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

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This week, Alibaba announced that it was reorganizing its e-commerce businesses into two units.

Beijing: For more than a decade, Alibaba Group has been China’s undisputed e-commerce king, but recently its crown has shown signs of slipping, troubled by an influx of aggressive competitors into the region.

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

In China, its two main markets – Tmall for established brands and Taobao that welcome all types of merchants – process orders in excess of $1 trillion annually.

But Alibaba is seeing sharply slow growth in customer management revenue (CMR), the money derived from charging merchants for services, which typically accounts for a third to one-half of its total revenue. It grew just 3% in the July-September quarter, down from 20% growth a year ago.

Alibaba also cut its annual revenue forecast last month, while sales, or gross merchandise value (GMV), for Singles Day climbed just 8.5% this year — the smallest increase ever.

Those disappointing numbers are due to regulatory changes and slow economic growth driven by the pandemic, which has made shoppers reluctant to isolate.

But they also highlight the onslaught of competition and the fact that some rivals have stolen a march on Alibaba, one of China’s fastest-growing sectors of e-commerce.

Traders and analysts cited ByteDance’s Douyin — TikTok’s Chinese sister app and a relative newcomer — to outperform live-streaming e-commerce, while Nasdaq-listed Pinduoduo Inc. took the lead in rural and budget e-commerce. Is.

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

Alibaba said in a statement to Reuters that it has always faced stiff competition. It said that it provides merchants with a powerful live-streaming tool in Taobao Live and that the Taobao Deals platform for discount shopping and the Taocaiicai platform for community group shopping were gaining share in the bottom-line markets.

an up-and-coming doyin

Douyin is targeting a more than 1 trillion yuan ($155 billion) jump in GMV this year, according to a company source 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 6 times the 150 billion yuan earned last year – a figure given by sources in November 2020.

Douyin declined to comment on its e-commerce business.

The app, which has over 600 million daily active users, began allowing merchants to open stores on its platform in 2018. This year the company has made it easier for brands to open flagship stores.

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

“Douyin, right now, is becoming a very important factor for the development of the brand,” CEO Huang Jinfeng told an analysts call last month.

According to consulting firm QuestMobile, traders are attracted to the time users spend on Douyin – an average of 1,871 minutes in October, compared to 350 minutes on Taobao.

Furthermore, while Alibaba’s audience traffic to China’s biggest live-streaming celebrities – Li Jiaqi, better known as the Lipstick Brother, and Via, a former singer – they are just two people. Conversely, Douyin can attract a larger pool of live streamers.

Zhen Yan, a 42-year-old auditor living in Beijing, is an avid Douyan shopkeeper.

“It’s easy to spend an hour or more surfing the douin every day after work and there are so many impressive ones selling all kinds of things,” she said.

cheap and powerful

At the other end of the e-commerce spectrum is Pinduoduo. It is popular among rural residents of China, thanks to rock-bottom pricing and a group buying model that encourages users to share their purchases on the messaging platform to get an affordable price.

Its GMV grew by 66% to 1.67 trillion yuan in 2020. According to Goldman Sachs, 20% higher GMV growth is expected in the fourth quarter, but it will still be much stronger than Alibaba’s recent performance.

Pindoduo declined to comment.

Analysts say rural e-commerce is more people’s business than regular e-commerce and that Alibaba is years behind Pinduoduo in building relationships with major local merchants and manufacturers.

“For consumers who are already used to bargaining for Pinduoduo, it’s difficult to switch to a new platform. The same goes for factories or local grocers,” said Daphne Tuijn at Chaoli, a Shanghai-based analytics company. , who are addicted to pinduoduo.” ,

He added that Alibaba also can’t engage in viral marketing as effectively as Pinduoduo, which is hampered by the lack of direct access to messaging platforms like Tencent Holdings’ WeChat.

Rivals and Regulations

Alibaba is revamping its e-commerce business – the newly unveiled restructuring follows the launch of Taobao Deals last year and the rebranding of two community marketplaces in Taocaicai in September.

Still, its challenges are plentiful, and analysts suspect Alibaba may be turning back the clock when it showed the fastest growth in Chinese e-commerce.

Douyin and Pinduoduo are just two out of at least 10 established competitors. JD.com remains its closest competitor, while Meituan and Baidu Inc., giants in search and food delivery respectively, are expanding their e-commerce offerings. At the same time, smaller startups are targeting specific sectors such as footwear and makeup.

And while its impact has been hard to quantify, Alibaba has also been hurt by a regulatory crackdown that forced it to abandon a policy of requiring interested merchants to set up shop exclusively on its platforms.

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

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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