and continues to steadily develop pan-shelf e-commerce, but will not aggressively expand the shelf field to compete with traditional shelf platforms. kuaishou mentioned in its second quarter financial report, "we will continue to focus on the continuous iteration of new promotion measures, further expand the coverage of the population through product and subsidy strategies, and encourage users to make repeat purchases."

or you can continue to tap your potential.wu yongming said that after the initial market share stabilizes, starting from this quarter, the progress of measures to increase monetization rate and commercialization will begin to accelerate. in order to narrow the gap between the growth rates of cmr and gmv, alibaba also plans to charge technical service fees to merchants on taobao and xianyu starting in september. at the earnings conference, alibaba chief financial officer xu hong also said that the basic software service fee of about 0.6% "is levied according to the merchant's confirmed receipt of gmv. the charging ratio will be implemented after comprehensive consideration of industry management and adoption of merchant feedback. we will also fully consider the situation of small and medium-sized merchants."

it is also understood that the preferential period for 1688's technical service fees was also announced to end in august.

it can also be about allowing the land to “recuperate.”for example, pinduoduo has invested tens of billions of resources to support new quality merchants in order to improve the quality and efficiency of the platform supply chain and continue to invest in building the platform ecosystem. in the coming year, pinduoduo plans to reduce and exempt 10 billion yuan in transaction fees for high-quality merchants. in addition, pinduoduo has introduced refundable rights for resource position technology service fees and promotion software service fees to merchants. this package of support policies vaguely reveals that pinduoduo is learning some of alibaba's measures.

of course, pinduoduo's management has also foreseen the damage this series of policies will have on profits. chen lei mentioned in the earnings call that in order to support the sustainable development of the platform ecosystem, pinduoduo will increase its investment and support high-quality merchants in the next 12 months. therefore, he believes that in the future, pinduoduo's short-term profits may fluctuate, but the general trend of gradually declining profits is inevitable. "even if the profits in the short term will be affected, we will still firmly make patient investments."

you can even "dig ridges" to expand your land.as other players gradually withdraw from the price war, jd.com continues to stick to its low-price strategy. jd.com ceo xu zhijun made it clear that in the future, jd.com will "continue to focus on its own advantages, improve user experience, price competitiveness and platform ecosystem, which we believe are the basis for ensuring sustainable growth in the next few years."

compared with other new players in the low-price war, jd.com is better at operating the supply chain in a refined manner. in the second quarter, although jd.com's revenue increased by only 1.2% year-on-year, its net profit attributable to shareholders reached 14.5 billion yuan, a year-on-year increase of 69.0%, and its net profit margin reached 5.0% for the first time.

recently, the new version of the "jd open platform double compensation service rules" officially came into effect. the revised version expands the price comparison platform range, adding douyin, vipshop and other platforms, allowing consumers to easily "shop around". however, in the earnings call, jd also stated that it would not obtain unsustainable price advantages through subsidies.

the supply chain advantages accumulated over the years have enabled jd.com to improve its price competitiveness while ensuring profits, but who will have the last laugh will only be revealed after emerging from the fog of low prices.

03

all of the above are actually still focusing on the "land (users, merchants)". so, is it possible to work on the "population", that is, the operating logic of the platform itself?

today's e-commerce industry is basically divided into five parts: alibaba, jd.com, pinduoduo, douyin, and kuaishou.

there is no doubt that alibaba is still the industry leader, but its market share is not as large as before. data shows that alibaba's share of domestic e-commerce has dropped from 70% to 40%. at a time when omni-channel operations have become common on the merchant side, the market share of the platform is almost entirely determined by users.

it is not difficult to see that taotian, which takes "users first" as its strategy, is still seeking ways to reshape user stickiness. for a period of time, taotian used content and opening up internal traffic pools as methods to strengthen its traction with users. however, despite all the efforts, it is difficult for an app that started as a shopping platform to grab creators and usage time from content platforms, and it is also difficult to break the dimensional wall of user habits and obtain more usage time.

from offline experience, whether it is the long-running sam's club or the emerging pang donglai, it is proven that users are not traffic particles, but emotional creatures. they need to truly feel that they are being treated well.instead of spending a lot of effort to attract ordinary users with average purchasing power, it is better to expand the size of the core high-quality consumer group.

it seems that88vip is gaining more attention from taotian, which is actually the real base of taotian.alibaba's second quarter financial report mentioned that the number of 88vip members continued to maintain double-digit growth year-on-year, exceeding 42 million this quarter. alibaba's next goal is to continue to expand 88vip membership subscriptions and increase their willingness to buy by improving benefits and services, thereby expanding the group of high-quality shoppers.

it is estimated that 88vip will contribute more than 2.3 trillion gmv this year, which is equivalent to douyin's gmv in the past year. the high-quality shopper group may be the key to taobao's change in the situation of declining revenue. instead of high-investment linear growth, it is better to expand the basic market. this is a change in operational logic.

pinduoduo, which has more than 100 billion in cash reserves (some foreign media reported that the figure may be as high as 38 billion us dollars), does not have a "trump card" in the new competitive situation, because some capabilities cannot be acquired by spending money in the short term, such as the high-quality supply chain capabilities that need to be established in the process of transforming to "high-quality development."

therefore, in addition to supporting new merchants with tens of billions of resources, pinduoduo is also innovating in the supply chain and digitalizing the manufacturing industry chain.for pinduoduo, creating a healthy ecosystem is the key at the moment. keeping a low profile while running fast may give other players a chance to catch their breath, while also allowing pinduoduo to keep its feet on the road.

jd.com achieved a profit that exceeded expectations in the second quarter, which also indirectly verified the feasibility and sustainability of high quality and low price. unlike pinduoduo's pessimism, jd.com is optimistic about its expected profits. this optimism comes largely from the fact that for a long time, jd.com has focused on improving the scale of the supply chain and satisfying the core high-quality consumer groups, while selectively ignoring the advertising and marketing revenue contributed by third-party sellers in the traditional platform business.since last year, jd.com has begun to focus on its third-party business. through stimulus policies such as the "spring dawn plan", it has introduced a large number of pop merchants, thereby activating an almost new profit warehouse.

in the conference call, jd.com also mentioned that its profitability still has a lot of room for improvement, including the increase in the proportion of third-party businesses, changes in category mix, and the increase in category profit margins through improved efficiency. in the long run, jd.com's profit margin can reach a high single-digit level.

as emerging players, douyin and kuaishou have slowed down their growth in the live streaming e-commerce sector. kuaishou said that the monetization of live streaming scenes did not decline in the second quarter, but there was indeed a certain gap compared with previous expectations. "the current budget for gmv in the third quarter is about 15% growth. the fourth quarter has a high base, so the year-on-year growth rate will be slightly lower."although douyin and kuaishou do not have the explosive growth of pinduoduo, they still have a lot of room for imagination in the e-commerce field due to the traffic advantage brought by content. but this requires new operational logic to achieve a balance between advertising for big brands, monetization of small and medium-sized brands and even white-label transactions.

in fact, there is not much time left for all platforms to get out of the "huang zongzhi moment". when everyone is preparing for battle and setting off again with gmv as the first goal, one fact is probably difficult to avoid. according to data from the national bureau of statistics, my country's total retail sales of consumer goods in the second quarter increased by 2.6% year-on-year, of which online retail sales of physical goods increased by 6.4% year-on-year. in other words, the gmv of the entire e-commerce market has entered the stratosphere.

in such a space, isn’t increasing gmv and increasing new strategies also a form of internal competition?