Where do Pinduoduo’s new users come from?

There is perhaps only one month left before Pinduoduo becomes China's largest e-commerce company in terms of user numbers, and it has finally started to make a profit.

On the evening of November 12, Pinduoduo released its third-quarter 2020 financial report.

In the 12 months ending September, Pinduoduo's platform GMV reached 1.4576 trillion yuan, up 73% from the same period last year. Pinduoduo's net profit attributable to ordinary shareholders in the third quarter was 466.4 million yuan.

In addition to revenue, by comparing Pinduoduo and Alibaba's financial reports for the same period, it can be found that as of the end of September, Pinduoduo's annual active buyers reached 731.3 million, a single-quarter increase of 48.1 million; while Alibaba's annual active buyers reached 757 million, a single-quarter increase of 15 million.

According to this growth trend, by the end of December, the number of people buying things through Pinduoduo will exceed that of Taobao. Alibaba launched the special price version of Taobao in March this year with the aim of attacking Pinduoduo in the lower-tier markets.

According to Trustdata analysis, in the more than half a year since Taobao Special Edition was launched, the average monthly net increase in users was nearly 20 times that of Pinduoduo during the same period. On November 11, Alibaba announced that the number of annual active buyers of Taobao Special Edition exceeded 100 million.

However, its rapid "conquest of cities and villages" in the "downstream markets" still failed to stop Pinduoduo's rapid growth. What exactly is the problem? Where do Pinduoduo's large number of new users come from and who are they?

1. People born in the 1970s and 1980s began to “shift”

Compare a set of data. According to Alibaba’s financial report, the number of new annual active buyers in the second quarter was 16 million, and the monthly active users of Taobao Special Edition were 40 million. The number of new annual active buyers in the third quarter was 15 million, and the monthly active users of Taobao Special Edition reached 70 million, an increase of 30 million in a single quarter.

In other words, the total number of buyers of Alibaba e-commerce in two quarters increased by 16 million + 15 million = 31 million, while the number of buyers of Taobao Special Edition within the Alibaba system increased by more than 70 million in two quarters.

This illustrates two problems. First, most of the so-called "new" users of Taobao Special Edition actually come from Taobao's original users. Another thing is that some of Taobao’s active buyers are leaving.

These users who left Taobao may have chosen newly emerging platforms such as Douyin, Kuaishou, and Pinduoduo.

According to the QUEST MOBILE research report, during the 618 period this year, 70% of the newly installed users of the leading e-commerce companies came from the sinking market, and this proportion was achieved by Alibaba, JD.com, and Pinduoduo. It can be said that there is not much difference in their current coverage of the city.

But the problem lies in "age". At Pinduoduo, users aged 30-40 account for 70% of new users, while at Alibaba it is 40%. The 30-40 year old group happens to be the post-80s generation, most of whom are users who grew up with Taobao in the PC era.

The 30% difference in growth rate shows that some users born in the 1980s and 1970s, who used to only shop on traditional e-commerce platforms such as Taobao and JD.com, have begun to try or even completely switch to Pinduoduo.

It is reported that in the third quarter, Pinduoduo's sales and marketing expenses were approximately 10.072 billion yuan, a year-on-year increase of 46%, most of which was used for the "10 billion subsidies."

With the support of the "10 billion subsidies", this group of people with stronger purchasing power has further increased the average annual consumption of Pinduoduo's active buyers to 1,993.1 yuan, a year-on-year increase of 27%.

2. Fight for the post-95s

In addition to the change in attitude of people born in the 1970s and 1980s towards Pinduoduo, people born after 1995 and the elderly also play a key role in the e-commerce landscape.

QUEST MOBILE data shows that in 2018, the proportion of people under the age of 25 on Pinduoduo was 10%.

By 2020, according to the "New Youth and New Domestic Products Consumption Trend Report" released by Beijing Normal University, the proportion of Pinduoduo users aged 25 and above has grown to 32%, 3 percentage points higher than Alibaba (Taobao + Tmall).

The pursuit of young people is also an important factor in Pinduoduo's rapid growth. People born in the 1990s and 1995s are more likely to try new things. Taobao, JD.com, Pinduoduo, Douyin, Kuaishou, etc. will be their shopping scenarios.

The "fragmentation" trend of shopping is more obvious among them.

