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

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. 

An e-commerce entrepreneur believes that "Pingduoduo is difficult to be defeated. If you can make the growth rate of Pingduoduo's GMV lower than Alibaba's, it will be a victory for Alibaba."

This is just like the relationship between Alibaba and JD.com. At present, JD.com has 2 trillion GMV and Alibaba has 6 trillion GMV. As long as JD.com's growth rate is lower than that of Alibaba, the gap between the two sides will become larger. The industry knows that Alibaba no longer regards JD.com as its biggest opponent, although the latter is still a heavyweight player that cannot be underestimated. JD.com is currently the second largest e-commerce platform in the GMV dimension in China, second only to Alibaba. Thanks to the self-operated model, self-built logistics and distribution system, JD.com is one of the few platforms that can guarantee the normal order delivery of users during the epidemic. And in the fourth quarter of 2019, the annual active users of JD.com increased 27.6 million in a single quarter, a new high for the past 10 quarters.
"From preventing Pinduoduo's progress to slowing down its progress." A person close to Alibaba analyzed its tactical adjustment to Pinduoduo in this way. But in public, Alibaba rarely talked about Pinduoduo.

It is understood that Alibaba's current strategy for Pinduoduo is to continue the blockade on its brand, integrate FMCG, and integrate the logistics side, which is commanded by Zhang Yong. Wan Lin (President of Cainiao) leads Cainiao in battle, and Jiang Fan leads Taobao Tmall to support rear.
Jiang Fan is an important part of Zhang Yong's strategy. The post-85s joined Alibaba in November 2013 and started as the director of Taobao's wireless business department. After six years, he became the president of the three major business groups of Taobao, Tmall and Alimom. Alibaba's internal evaluation of Jiang Fan's ability is that he is a keen insight into customer experience and customer needs. He can perfectly combine what Alibaba is not good at with what he is good at, such as content.
The above-mentioned person close to Alibaba said that Jiang Fan's shortcomings in capabilities may be a strategy. "In some certain, it is not enough for what Jiang Fan does to attack Pinduoduo."
One of the sources of Pinduoduo's impact on Alibaba is WeChat Pay's fight with Alibaba. The early users of Pinduoduo mainly came from those who use WeChat Pay, but did not install Alipay and Taobao. If Alibaba wants to beat Pinduoduo from the user side, then it should find a way to let this group of people enter its entire ecology through Alipay, Huabei and other products, let them use Alipay, and then accept Taobao or Taobao special edition.
However, Jiang Fan does not choose to do so. For more than a year after he has been in charge of Taobao Tmall, he has focused more on new customers and new products to achieve the goal of doubling online sales growth. "It may be Alibaba's new strategy: it can't beat Pinduoduo and doesn't want to continue, so what it needs to do is to maintain its core business growth rate," an Alibaba source said.
Another Alibaba person told LatePost(ID: postlate) in August 2019 that Alipay had more than 1 billion annual active users worldwide in the fourth quarter of 2018, 300 million more annual active users than Taobao. At that time, it had been thinking about how to turn these 300 million users into Taobao users. But this thought has not been effectively implemented. Hu Xiaoming took over Ant Financial CEO at the end of 2019. And after he took over the local life services company in January 2020, Alipay's focus began to change.

So the reality is that Alipay was revised in March 2020 and became an open platform for digital life. "These are Alipay's own strategies, and there is no strategy matching Taobao." The person close to Alibaba said.
When people are discussing that Pinduoduo is not contained by Alibaba, this is a result, and it is also the reason - Alibaba does not try to use Alipay and Taotao's power to compete with Pinduoduo. Instead, it stabilized its basic market and maintained its core revenue growth rate. As of the end of 2019, Alibaba's core business revenue still maintained a 38% growth rate. At the same time, Alipay completed the most important upgrade in 15 years - being the world's largest open platform for digital life.
In terms of market share and revenue growth rate of Tmall and Taobao, Alibaba does not lose, but in the long run, it left a gap for competitors. "The best rhythm of competition is to grab users first, and then tap their own platform users' potential." An entrepreneur said.
A person from the Meituan said that one of their strategies in 2020 is to use Meituan to drag Alibaba. Judging from the fierce competition currently faced by Meituan, Pinduoduo's strategy seems to have worked.

