Analysis-Alibaba’s e-commerce empire under threat from Douyin, Pinduoduo

FILE PHOTO: An employee works at the Tmall logistics center in Suzhou
FILE PHOTO: An employee works at the Tmall logistics center in Suzhou, Jiangsu province, China, October 28, 2015. REUTERS / Aly Song

December 8, 2021

By Sophie Yu and Josh Horwitz

BEIJING (Reuters) – For more than a decade, Alibaba Group has been China’s undisputed e-commerce king but its crown has finally shown signs of slipping, due to a host of rivals Competitors are actively engaged in this sector.

This week, Alibaba announced it was reorganizing its e-commerce businesses into two units, one for China and the other overseas.

In China, its two main markets – Tmall for established brands and Taobao that welcomes all types of merchants – process more than $1 trillion in orders a year.

But Alibaba is seeing significantly slower growth in customer management revenue (CMR), the proceeds of which it charges merchants for services that typically account for one-third to one-half of the total. company revenue. It grew just 3% in the July-September quarter, down from a 20% gain a year earlier.

Last month, Alibaba also cut its annual revenue forecast while sales or gross merchandise value (GMV) for Singles’ Day, its banner shopping event, grew by just 8.5% this year – a level smallest increase to date.

Those disappointing numbers are partly due to regulatory changes and slower economic growth caused by the pandemic that have left shoppers reluctant to splurge.

But they also highlight the increasingly fierce competition and the fact that several rivals have stolen Alibaba in the fastest-growing sectors of Chinese e-commerce.

Merchants and analysts cite ByteDance’s Douyin – China’s sister app to TikTok and a relative newcomer – as the force to beat in live-streaming e-commerce, while Nasdaq-led Pinduoduo Inc. listed has taken the lead in the field of budget and rural e-commerce.

“Other platforms are growing faster than Alibaba, which means they are eating Alibaba’s lunch,” said Lu Zhenwang, CEO of Shanghai-based Wanqing Consultancy.

In a statement to Reuters, Alibaba said it has always faced stiff competition. It added that it offers merchants a powerful live streaming tool in Taobao Live and its Taobao Deals platform for discount shopping and the Taocaicai platform for community group purchases that have won market share. in lower end markets.


Douyin is aiming to increase GMV to more than 1 trillion yuan ($155 billion) this year, according to a source from the company with direct knowledge of the matter. The source was not authorized to speak to the media and declined to be identified.

This is more than six times the 150 billion yuan it was on track to earn last year – a figure given by sources in November 2020.

Douyin declined to comment on his e-commerce business.

The app, which boasts more than 600 million daily active users, started allowing merchants to open stores on its platform in 2018. This year, the company helped brands open top stores. easier.

Yatsen, the parent company of Chinese cosmetics giant Perfect Diary, plans to invest more in Douyin’s presence. By comparison, sales on Tmall, which account for about 40% of revenue, are dwindling.

“Douyin, right now, is becoming a very important factor for the growth of the brand,” Chief Executive Officer Huang Jinfeng told an analyst call last month.

Merchants are attracted by the amount of time users spend on Douyin – 1,871 minutes on average in October compared with 350 minutes on Taobao, according to consulting firm Questmobile, according to consulting firm Questmobile.

Furthermore, while Alibaba’s viewership tends to focus on China’s biggest live-streaming celebrities – Li Jiaqi, known as Lipstick Brother, and Viya, a former singer – they are just two people. In contrast, Douyin can attract a large number of live streamers.

Zen Yan, a 42-year-old auditor living in Beijing, is an avid Douyin shopper.

“It’s easy to spend an hour or more surfing on Douyin every day after work and there are so many influencers selling all sorts of things,” she says.


At the other end of the e-commerce spectrum is Pinduoduo. It’s popular among China’s rural residents thanks to its low pricing and group-buying model that encourages users to share their purchases on messaging platforms to get cheaper prices.

Its GMV grew 66% to 1.67 trillion yuan in 2020. While a more modest 20% GMV growth is expected in the fourth quarter, according to Goldman Sachs, will still be much stronger than Alibaba’s recent results.

Pinduoduo declined to comment.

Rural e-commerce is more geared towards human business than conventional e-commerce, analysts say, and Alibaba is many years behind Pinduoduo in forming relationships with merchants and retailers. important local production.

“For consumers who are used to Pinduoduo to buy cheap goods, it is difficult for them to switch to a new platform. The same goes for local factories or grocery suppliers that are used to Pinduoduo,” said Daphne Tuijn at Shanghai-based analytics firm Chaoly.

Alibaba has also been unable to engage in viral marketing as effectively as Pinduoduo, hampered by not having direct access to a messaging platform like Tencent Holdings’ WeChat, she added.


Alibaba is revamping its e-commerce business – the new reorganization was announced after launching Taobao Deals last year and renaming two community marketplaces to Taocaicai in September.

Even so, its challenges remain abundant, and analysts doubt that Alibaba can go back in time to a time when it was showing the fastest growth in Chinese e-commerce.

Douyin and Pinduoduo are just two of at least 10 established competitors. remains its closest competitor while Meituan and Baidu Inc, giants in the food search and delivery space, are expanding their e-commerce offerings. At the same time, smaller startups are targeting niche segments like footwear and makeup.

And while its impact is hard to quantify, Alibaba has also been traumatized by a regulatory crackdown that forced it to abandon its policy of requiring interested sellers to exclusively set up shop on its platform. me.

“I don’t believe Alibaba can reverse the situation… it can only adopt a defensive strategy,” said Lu of Wanqing Consultancy.

(1 dollar = 6.3749 Chinese yuan)

(Reporting by Josh Horwitz, Sophie Yu and Yingzhi Yang; Editing by Brenda Goh and Edwina Gibbs) Analysis-Alibaba’s e-commerce empire under threat from Douyin, Pinduoduo

Bobby Allyn

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