Therefore, how to increase the length of time users stay and continue to attract their attention has become the key for platforms to increase sales. To this end, Taobao also revised its APP not long ago, and the homepage was changed to an "information flow" format. It is reported that after the revision, the user stay time increased by 20%.

Pinduoduo's approach is to continue to increase its investment in live streaming, even allowing the existence of "show live streaming". At the same time, it has also launched a short video community "Duoduo Short Video" in the APP to further increase entertainment content.

So far, the effect is significant. Investment bank Goldman Sachs said that in the third quarter, the usage time of Pinduoduo users accounted for 41% of the total usage time of users of all e-commerce service platforms in China, a significant increase of 7 percentage points from 34% in the second quarter.

It is difficult to judge what measures Taobao will take in the face of the situation where people stay on Pinduoduo for longer and longer periods of time. However, how to "please" young people and how to compete for attention with short video platforms will still be the "basic skills" that e-commerce companies need to continue to practice in the next stage.

3. Elderly people who use the Internet

The elderly who are gradually "connecting to the Internet" are actually an extremely important pillar of Pinduoduo's future growth.

The report "Illustrated Guide of Middle-aged and Elderly Internet Users" released by Tencent's Kue User Research Institute shows that the number of middle-aged and elderly people in my country aged 45 and above has exceeded 540 million, while the number of Internet users is less than 200 million, and the Internet penetration rate is less than 50%. Among them, people over 60 years old account for 17% of the country's population, about 230 million, and most of these people have never shopped online.

In October, Alibaba released the “Digital Life Report for the Elderly” based on the industry research of the Alibaba economy.

According to the report, from 2017 to 2019, the compound growth rate of consumption by those born after 1960 reached 20.9%, and their online purchasing habits gradually stabilized. Moreover, Hema data shows that the online order growth rate of users born in the 1960s is the fastest, and the average monthly consumption amount per person is higher than that of users born in the 1990s and 2000s.

The elderly have proven their strong purchasing power, which is enough to make young people ashamed and attract the attention of e-commerce platforms. However, the above growth figures all come from elderly people who are good at online shopping.

Alibaba's average monthly active users in the third quarter were 881 million (counted as long as they opened the app once, even if they did not purchase anything), an increase of only 7 million in a single quarter.

The China Internet Network Information Center disclosed that in June 2020, the number of Internet users in my country reached 940 million, and e-commerce leader Alibaba is approaching the ceiling of its user numbers. Therefore, whether it is the 540 million people or the 230 million people who have a low willingness to shop online, it is a huge increase for any e-commerce platform.

How to get this group of people? "Low price" may not be the only factor that influences users' purchases.

The "Illustrated Report on Middle-aged and Elderly Internet Users" believes that middle-aged and elderly users' understanding of Internet products mainly relies on recommendations from acquaintances and pre-installation on mobile phones. Therefore, even if you accidentally click on the link of a shopping APP from various channels, you may give up immediately because you don’t have an account, etc.

In comparison, this group that has not been converted into traditional e-commerce buyers is more likely to become users of platforms such as Pinduoduo that rely on WeChat sharing to spread information.

According to data from The Economist, in 2019, Pinduoduo's penetration rate among people over 45 years old reached 31.8%, exceeding Taobao Mobile's 29.5% and JD.com's 13.2%.

In addition, Tencent’s third-quarter 2020 financial report showed that the monthly active accounts of WeChat and WeChat were 1.21 billion, a year-on-year increase of 5.4%.

As WeChat educates and expands its reach among netizens, new users will naturally become Pinduoduo's growth driver. Without the natural support of the WeChat environment, other shopping apps will need to spend higher costs to educate new elderly users.

But e-commerce platforms do not just compete on the number of users; the average spending of users is also very important.

Alibaba Chairman and CEO Zhang Yong said that even though there is overlap in users between Taobao and Taobao Special Edition, the average consumption has increased from the perspective of the two platforms as a whole. He stressed that “management is more concerned with total sales.”

At a stage when the number of users of e-commerce platforms is about to reach its ceiling, Pinduoduo must also think about how to increase user stickiness (repeat purchase rate) and consumption amount in addition to the support of the "10 billion subsidies".

Author: Wei Peng

Source: Geek Park (ID: geekpark)