Alibaba stays in a dilemma under the deadlocked commercial war 
Before this spring, neither Alibaba nor its challengers ever thought that the private life of the core executives of Taobao Tmall was exposed and it would become a new black swan event.
On April 18, 2020, Jiang Fan, a partner of Alibaba and an M7-level executive, posted on Alibaba's intranet, apologized to the company and his colleagues for the bad influence of Internet rumors, and asked the company to investigate himself. Previous rumors point out that Jiang Fan has immoral relationship with Taobao's important partner Ruhan CMO. To this end, Alibaba has formally established a working group to investigate, and it is reported that Alibaba's investigation will include whether Jiang Fan and Ruhan have any interest transfer.
It is understood that in order to maintain the vitality of his thinking, Jiang Fan has been insisting on doing difficult math problems for many years. And as a core member of Alibaba's core team, Jiang Fan has undoubtedly caused a big problem for the management. If he stays, it may be a value crisis for Alibaba; if he leaves, it may bring temporary business challenges and employment problems to the company.
And another former Alibaba person close to the senior management of Alibaba analyzed that Jiang Fan took the initiative to admit his mistake and released a signal: not causing the collapse of the company's values is a big thing he must consider. Alibaba may not want to lose a talent. After severe reprimands, it is more likely to be handled properly.
Over the years, Alibaba has given the industry the impression that it is a company that emphasizes values first. A large Internet company's HR commented on this matter, saying that values are the most important thing for a company and are the bottom line. "Any company is not handled properly, it will be difficult to lead the team." He said.

The values of Alibaba are "customer first, embracing change, teamwork, integrity, passion, dedication". In September 2019, Alibaba announced its new values on the occasion of its 20th Anniversary, the word "integrity" is adjusted to "trust makes everything simple". In the interpretation of the behavior sent to all employees of Alibaba, it includes "honesty and integrity" and "words and deeds are consistent."
Recently, there are rumors that Jiang Fan is going to be transferred to Alibaba Entertainment, and Alibaba officials quickly denies the rumor. A person familiar with Alibaba said it was impossible to have an intermediate punishment. This matter is a high-voltage line in Alibaba's value system. Alibaba either does not deal with it at all, or it should be expelled directly. 

Many insiders and outsiders in Alibaba said that Jiang Fan shoulders the important task of fighting against Pinduoduo. If Jiang Fan leaves, it may be difficult to find a suitable candidate in a short time.
A Taobao management said that there have been a lot of internal discussions in Alibaba recently. There are three talents from Alibaba's M6 and M7 organization departments: Wang Lei, President of Alibaba local life service company, Li Yonghe, President of Tmall, Fan Luyuan, President of Alibaba cultural entertainment. However, these three people may have other important tasks or are not suitable for the current development of Taobao. He said that assuming Jiang Fan left, it is not ruled out that Zhang Yong temporarily regained control of Taobao, but for Zhang Yong, who is the key person of Alibaba, his current focus is the group strategy and Cainiao. Management of Taobao business is a big challenge for him.
A person from Alibaba's local life revealed that after the Alipay revision, Zhang Yong was very concerned about the local life situation. In recent days, he frequently came to join meetings of Ele.me, and even set up an office.
Commercial companies all have the consistency of emphasizing pragmatism, especially for large companies, which is also the law of survival in the business world. However, regarding the private life of an executive, the above-mentioned person from Alibaba believes that if the investigation confirms that Jiang Fan has no financial problems, it will be likely for him to stay in the original position because of his ability. Unless Jiang Fan himself is unwilling to stay. As of now, Jiang Fan has asked for an investigate within Alibaba, which will help Alibaba to take any necessary actions later.
Many Internet entrepreneurs in China like to say, "To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself." The stay of a talent will affect morale and increase uncertainty in the short term, but in the long-term view, it will not affect the direction of the commercial war. What determines a company's future is its values.

This is an article from WeChat official accounts LatePost(ID: postlate), translated by Chris Yuan.