Unveiling the Growth Secrets of Pinduoduo: A Revolutionary Approach to E-commerce

“Our supper does not come from the favor of the butcher, the brewer, and the baker, but from their concern for their own interests.” This famous saying by Adam Smith in “The Wealth of Nations” is based on the explanation of the self-interested nature of individuals. , was once extended as a powerful criticism of commercial entities’ pursuit of profit, but in the digital age, the criticism has been directed at various Internet platforms.

Such famous sayings will always be forgotten. The “second half” – “However, human beings’ pursuit of self-interest can objectively promote the smooth realization of the interests of others and thereby increase the public interest.” Perhaps what Adam Smith really wanted to illustrate was economic thinking around how to realize the public interest.

Economic theory continues to advance along with the complex business society, and the debate on the relationship between interests, public and private, and individuals (whether natural persons or business organizations) has always been unable to escape this barrier. The object of discussion cannot be separated from the e-commerce platform. China’s e-commerce has risen almost simultaneously with the domestic market. Whether it is the rough competition for supremacy around the millennium or the diversification in the mobile Internet era, there is no shortage of lights on the stage and no shortage of protagonists.

On the evening of May 22, Pinduoduo’s US stock price rose by 7% before the market opened, at $155 per share, with a total market value of $215 billion.

In the evening of the same day, Pinduoduo released its first quarter financial report, with revenue of 86.81 billion yuan, market estimate of 76.86 billion yuan, a year-on-year increase of 131%; adjusted net profit of 30.60 billion yuan, market estimate of 15.53 billion yuan, a year-on-year increase of 202%. The financial report also shows that Pinduoduo’s research and development expenses in the first quarter were 2.9 billion yuan, a year-on-year increase of 16%.

Pinduoduo, born and trained in competition, is always so unexpected. Countless people have used a magnifying glass to examine its patterns, logic and value, and have come up with self-consistent answers. In a conference call after the release of the first quarter report, Pinduoduo Group Chairman and Co-CEO Chen Lei made an internal statement: The company will continue to focus on long-term value creation and the growth of the company’s endogenous value.

Looking back at Pinduoduo’s nine years of rapid development, we can better understand the prediction made in the letter to shareholders before Pinduoduo went public in 2018: “Pinduoduo will be a company that has the courage to invest in the future and is based on the long term. It may sometimes see It sounds radical and sometimes seems too conservative, but it actually follows a simple and consistent logic, which is to focus on the intrinsic value of the institution.”

Six years later, the reappearance of “endogenous value” may provide us with a key to interpret Pinduoduo.

 Duty: “If you wake up in uneasiness”

One of the core keywords in Pinduoduo’s values ​​is “duty”. Based on its duty, Pinduoduo defines the basis of its survival as “creating value for users” – this statement is often seen in its various public statements. There was even such an expectation in the initial letter to shareholders: “I hope that if our team wakes up in uneasiness, it will never be because of stock price fluctuations, but only because of the real needs of consumers. Lack of understanding of changes, and consumers’ dissatisfaction or even abandonment of us.”

From the perspective of an e-commerce company, Pinduoduo has indeed adhered to its “duty”: the only track is e-commerce. Whether live broadcast, short video or others, they are just tools for the platform to help e-commerce operations. The newly developed businesses such as Duoduo Grocery and Duoduo’s cross-border performance are very dazzling, but the background is still an extension of the e-commerce field.

In terms of user value, Pinduoduo started with the ordering model, then moved on to the industry’s first “tens of billions subsidy” gameplay, as well as the “refund only” service that has been followed up by other e-commerce platforms, etc., and has been delivered in different time periods. The essence of different user experiences is the directional satisfaction of user needs.

Dismantling its evolution process is nothing more than realizing the endogenous value of “benefits” and “services” from the platform dimension. Affordability refers to real good things at good prices, which evokes the current popularization of prices; service refers to the user’s consumption experience and the trust between people and the platform.

