<Editor's Pick>Alibaba stays in a dilemma under the deadlocked commercial war with Pinduoduo

Apr 29, 2020 PinDuoDuo JD.COM CAINIAO Gome

Alibaba Group Chairman and CEO Zhang Yong officially took over Ma Yun in September 2019. In just 7 months, he has made drastic adjustments internally and participated in the formulation of new corporate values. Besides he also made a round of streamlining of core executives who reported directly to him. He completed a $2 billion acquisition, and spent $3.3 billion to continue to integrate Cainiao.
Huang Zheng, founder of Pinduoduo, began to look for new investment after leading the company to achieve the GMV (total commodity turnover) of RMB 1 trillion in 2019. He gained a new fund of $1 billion 100 million for Pinduoduo, made the first foreign strategic investment and reaped the first large-scale retail ally. It supplemented the category and logistics weaknesses, and established a partnership system with Alibaba as reference within the company.
In the face of 2020, which is full of variables, Pinduoduo is trying to gain more investment, and Alibaba is starting to layout its business. They are ready for everything. However, no one expected that a seemingly accidental private life event of Taobao Tmall executives brought a new variable to the business competition. How the entire situation will evolve, it will take some time to observe and measure those uncertain factors.

Pinduoduo partners Gome retail
On April 19, Pinduoduo announced that it would subscribe to $200 million worth of Gome convertible bonds, with a tenure of three years, and an option to extend by two years. The bonds are equal to around 1.28 billion Gome shares, or around 5.6 per cent of the total on a fully diluted basis. 

Gome's CFO Fang Wei said that in mid-April, Pinduoduo took the initiative to find Gome, expressed his willingness to invest, and the two sides quickly reached a cooperation intention. Two days after the negotiation, on the third day, he went to the Gome board of directors. The board of directors quickly decided to pass this cooperation proposal and began signing the contract that night. It is understood that it originally planned to introduce strategic capital, but Pinduoduo is not on Gome's first list of financial advisers.
The negotiation was very smooth. The only twists and turns were Pinduoduo's demand that all the goods be put on the shelves in full, and keep the lowest price of Gome. "This piece has been talked about for a relatively long time. All the listings require a lot of technical support, but Pinduoduo immediately said that they set up a working group which can help us get the data through."
Suning has more than 100 billion GMV in Tmall a year. At present, Gome's sales in Pinduoduo are far from this figure. Gome hopes to surpass it in the next three years. Fang Wei predicts that Gome will eventually put 10,000 SKUs (inventory units) on Pinduoduo.
According to LatePost(ID: postlate), in 2019, the GMV brought by Pinduoduo's 10 billion subsidy plan accounted for about 6% -7%, that is, 60 billion-70 billion yuan. In 2020, Pinduoduo hopes that the proportion of 10 billion subsidy plan can increase to 10%. The latest news is that the brand teams of 10 billion subsidy plan have now been decentralized to businesses, and each business races to compete for resources.
Many people think the cooperation of Pinduoduo and Gome is the same with the cooperation of Alibaba and Suning in 2015. But in the eyes of the industry, the two cooperations have similarities, but they are not exactly the same.
Compared with offensive competitors, the purpose of the cooperation between Pinduoduo and Gome is for mutual advantage. Pinduoduo is not good at the home appliance category, which is an inventory market. And home appliance is a very special category. Anxun Logistics, a subsidiary of Gome, can provide medium and large items that cover the whole country. For logistics, warehousing and delivery services, Gome is also trying to supplement its small parts logistics services based on the 3-5km business district radiated by the stores.
Alibaba has been trying to curb the logistics side of Pinduoduo by integrating the ZTO Express and Yunda Express system. In the future, large items on the Pinduoduo platform can be delivered by Gome, and small items can be delivered by ZTO Express and Yunda Express, China Post and J&T Express - of course this is the most ideal situation.
This difference is determined by the different positions of the two companies. As the boss, protecting the territory and doing adequate defense are the most important things. After a long period of hard work, for Pinduoduo, the first task is to expand its territory and find allies.
The situation of its partners is also different. Suning joins it as a platform, while Gome joins it as a retailer today. Gome, as a retailer, has entered Pinduoduo. After achieving deep data penetration and collaboration, it hopes that the retailer's inventory turnover speed and e-commerce conversion rate will be maximized with faster efficiency.
Business changes are so reasonable and unpredictable. Just as Gome couldn't imagine Pinduoduo will come out with its full potential in the field of e-commerce that seems to have been set in China, and it even becomes its ally in 2020.

Alibaba adjusts its strategy to compete with Pinduoduo
Some information and signs show that Alibaba has actually regarded Pinduoduo as its biggest opponent around Double 11 in 2018, with priority over Meituan and JD.com. This large-scale battle against Pinduoduo has lasted for almost a year and a half. "Today Alibaba is very clear that it is no longer possible to curb Pinduoduo from the user side." An Internet person who is very familiar with Alibaba and Pinduoduo told LatePost(ID: postlate).
From the data, the large number of new users of e-commerce has been taken by Pinduoduo. As of the fourth quarter of 2019, the number of new active buyers in Pinduoduo's single quarter is 48.9 million, while Alibaba's is 18 million. Pinduoduo's annual number of active buyers is 80% of Alibaba's, and the growth rate is three times of Alibaba's. From the perspective of per capita consumption, the per capita consumption of Pinduoduo's active user is 1721 yuan, which is one-fifth of Alibaba's in the fiscal year 2019, but, the per capita consumption growth of Alibaba's active users is only 0.3%, and that of Pinduoduo is 34.62%.
LatePost(ID: postlate) has reported that before February 2020, Pinduoduo's internal target for GMV in 2020 is 1.6 trillion yuan, with a growth rate of 60% compared with 2019. The goal may be delayed by the epidemic, but the trend and ambition is unchanged.