It’s rare that an e-commerce firm goes for IPO within three years of inception. And that too, at a massive valuation of $28 billion. Such rare feat has recently been achieved by China’s third largest e-commerce firm Pinduoduo (popularly known as PDD). The Shanghai-based company went public on NASDAQ last week and raised about $1.6 billion.
Regulatory filings showed that each share was marketed at $16 to $19, and some media reports outlined that about 85.6 million American depositary shares were issued by the company.
Interestingly, buoyed by its stellar performance over the years in China, PDD’s major backers Tencent and Sequoia Capital are poised to buy new shares worth $250 million in the company.
Founded by Colin Huang, an ex-Googler, Pinduoduo is a consumer-facing e-commerce platform that redefined and championed social commerce in China. It allows users to group together and avail mind-boggling discount offers. For instance, if someone likes a product on PDD, he or she can invite others on WeChat and QQ to form a group of buyers to buy the product at its lowest price.
Using the power of group buying, users get a discount up to 80-90 per cent.
On consumers’ front, unprecedented discount and pleasure of buying in the group have worked immensely in the favour of Pinduoduo and simultaneously it records massive order for sellers. Thus, PDD creates a win-win situation for both parties.
Within 12 months of its launch, PDD has amassed over 100 million users and crossed $159 million monthly in Gross Merchandise Value (GMV) by the end of September 2016. Surprisingly, over the course of the next 18 months (between September 2016 till now), it had attracted 200 million more buyers.
Most significantly, the company’s GMV rumoured to be ballooned to $6.3 billion monthly GMV in recent months. Currently, it has about 300 million users (after JD with 300 Mn plus users and Taobao’s 540 Mn).
In terms of monthly active users, PDD had 118 million while JD reported 145 million MAUs in January this year.
To put things in perspective, India’s largest e-commerce behemoth Flipkart has 100 million registered users. According to an estimate by RedSeer, entire Indian online retail segment had a GMV of $18 billion in 2017 while the annual GMV run rate for PDD is over $38.5 billion.
While all the aforementioned figures look splendid, the primary question remains – how has PDD been able to attain 300 million users and $6.3 billion monthly GMV?
Instead of following Taobao or JD’s path, PDD chose to bet on a staggering number of users on social media – primarily WeChat. The Tencent-backed company leveraged the one billion plus userbase on the instant messaging app to purchase a particular product at low prices through social interactions on the feed named WeChat Moments.
It also used cash and red envelope (in the range of Rs 50 to 500) to reward users for inviting friends for group purchasing. Besides, it also featured users who made a lot of money by inviting friends to its app and other channels.
The company also offers lottery sort of system where users pay about Re 1 and invite a certain amount of friends within a specific timeline to win product for free. To drive frequent purchases, PDD has enabled one-click payments (password-less payments) experience after users perform their first transaction.
Unlike Taobao and JD, PDD’s 65 percent user base hails from tier III cities and rural areas. The company has created its own niche by targeting the low-income population who are also new internet users. Since females in smaller towns spend more time on WeChat and other social networks, over 70 per cent of its users are women.
About 58 per cent PDD users are between 25 to 35 age bracket.
Future potential and challenges of social commerce in India
Social commerce in India is in a very nascent stage. Only a few years ago, startups like Wooplr, Meesho, and Shop101 have set up shops in the country. While companies like Wooplr have failed to make any dent, likes of Meesho and Shop101 are relatively young and require to go a long way.
With the penetration of Internet in India, user base of social networks such as Facebook, WhatsApp and ShareChat will explode in the next two-three years. This will also provide impetus to social commerce in the country as setting up websites and driving traffic are capital intensive game for the small merchant.
Selling on social media platforms is rather easy in the country where people are becoming obsessive about Facebook and WhatsApp.
Nevertheless, the major challenge is to woo a next billion users who consume content and communicate in vernacular languages. So far, a majority of Facebook and WhatsApp users are English or at least Hinglish savvy population.
As of now, social commerce is largely limited to English speaking population. However, many contents and social media platforms are solely focusing on Bharat (non-English speaking population). With the proliferation of such apps in tier III cities and rural areas, the scope of social commerce is huge.
While the reach and scale of social commerce appear very small at the moment in India, only time would tell its capabilities of producing parallels to Pinduoduo.