Explaining Pinduoduo, and whether the model can work in Southeast Asia

The growing popularity of social ecommerce in China has created a wave of disruption that changed ecommerce for good. Upstarts like Tencent-backed Pinduoduo have become a serious threat to Chinese ecommerce heavyweights Alibaba and JD.com.

This new form of ecommerce has captured a sizable portion of the market. It’s also generating buzz in Southeast Asia, with prominent players like Shopee and Lazada as well as startups like Ezbuy testing the waters.

Since startups around the world now draw inspiration from China, it raises the question of whether the Pinduoduo model could work in Southeast Asia.

The region’s untapped potential is appealing, but startups need to navigate challenges such as logistic hurdles and low digital payment adoption in remote areas.

The rise of social ecommerce

Over the past 20 years, China has seen impressive growth in the ecommerce sector. But Pinduoduo and other newcomers such as the Little Red Book and Shihuituan are challenging the traditional business-to-consumer model.

Pinduoduo’s business thrives on bulk sales of discounted products – sometimes up to 90% off – and taps social media and messaging apps to boost traffic. The platform offers special pricing to customers who do the legwork, such as user acquisition and marketing. It also encourages social sharing by giving a better deal to users who share the code with others.

However, the model has yet to achieve cost efficiency, and industry watchers have been skeptical of how the company runs up losses to lower the prices of products. And yet, Pinduoduo has shown its ability to not only survive but thrive in the cutthroat ecommerce market.

The company went public in July 2018 on Nasdaq, just three years after its founding. In the fourth quarter of 2019, it had 481.5 million average monthly active users, up 77% from the same period last year.

Major Chinese online marketplaces have also copied Pinduoduo. JD.com launched a group-buying app called Jingxi last year. In January, Alibaba rolled out a new feature within the Taobao app called Taoxiaopu, which pays users a commission if they convince others to buy the products.

The C2M model

Fertile ground for social ecommerce

Potential barriers

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