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As an American heading a Singapore-based VC firm for a decade, I often see new tech trends emerging earlier or more strongly here in Asia than back home. And right now, social e-commerce looms large.
Social e-commerce is the business of selling goods online—in quantity—through people’s social networks. These networks can exist virtually (as on a mobile app) or in the physical world, among friends and neighbors, or both. The key is to use these groups for high-volume transactions, as opposed to just making intermittent small sales via online platforms. It’s a trick that Asian entrepreneurs are exploiting emphatically.
The surge began in China, where social e-commerce now accounts for over 13% of all online sales compared to just 4.3% in the U.S. Moreover, the volume gap is vast: over $360 billion in GMV (gross merchandise value) per annum versus $36 billion in the U.S.
Now growth is erupting across other parts of Asia, driven by two principal business models. One is the group-buying model, which offers discounts to buyers and efficiencies to sellers by aggregating the purchasers to create those bulk transactions. The other model is live e-commerce, wherein top-tier influencers can rapidly sell immense quantities of fashion items and other wares to their social media followers. Neither concept is entirely new, but right now Asian businesses are seeing incredible results using these models. This makes it likely you’ll soon see these approaches permeating the West. Let’s take a closer look at how the two models work.
Pinduoduo, founded in China in 2015, is seen as the trailblazer of the modern group-buying model. The company has a market value of $130 billion, larger than the U.S. retail giant Target. Pinduoduo began by targeting under-tapped consumer markets in Chinese cities where mobile users hadn’t been buying much onscreen. The startup linked them with under-served suppliers: namely, farmers, whose fresh meats and produce normally didn’t work well for direct e-commerce sales to consumers. Packing and shipping small individual orders of such goods would be costly, especially with last-mile delivery to each household.
Pinduoduo’s group-buying platform offered benefits on both ends. It enabled budget-conscious customers to get prices well below those in retail food markets by pooling their purchases into large orders which the farmers could ship, cost-effectively, to local distribution points. Also, Pinduoduo’s choice of fresh foods as a core product line created a sticky platform with lots of repeat customers. People buy fruits, vegetables, and meat much more regularly than, say, consumer electronics.
Go to Pinduoduo’s home screen today and along with the foods, you’ll see household supplies like paper products and cleaners, plus a wide range of durable goods. Items are available at two price points: one if you just wish to buy alone and a much cheaper price for a group buy. You can form a friends-and-family group of requisite size, or browse to find an existing group that needs another member. Meanwhile, Pinduoduo is mining customer data and feeding it to suppliers, to give them a sharper sense of what will sell where.
Since 2015, Pinduoduo has grown to over $255 billion in annual GMV with annual revenues over $9 billion. Within China, it has shot past older, more conventional Groupon-like platforms such as Meituan, and it has inspired emulation beyond China.
Numerous group-buying startups are now surfacing in Southeast Asia’s 10-country ASEAN (Association of Southeast Asian Nations) region. Many of the newcomers recruit local “agents” or “community leaders” to manage the purchasing end. This person is often a housewife—for example, the Vietnamese firm Shoppa explicitly targets women as agents, inviting them to become a “Ms. Shoppa”—though anyone looking for side income can fill the role. As an agent, you’re given a special version of the company’s app. In addition to organizing a local group and pointing out good deals, your job may include collecting payments in cash, a crucial step for building markets in places where many people are unbanked or don’t have e-accounts. The entire order then comes to you for distribution. In return, you get commissions and extra discounts on purchases for yourself.
People say they enjoy the social aspects of the neighborly groups and distribution visits, noting that groups also help to reinforce trust in buying online. With these benefits on top of the financial incentives for all concerned, the model is gaining traction in big-market countries such as Vietnam (population 98 million) and, notably, Indonesia (270 million).
Livestreamed e-commerce, though similar in concept to TV shopping channels, has unique characteristics and appeal. In China and recently in South Korea, an emerging hotbed, there’s an ecosystem of major companies using arrays of studios to stream shows that sell clothing, beauty products, and more. The 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 fronted pop bands before returning to her family’s roots in retail. Her livestreams have been described as “part variety show, part infomercial, part group chat.” Another Chinese influencer, Austin Li, is known as the Lipstick King. Drawing on the face-to-face skills he learned as a sales clerk in cosmetics, he can be intimately engaging while working with businesslike efficiency: Li once applied 138 different lipsticks in a 30-minute livestream, and he’s unafraid to demonstrate them on his own lips. During Alibaba’s Singles Day promotion last November, sales by Viya and Li added up to more than $100 million.
Influencer Zhang Dayi, a fashion designer and former model, has said the key to live e-commerce is the “authenticity” a host can convey. In an interview with WWD she asked: “Do you like to watch commercials? People don’t believe in it because it’s an advertisement”—whereas in livestreams “they get to know you,” and if they like and admire you, “they want your lifestyle.”
The Leapfrog Effect
In the U.S., neither live e-commerce nor the group-buying model have yet come near the scale and sophistication seen in Asia. One reason may be that marketing in the U.S. was already highly developed before the internet came along, so that old techniques simply got grafted onto new media: TV and print ads evolved into pop-up ads; direct mail became email blasts. Many Asian countries, by contrast, experienced a double leap. Their economies rose swiftly from low prosperity levels (with little mass marketing of consumer goods) to higher levels, while people jumped straight from being offline 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 enabled by the widespread use of mobile social-media apps. WeChat has over 1.2 billion monthly active users worldwide, with the majority inside China, and millions more Chinese have Weibo and/or the video-friendly Douyin on their phones as well. WhatsApp is popular in ASEAN countries, while Naver and Kakao vie for dominance in South Korea. These provide the user infrastructure for leading e-commerce players like Alibaba, Singapore-based Shopee, and South Korea’s Coupang to expand their livestream efforts, and for group-buying startups to grow.
Right now, the picture in Asia is fluid. Social e-commerce is still in the early stage. New hybrid forms are being invented, and some have hit snags. For instance, China’s Yunji rolled out a group-buying membership model that had to be altered when regulators thought it resembled a pyramid scheme. Finally, some recent growth in social e-commerce can be traced to the pandemic forcing many activities online, in volumes that may or may not persist.
However, the momentum behind this phenomenon can’t be ignored. It’s more than a matter of investors and entrepreneurs jumping into a new space. Consumers are embracing social e-commerce. They’re speaking with their wallets. Strong new companies that don’t yet show net profits, including Pinduoduo, appear to have paths to profitability. And as to whether the surge in social e-commerce will expand to the U.S. and worldwide, my reply would be that timing, choice of markets and business models, and good management will be crucial. But the question isn’t whether this is coming your way. 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 VC fund.