Social e-commerce is huge in Asia. He arrives in the United States
As an American who ran a Singapore-based venture capital firm for a decade, I often see new technology trends emerging earlier or more strongly here in Asia than at home. And right now, social e-commerce has a big place.
Social e-commerce is all about selling goods online, in quantity, through people’s social networks. These networks can exist virtually (like on a mobile app) or in the physical world, between friends and neighbors, or both. The key is to use these groups for high volume transactions, rather than just making small intermittent sales through online platforms. It is a trick that Asian entrepreneurs are exploiting with force.
The boom started in China, where social e-commerce now accounts for more than 13% of all online sales, compared to just 4.3% in the United States. $ 36 billion in the United States
Today, growth is exploding in other parts of Asia, driven by two main business models. One is the group buying model, which offers discounts to buyers and efficiencies for sellers by grouping buyers together to create these wholesale transactions. The other model is live e-commerce, where top influencers can quickly sell huge amounts of fashion and other merchandise to their social media followers. Neither concept is entirely new, but right now Asian companies are seeing incredible results using these models. So it is likely that you will soon see these approaches permeate the West. Let’s take a closer look at how the two models work.
Pinduoduo, founded in China in 2015, is considered the forerunner of the modern group purchasing model. The company has a market value of $ 130 billion, more than US retail giant Target. Pinduoduo started out by targeting under-exploited consumer markets in Chinese cities where mobile users hadn’t bought much on-screen. The startup paired them with underserved suppliers: namely farmers, whose meats and fresh produce normally did not perform well for direct online sales to consumers. Packaging and shipping small individual orders of these products would be expensive, especially with last mile delivery to every household.
Pinduoduo’s group buying platform offered benefits at both ends. This enabled budget-conscious customers to obtain far lower prices than retail food markets by consolidating their purchases into large orders that farmers could cost-effectively ship to local distribution points. In addition, Pinduoduo’s choice of fresh food as a staple line has created a sticky platform with many loyal customers. People buy fruits, vegetables, and meat a lot more regularly than, say, consumer electronics.
Go to the Pinduoduo home screen today, and in addition to food, you’ll see household items such as paper products and cleaning supplies, as well as a wide range of durable goods. The items are available at two price points: one if you just want to buy on your own, and a much cheaper price for a group purchase. You can form a group of friends and family of the required size, or browse to find an existing group that needs another member. Meanwhile, Pinduoduo extracts customer data and feeds it to vendors, to give them a better idea of what will sell where.
Since 2015, Pinduoduo has achieved over $ 255 billion in annual GMV with annual revenues of over $ 9 billion. In China, it overtook older, more conventional Groupon-type platforms such as Meituan, and it inspired emulation beyond China.
Many group buying startups are now surfacing in the Association of Southeast Asian Nations (ASEAN) 10 country region in Southeast Asia. Many newcomers recruit local “agents” or “community leaders” to manage purchases. This person is often a housewife – for example, the Vietnamese company Shoppa explicitly targets women as agents, urging them to become a “Ms. Shoppa”, although anyone looking for a secondary income can fill the role. As an agent, you receive a special version of the company app. In addition to organizing a local group and reporting good deals, your job may include collecting cash payments, a crucial step in creating markets in places where many people don’t bank or have no money. electronic account. The entire order then reaches you for distribution. In return, you get additional commissions and discounts on purchases for yourself.
People say they enjoy the social aspects of neighborhood groups and distribution tours, noting that the groups also help build confidence in online shopping. With these advantages in addition to financial incentives for all parties involved, the model is gaining ground in large market countries like Vietnam (98 million inhabitants) and, in particular, Indonesia (270 million).
Live-streamed e-commerce, although similar in concept to home shopping channels, has unique characteristics and appeal. In China and recently South Korea, an emerging hotbed, there is an ecosystem of large companies using studio networks to broadcast shows that sell clothes, beauty products, etc. Hosts are selected from legions of young people who aspire to become elite influencers. The best achieve mass personalization, leveraging their talents and charisma to sell in volume to huge virtual communities of followers.
Chinese star Viya won a singing competition and led pop groups before returning to her family’s roots in retail. Its live broadcasts have been described as “part variety show, part infomercial, part panel chat.” Another Chinese influencer, Austin Li, is known as Lipstick King. Drawing on the face-to-face skills he acquired as a cosmetics salesperson, he can be intimately engaged while working with professional efficiency: Li has already applied 138 different lipsticks over the course of a 30-minute live broadcast, and he’s not afraid to demonstrate them on his own lips. During Alibaba’s Singles Day promotion last November, Viya and Li’s sales were over $ 100 million.
Fashion designer and former model influencer Zhang Dayi said the key to live e-commerce is “authenticity” that a host can convey. In an interview with WWD she asked, “Do you like to watch commercials? People don’t believe it because it’s an ad, ”whereas in live broadcasts“ they get to know you ”, and if they love and admire you,“ they want your lifestyle ”.
The leapfrog effect
In the United States, neither the online e-commerce nor the group buying model has yet reached the scale and sophistication seen in Asia. Perhaps one of the reasons is that marketing in the United States was already very developed before the arrival of the Internet, so the old techniques simply grafted onto the new media: TV and print ads evolved. in pop-up advertisements; direct mail has become an explosion of emails. Many Asian countries, by contrast, experienced a double jump. Their economies quickly went from low levels of prosperity (with little mass marketing of consumer goods) to higher levels, as people went straight from offline use to heavy mobile use. The result has been a wide open field to create new modes of marketing for a new era.
Moreover, social e-commerce in Asia is made possible by the widespread use of mobile social media applications. WeChat has over 1.2 billion monthly active users worldwide, the majority of which are in China, and millions of other Chinese also have Weibo and / or Douyin, which is video-compatible, on their phones. WhatsApp is popular in ASEAN countries, while Naver and Kakao vie for dominance in South Korea. These provide user infrastructure for major e-commerce players such as Alibaba, Singapore-based Shopee, and Coupang in South Korea to expand their live-streaming efforts and enable group buying startups to grow.
Right now, the picture in Asia is fluid. Social e-commerce is still in its infancy. New hybrid forms are being invented, and some have encountered problems. For example, Chinese Yunji implemented a group buying membership model that had to be changed when regulators thought it looked like a pyramid scheme. Finally, some recent growth in social e-commerce can be attributed to the pandemic forcing many activities online, in volumes that may or may not persist.
However, the momentum behind this phenomenon cannot be ignored. It’s more than a question of investors and entrepreneurs entering a new space. Consumers are embracing social e-commerce. They speak with their wallet. Strong new companies that are not yet showing net profits, including Pinduoduo, appear to have paths to profitability. And as to whether the rise of social e-commerce will spread to the United States and the world, my answer would be that timing, choice of markets and business models, as well as good management will be crucial. But the question is not whether it comes to you. It’s when and how.
Vinnie Lauria is a Silicon Valley entrepreneur turned investor. He is a Managing Partner at Golden Gate Ventures, a Singapore-based venture capital fund.