Pinduoduo, whose number of users exceeds that of Taobao, saw its share price halved. Will it become a discarded child after Tencent and Alibaba reached a peace agreement?

"Anti-monopoly" is stirring up a vortex in the lake of China's Internet. Under the national policy of "interconnection and connectivity", the two originally distinct waters of "Tencent system" and "Ali system" are beginning to show a trend of merging.

A 1,000-word report in the Wall Street Journal in July gave the public a glimpse into the possibility of a reconciliation between Tencent and Alibaba. The confrontation between the two giants has almost split the Chinese Internet ecosystem in two. If both sides can really lay down their arms and let their horses go to the mountains, the impact on the entire Internet field will undoubtedly be a major earthquake that will be recorded in the history of China's economy.

In mid-September, in accordance with the Ministry of Industry and Information Technology's interconnection requirements, the blocking between Alibaba and Tencent was officially lifted. According to tests, the links of Alibaba applications that were previously blocked in WeChat can be redirected to web pages through sharing, allowing users to say goodbye to the past hide-and-seek style of copying garbled codes, greatly simplifying the steps of social sharing.

There is no doubt that taking advantage of the anti-monopoly wind to remove the fence will benefit not only users, but also Alibaba and Tencent. However, for the companies that depend on the two, it may not be good news.

For example, Pinduoduo, which started out by relying on Tencent's cheap traffic and social channels but is in direct competition with Alibaba, is in a rather awkward situation after the relationship between the two changed from confrontation to cooperation.

According to speculation by industry insiders, under the policy of interconnection, Tencent will give up high-quality and cheap social traffic in exchange for WeChat Pay to officially enter Alibaba's applications. In this way, Pinduoduo, which has grown by relying on Tencent's traffic barrier, is equivalent to being disarmed in disguise and is under the direct firepower of Taobao and Taote.

The change in stock prices largely reflects the capital market's expectations for this change. After the Wall Street Journal report was published, Alibaba's US stocks rose 3% before the market opened, Tencent Holdings' ADR rose 3.76% before the market opened, and Pinduoduo's intraday stock price fell by more than 5%.

However, many observers in the industry are conservative about the "mutually open ecosystem" of Tencent and Alibaba, believing that the two are more like taking advantage of the opportunity of "avoiding monopoly" to join forces to achieve a more thorough market monopoly. Alibaba will get the coveted social traffic entrance, and Tencent will be able to extend its payment tentacles to the entire e-commerce field.

It seems that the "marriage of the century" between Alibaba and Tencent has limited impact on Pinduoduo. After all, Pinduoduo now has more than 849.9 million active users, while Taobao, which also targets the sinking market, has only 190 million active consumers, and poses limited threat to Pinduoduo.

However, is this really the case?

Growth slows down, Pinduoduo's financial report data hides development concerns

The mutual shielding between Alibaba and Tencent began in 2013. Since then, as the two giants grew into two towering trees in the Internet industry, other Internet startups depended on them. Just like the US-Soviet rivalry, the two-power structure started a confrontation between the two camps.

Pinduoduo is one of the biggest beneficiaries of the confrontation between the two.

After Tencent’s own e-commerce efforts failed, it invested in JD.com and Pinduoduo in 2014 and 2016 respectively to compete with Alibaba’s Taobao and Tmall.

Pinduoduo targeted the third-tier cities and below that were actually abandoned by JD.com and Alibaba. Relying on the WeChat social traffic, the platform launched a fission marketing of acquaintances to expand its customer base and won a very cheap user base. It took Pinduoduo only five years to rank among the top five in China's market value, which is undoubtedly a new era of entrepreneurial legend.

On May 26, Pinduoduo released its first financial report after its founder Huang Zheng resigned as chairman.

Data shows that as of March 31, 2021, the number of active buyers on the Pinduoduo platform was 823.8 million, surpassing Alibaba's 811 million and JD.com's 499.8 million, making it the e-commerce platform with the largest user base in China.

Pinduoduo's losses continued to narrow. Under non-GAAP, Pinduoduo's net loss in the first quarter of 2021 was 1.89 billion yuan, lower than 3.17 billion yuan in the same period last year.

