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The US e-commerce ecosystem today is clearly dominated by a few giants, often making it harder for startups to innovate. Here’s an example, with each quarterly earnings call, Amazon continues to conquer US commerce and steamroll its competitors. Today, Amazon’s e-commerce market share in the US is nearly 50%. That’s more than three times the market share of its two nearest competitors, eBay and Walmart, combined. In its wake, hundreds of retailers and startups have fallen or been acquired. Another giant, Facebook, continues to dominate online marketing, with more than 2.2 billion active users last quarter. Along with Google, these two giants continue to dominate the critical online advertising market. The mobile shopping experience hasn’t changed in the last 20 years and these tech giants together act as gatekeepers to the e-commerce market. It’s currently difficult to imagine how a new disruptive player in the US could become mainstream and transform the way Americans buy on the internet.
Globally, a different story is unfolding.
At Cathay Innovation, we’re thrilled to celebrate the monster IPO of our portfolio company, PinDuoDuo (PDD). Despite being founded only three years ago, PDD has grown at meteoric rate across all the Company metrics. In Q1 2018 alone, PDD sold US$10 billion of goods through 56 million users. At the end of June 2018 (according to Jiguang.com), PDD had 56 million of Daily Active Users, representing 162% of JD.com and 30% of Taobao, Alibaba’s marketplace GMV. The number of PDD buyers already reached more than 300 million users in China, which is almost as big as the population of the United States! This is the fastest growth in the history of both the internet and in humanity. Strikingly, most of its customers are from Tier 3 and Tier 4 cities across China, who historically weren’t online shoppers. PDD managed to help hundreds of millions of people enjoy the benefits of digital commerce in a way that is at the same time both more fun and economically attractive.
Cathay Innovation had the opportunity to work with Colin Huang, PDD’s founder and CEO, early in PDD’s history. While the Company was born with social features, we committed at the time it started to transform from a self-operated fresh food seller to an open market place, from fresh food to all kinds of goods. As PDD’s first global fund to become investor, we were also excited to work with Colin as he was an extraordinary human being and repeat entrepreneur that wanted to leverage his unique blend of experiences in e-commerce, modern search, and gaming.
PDD is a new kind of e-commerce company — vastly different than all the major tech giants. Its rise is based on social virality created by an innovative approach meeting the needs of people and not by acquisition spending. The socialization of mobile commerce invented by Colin was initially based on leveraging the whole WeChat community through PDD’s own app or directly via WeChat programs. The idea was to onboard a critical mass of buyers and merchants, to offer to each of them a unique and improved experience. People can have access to various offers, discuss with their friends or anybody else about the products, and benefit from discounts if they all buy together. One other interesting innovation is that search is not the main way to find and access an offer, but more so due to people browsing in PDD platform to find offers that would fit their needs, and then they would invite their peers to participate to these interesting group buying opportunities. As a result, the experience is gamified and leads to buying that corresponds to the customers inclinations — creating on mobile a fun digital experience giving access to the opportunities that they would find in a giant farmer market or a virtual Costco. The merchants are also interested at the possibility to sell to these groups (with smaller acquisition costs per unit transaction) and enjoy differentiated marketing towards these small focused groups that now provide access to social feedback at scale directly from the buyers. PDD quickly rolled out a range of product lines, ranging from vegetables, to toiletries to sports clothes, and basically anything that people needed to buy daily.
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