Just in the past quarter, Pinduoduo is still working towards these two points. On the one hand, it makes the benefits more “more”. For example, during the New Year Festival earlier this year, in addition to traditional activities such as tens of billions of subsidies, groups of 10,000 people, and multi-person groups, Pinduoduo also invested more than 3 billion yuan in site resources and red envelope discounts to continue to make profits. What’s very interesting is that Pinduoduo has become the launch pad for many merchants’ new products, such as Yili’s Year of the Dragon limited product, which once sold more than one million copies in conjunction with marketing campaigns, making it the first choice for users in new consumption scenarios.

On the other hand, it is to make the service “better”. Taking logistics and distribution as an example, the lack of free shipping in so-called remote areas such as Xinjiang has always been a pain point for some users when shopping online. It’s not that it can’t be solved, but that the cost cannot be covered. Logistics requires higher access costs, especially the final matching time between the terminal distribution network and the user, which is often calculated in days.

Pinduoduo’s approach is to realize free delivery of express packages into villages in Xinjiang, shortening the distance between terminal online stores and users to within 2 kilometers, effectively compressing the delivery time to within 24 hours. The reality is that since this year, more than half of the villages in Xinjiang have been able to experience the convenient service of “free delivery to your home”. Correspondingly, naturally, Pinduoduo’s order volume in these regions has grown rapidly.

And many benefits and good services may also be combined. In the context of promoting consumption across the country and taking “old for new” as an important starting point, Pinduoduo has joined hands with three-party service platforms to provide users with “old for new” services around common mobile phones, digital devices, home appliances and other categories, and the replacement objects support tens of billions of subsidies. Popular product.

From this point of view, Pinduoduo seems to have been doing hard work, especially some “stupid methods” that will not bring short-term profits. This is inconsistent with the instinct of self-enhancement of business individuals. But if you change the angle, it is not difficult to understand that Pinduoduo’s pursuit is longer-term value.

This is more in line with Pinduoduo’s consistent value pursuit. Looking back, 6 years ago, the market environment faced by Pinduoduo before and after its listing was to meet the consumption needs of more people. The essence of such things as order-sharing and tens of billions of subsidies was to stimulate consumer demand in a beneficial way, thereby allowing Life gets better.

Along the way, in the current era of inventory, Pinduoduo has realized the changes in user needs. In addition to satisfying consumer needs, users in the stock era began to provide users with goods and services with more “consumer dignity”.

The value created for users through more benefits and good services is the value inherent in the platform. Looking over a longer period of time, the short-term benefits previously given up have actually become a driving force for its faster growth.

Identity: Public institution, e-commerce platform and business community

Pinduoduo’s positioning has always been e-commerce. As a business form, the core of e-commerce lies in the matching and fulfillment of social consumption. This makes the e-commerce platform as a carrier naturally very social.

Going public is also the prerequisite and necessity for every platform to be called a platform. What’s interesting is that Pinduoduo prefers to define itself as an independent public institution, one that “lives by creating value for the broadest number of users” and “has unique social value.”

In addition to matching consumer demand, among the social values ​​Pinduoduo has determined for itself, agriculture is a fundamental piece that cannot be bypassed. Judging from the strategic actions of its platform, after the tens of billions of subsidies, Pinduoduo’s second tens of billions of projects is “Ten Billion Agricultural Research”, which is designed to help agricultural development, which also accounts for a considerable part of Pinduoduo’s research and development expenses.

Generally speaking, Pinduoduo’s technological innovation direction is to polish supply chain capabilities through technological innovation and promote supply chain cost reduction and efficiency improvement. And Pinduoduo continues to invest in this kind of research and development. As mentioned earlier, Pinduoduo’s R&D expenses in the first quarter of 2024 were 2.9 billion yuan, a year-on-year increase of 16%. Previously, it had invested more than 10 billion in R&D for two consecutive years.