It seems that Pinduoduo's revenue is still on an upward trend. Its revenue in the first quarter was 21.167 billion yuan, a year-on-year surge of 223.6% compared with 6.541 billion yuan in the same period last year.

However, beneath the excellent financial report data, Pinduoduo also hides a huge crisis.

Through the financial report, we can see that Pinduoduo's pace of progress has slowed down significantly, and the traffic ceiling has begun to appear, especially in the quarter-on-quarter data. Although compared with the first quarter of 2020, Pinduoduo's various data have improved significantly, but compared with the fourth quarter of 2020, the data changes are slightly embarrassing.

In the first quarter of 2021, the number of active buyers on Pinduoduo increased by 195.8 million year-on-year, an increase of 31%, but compared with the fourth quarter of 2020, the number of active buyers increased by 36 million month-on-month, an increase of only 4.57%. In comparison, Alibaba increased by 32 million month-on-month, an increase of 4.11% month-on-month, and JD.com increased by 27.9 million month-on-month, an increase of 5.91% month-on-month. Pinduoduo did not continue to widen the gap with them.

In the first quarter, Pinduoduo's monthly active users reached 725 million, a year-on-year increase of 235 million, or 48.9%, but a month-on-month increase of only 5 million, or 0.7%.

In terms of revenue, Pinduoduo's revenue in the first quarter of this year fell by 4.381 billion yuan from 26.548 billion yuan in the fourth quarter of last year, a drop of 16.5%.

In addition, in the financial report for the first quarter of 2021, Pinduoduo broke its usual practice and did not disclose the platform's GMV data for the first time.

The outside world generally speculates that the reason is also the poor performance of GMV data, reflecting the slowdown of Pinduoduo's growth. Looking at Pinduoduo's GMV data in recent years, from 471.6 billion yuan, 1006.6 billion yuan, to 1667.6 billion yuan in 2020, although it has maintained a growth trend, the growth rate has dropped from 234% and 113% to 66%, a three-year growth rate of 168%.

Compared with active users and revenue data, platform GMV reflects user retention and repurchase information more comprehensively and is more valuable for reference. Pinduoduo's decision to no longer disclose GMV core data on a quarterly basis seems to be an intentional attempt to hide the problem of its platform's sluggish growth.

In contrast, Taobao, which was only launched last year, already has 190 million annual active consumers, with nearly 100 million new consumers added in the first half of this year alone, a net increase of 40 million in a single quarter. Its number of users is second only to Taobao Tmall and Alibaba Cloud within the Alibaba system, and it is one of the few phenomenal products of the Alibaba system in recent years.

Wang Hai, the leader of Taobao, also became an Alibaba partner in the middle of the year. The election to become a partner requires the consent of more than 75% of the partners. This not only shows that Wang Hai's performance has been recognized within Alibaba, but also shows that Taobao, which is responsible for developing the sinking market, has enhanced its strategic position in the Alibaba system.

This is not difficult to understand. Although Alibaba's Taobao and Tmall's GMV is much higher than Pinduoduo, in the incremental market, 70% of Alibaba's annual new active consumers come from underdeveloped areas, and the contribution of the sinking market is significant.

It is not surprising that Pinduoduo, which originally focused on the sinking market, has a significantly lower GMV than Taobao when it has a higher number of users. However, with the ceiling of the platform showing, Pinduoduo has lost the rapid growth in the number of users and is still hovering between profit and loss, so it is very difficult for it to tell a good growth story.

Problems broke out, and Pinduoduo's over-rapid development caused backlash

For Pinduoduo, getting rid of the image of a cheap platform and achieving profitability as soon as possible is the only way to go under the new normal of unsustainable high-speed growth. After the number of users reaches its peak, Pinduoduo's future direction will also start with the entry of emerging brands and agriculture.

For the former, Pinduoduo's 10 billion subsidy plan has cultivated the habit of some users to buy high-end brand products on the platform; for the latter, Pinduoduo has bet heavily on the grocery business, and has begun to gradually charge commissions to merchants since March this year, and has taken the lead in implementing it in some areas such as fresh food.

However, the viral fission models such as group buying and bargain hunting launched by Pinduoduo on the WeChat platform have successfully aroused dissatisfaction among users. The "monkey-like" new user acquisition methods such as "withdraw 500 yuan" and "get free products" have failed to bring more incremental users to the platform, but have successfully "detonated" user reputation. These methods can be described as "constantly testing the edge of the law."

Attracting new brands to join the platform is tantamount to snatching food from the mouths of Alibaba and JD.com, but the biggest obstacle still comes from users' stereotypes about the Pinduoduo platform. Obviously, Pinduoduo's intensified social fission methods in order to acquire users have had the opposite effect.

Under Pinduoduo's own "micro-manipulation", compared with Taobao, Tmall and JD.com, users who choose Pinduoduo to consume high-value goods still face considerable "psychological barriers".

Duoduo Maicai is also facing challenges from competitors such as Meituan Youxuan and Didi Chengxin Youxuan. It is reported that in December 2020, the order volume of Meituan Youxuan has exceeded 20 million orders per day, and the target GMV for 2021 is 200 billion yuan.

Ma Jing, Pinduoduo's vice president of finance, said it was too early to evaluate the business model and there were many areas that needed improvement in actual operations. The future of Duoduo Maicai was also unclear.

While seeking breakthroughs in business and profits, Pinduoduo, which once grew at a rapid pace, has also suffered a backlash, with negative news erupting since the end of last year.

On December 29, 2020, a 23-year-old female employee of Pinduoduo's grocery business department in Urumqi died suddenly on the way to work after finishing overtime at 1:30 a.m.; on January 9, 2021, an employee of Pinduoduo's payment service "Duoduo Wallet" project team committed suicide by jumping off a building; on January 11, a Pinduoduo employee was found by Pinduoduo through technical means for anonymously uploading photos of his colleagues being carried into an ambulance, and was threatened to resign by "destroying his files."

Internal problems occur frequently because Pinduoduo sees itself more as a high-speed corporate machine with almost no human connections as a lubricant.

We can get a glimpse of the problem from Pinduoduo's "toilet incident" that was once a laughing stock on the entire Internet. Each floor can accommodate thousands of people, but there are only 8 toilet stalls. Pinduoduo would rather make employees queue for 20 minutes each time to go to the toilet than let them "take a shit with pay", ultimately forcing employees to defecate in urinals.

As for users, everyone is already fed up with the "cut-price" annoyance. A UP host at Bilibili tested Pinduoduo's withdrawal routine and finally proved that it is impossible to "withdraw" or "get for free" by asking friends to help cut the price. The video once topped the Bilibili rankings, with nearly 7.4 million views, which aroused widespread resonance.

At the same time, Pinduoduo has not gotten rid of the reputation of being a hub for "fakes" and "copycats". On the consumer complaint platform Black Cat Complaints, Pinduoduo received nearly 265,000 complaints, far exceeding Taobao's 176,000 and JD.com's 140,000.

Pinduoduo's attitude towards handling complaints is also relatively negative. The platform shows that Pinduoduo handled 63,000 complaints, accounting for 24%, while JD.com handled 94,000 complaints, accounting for 67%, a large gap.

On May 10, the Shanghai Consumer Council formally summoned Pinduoduo for a meeting, pointing out that the platform had problems with infringing on consumer rights, including product quality issues, counterfeit infringement issues, forced order cancellations, false deliveries, after-sales service, and price-cutting to attract new customers.

It is not only the buyers who have complaints about Pinduoduo. Merchants are also complaining and defending their rights against Pinduoduo, including buyers making false returns, the platform quickly refunding the transactions and not allowing merchants to appeal; and Pinduoduo inexplicably freezing their funds for various reasons, involving huge amounts of money.

The future of the new business is uncertain, the number of users has peaked, GMV growth is weak, user reputation is declining, internal problems are prominent, and it has been summoned by relevant departments. Under the combined effect of various factors, Pinduoduo's stock price has long entered a downward spiral.

On February 16, Pinduoduo's stock price reached its historical peak of $212.597 per share. Since then, Pinduoduo's stock price has continued to decline. As of the time of writing, the stock price has reached $94.01 per share, which has been halved. Compared with the peak market value, the market value has evaporated by more than $100 billion.