From a business perspective, the overall online penetration rate of agricultural products is not high. The pain point lies in the lack of digital infrastructure at the source of the industry and the lack of supply chain capabilities. Pinduoduo’s efforts in supply chain capabilities have become one of the core driving forces for the online transformation of agricultural products. The improvement of infrastructure facilities and technologies such as fresh cold chain logistics has continued to reduce the “upward” cost of agricultural products from villages to cities. . This has instead become a new fulcrum for Pinduoduo to support its e-commerce value.

Pinduoduo’s deep cultivation in the agricultural field is still going deeper. Also in the first quarter, Pinduoduo supported a number of agricultural scientific research competitions, and worked with university teams to launch the “Science and Technology Courtyard” program to support high-quality agricultural scientific research projects and help agricultural transformation from the source. At the same time, its “Agricultural Cloud Action” continues to penetrate into the characteristic agricultural product industry belts in Anhui, Yunnan and other places, providing special e-commerce training and one-on-one guidance, teaching everything you need to know.

If agriculture is regarded as an extension of Pinduoduo’s e-commerce matchmaking and contract fulfillment value, then Duoduo Maicai’s “second venture” is an extension of its business. Continuous investment in agriculture has reduced the logistics performance and procurement costs of Duoduomaicai, which in turn has become the endogenous value of the platform, benefiting both farmers and consumers. Investments that do not pursue short-term interests will instead form relatively deep industry barriers, which is undoubtedly a continuation of the logic of “user value”.

Judging from the results, Duoduomaicai currently covers 30 provincial-level administrative regions in China except Tibet, and pick-up points have opened in 70% of administrative villages across the country. This also confirms the correctness of Pinduoduo’s focus on long-term value creation and accumulation of endogenous value.

In addition, Pinduoduo, as the other side of the platform, is a business community composed of many users, merchants, service providers and the platform, which are interdependent and thrive together. It is nothing more than that Pinduoduo’s third tens-billion project will be the “tens-billion ecology”. After the basic satisfaction of user needs and the initial improvement of platform infrastructure, the emergence of the “Ten Billion Ecosystem” is to provide resources for high-quality merchants and products, thereby helping outstanding merchants achieve high-quality growth and improving the overall ecological quality of the platform. and efficiency.

Tens of billions of subsidies, tens of billions of agricultural research, tens of billions of ecology… Behind several tens of billions of projects, there are various different dimensions of investment radiation. Six years later, a seemingly paradoxical situation has emerged. Pinduoduo, which does not pursue short-term profits, has continued to achieve unexpected growth. In this first quarter financial report, revenue increased by more than 100%, which was high. based on market estimates. Market feedback confirms the correctness of Pinduoduo’s focus on long-term value creation and accumulation of endogenous value.

Conversation: Six years later

The initial letter to shareholders was Pinduoduo’s presupposition, or expectation, for its future shape. It was three years after its establishment and on the eve of its listing. After that, Pinduoduo rose rapidly in a way that surprised the industry.

At the time, many people did not realize that the key to Pinduoduo’s rapid growth without being a flash in the pan was that the so-called “affordable” was not a marketing gimmick strategy, but something that could actually be delivered to a vast group of people that had not been covered before. true value.

Pinduoduo, which has been defined as a public institution, is actually playing its role. In the past six years, we have responded one by one with the same business logic in a way that is more in line with market development and social needs. In this silent dialogue, the business actions of the past six years are the problem-solving ideas, and the eye-catching data in the financial report are the staged answers, once again demonstrating Pinduoduo’s background to the outside world.

It needs to be recognized that the e-commerce industry has begun its “secondary development” after several rounds of reshuffles of players and re-innovation of models, and competition and opportunities are accelerating. Chen Lei’s original words in the conference call proved that Pinduoduo itself was not anxious. “The development of the company’s business is not linear, but fluctuates. But we believe that as long as we continue to focus on long-term value creation, all performance fluctuations will eventually return to the endogenous value we continue to accumulate and grow.”

The logic is correct, the direction is correct, and the results are correct. The practice and status of Pinduoduo provide a new and constantly evolving sample for thinking about how to balance commercial interests and social value.

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