Although Alibaba and JD.com also experienced varying degrees of stock price declines in the first half of this year, none of them experienced such a severe "continuous decline" as Pinduoduo. Ultimately, Pinduoduo still does not have the foundation laid by Alibaba and JD.com in the market and logistics fields. Although Pinduoduo has gained wide recognition from capital by focusing on "people disappearing from the Internet", there is no doubt that what really drives Pinduoduo's rapid growth is still the cheap social traffic from Tencent. Tencent's acquiescence to Pinduoduo's illegal and even illegal information is an indispensable element to Pinduoduo's success.

In the era of interconnection and connectivity, how can Pinduoduo avoid being abandoned?

Despite constant negative news and a bad reputation, Pinduoduo has 849.9 million users and has successfully broken through the crowds in low-tier cities and the hundreds of millions of people who have disappeared from the Internet. It relies on the social traffic moat monopolized by Tencent WeChat. After the fence is removed, whether Pinduoduo can stop Taobao Taote, which started out as a B2B company and is coming on strong, is an unknown.

In response to this, Tencent, which holds a 15.6% stake in Pinduoduo, has adopted a defensive stance. Tencent, which has always hoped to extend WeChat payment tentacles into Alibaba's internal applications, has always suppressed Taobao's application for access to WeChat payment. In contrast, Alibaba's mini-programs such as Ele.me and Damai can be connected normally.

Currently, Taobao’s WeChat QR code payment is obtained through cooperation with third-party payment institutions that have a cooperative relationship with WeChat. However, after users choose the WeChat QR code payment method, they must save the generated QR code and then scan the code in WeChat before they can pay, which is rather cumbersome.

However, it must be mentioned that according to the information released by the Ministry of Industry and Information Technology, the unblocking of link blocking and interconnection is only the first step in a six-month special rectification campaign in the Internet industry. As for the monopoly and closure of payment methods, it has also seriously affected consumers' right to choose and user experience, and will inevitably be subject to intervention.

It is reported that Tencent WeChat Pay and Alipay have successively connected to the technical research and development of UnionPay Cloud QuickPass, and are gradually opening up payment scenarios. From the online platform's support for Cloud QuickPass to the mutual recognition and scanning of QR codes in offline physical stores, the interconnection and interoperability of payment interfaces is also progressing steadily.

Under the influence of policy advancement and industry rectification actions, Tencent may eventually have to take the initiative to dismantle Pinduoduo's traffic barriers, allowing Pinduoduo and competing products such as Taote to compete fairly in an open and interconnected market environment.

But in other words, in the context of AT shaking hands and making peace and fully interconnecting with each other, does Tencent still need Pinduoduo as the vanguard of e-commerce?

Last September, Tencent disclosed the relevant data of mini programs at the Global Digital Ecosystem Conference. The transaction volume of WeChat mini programs exceeded 800 billion in 2019 alone. How important is Pinduoduo to Tencent? I'm afraid not.

For Tencent's plan to build a complete ecological closed loop, Alibaba is undoubtedly a better partner than Pinduoduo, whose growth has reached a bottleneck period and whose reputation has become a negative asset. Alibaba will certainly make a profit by obtaining Tencent's traffic and gaining a new incremental market, but in the long run, Tencent will benefit more because it can extend WeChat payment to Alibaba platforms and obtain a wider channel for traffic monetization.

The powerful combination of the two will provide a full-link ecosystem from the starting point of traffic to the end point of e-commerce, which will also be a trump card for Tencent and Alibaba to jointly strangle the rising star ByteDance. Compared with the e-commerce ecological dividends brought by Pinduoduo, how to fight against Toutiao, which has touched Tencent's basic traffic base, is undoubtedly a higher priority issue.

Therefore, the company that was hurt by the "century reconciliation" between Tencent and Alibaba was Pinduoduo. In the context that the confrontation between Tencent and Alibaba has become a thing of the past, how much value does Pinduoduo still have for Tencent, and how Pinduoduo can compete with Taobao and Taote under the same traffic conditions, all of which are big questions. ​

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.