Analysis: Alibaba's e-commerce empire under threat from Douyin, Pinduoduo

Yatsen Holding

09/12/2021 12:00

(Repeats with no change to text)
    By Sophie Yu and Josh Horwitz
    BEIJING, Dec 9 (Reuters) - For more than a decade, Alibaba
Group  9988.HK  has been China's undisputed e-commerce king but
of late its crown has shown signs of slipping, unsettled by an
influx of aggressive competitors into the sector.
    This week, Alibaba announced it was reorganising its
e-commerce businesses https://www.reuters.com/technology/alibaba-names-toby-xu-cfo-2021-12-06
 into two units, one for China and one for overseas.
    In China, its two main marketplaces - Tmall for established
brands and Taobao which welcomes all kinds of merchants - 
process over $1 trillion in orders annually.
    But Alibaba is seeing sharply slower growth in customer
management revenue (CMR), the money derived from charging
merchants for services which usually accounts for one-third to
one-half of its overall revenue. It rose just 3% in the
July-September quarter, down from 20% growth a year earlier.
    Alibaba last month also cut its annual revenue forecast https://www.reuters.com/business/chinas-alibaba-misses-quarterly-revenue-expectations-2021-11-18
 while sales or gross merchandise value (GMV) for Singles Day,
its banner shopping event, this year climbed only 8.5% https://www.reuters.com/business/chinese-state-newspaper-blasts-worship-turnover-after-alibabas-singles-day-2021-11-12
 - the smallest rise to date.
    Those disappointing numbers are due in part to regulatory
changes and pandemic-induced slower economic growth that has
made shoppers reluctant to splurge.
    But they also highlight the onslaught of competition and the
fact that some rivals have stolen a march over Alibaba in the
fastest-growing areas of China's e-commerce.
    Merchants and analysts cite ByteDance's Douyin - the Chinese
sister app to TikTok and a relative newcomer - as the force to
beat in live-streaming e-commerce, while Nasdaq-listed Pinduoduo
Inc  PDD.O  has taken the lead in rural and budget e-commerce.  
    "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 it has always faced
intense competition. It added it offers merchants a powerful
live-streaming tool in Taobao Live and that its Taobao Deals
platform for discount shopping and Taocaicai platform for
community group buying were gaining share in lower-tier markets.
        
    AN UP-AND-COMING DOUYIN 
    Douyin is targeting a jump in GMV to over 1 trillion yuan
($155 billion) this year, according to a company source with
direct knowledge of the matter. The source was not authorised to
speak to media and declined to be identified.
    That's more than 6 times the 150 billion yuan it was on
track to earn last year - a figure given by sources in November
2020.
    Douyin declined to comment on its e-commerce business.
    The app, which boasts 600 million-plus 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  YSG.N , the parent of Chinese cosmetics giant
Perfect Diary, plans to invest more in its Douyin presence. By
comparison, its sales on Tmall, which accounts for about 40% of
its revenue, are contracting.
    "Douyin, right now, is becoming a very important factor for
brand growth," CEO Huang Jinfeng told an analysts' call last
month.
    Merchants are attracted to the amount of time users spend on
Douyin - 1,871 minutes on average in October compared to 350
minutes on Taobao, according to consulting firm Questmobile. 
    Moreover, while Alibaba's viewer traffic tends to converge
on China's biggest live-streaming celebrities - Li Jiaqi, known
as the Lipstick Brother, and Viya, a former singer - they are
just two people. In contrast, Douyin can draw on a large pool of
live streamers.
    Zen Yan, a 42-year-old auditor living in Beijing, is an avid
Douyin shopper.
    "It's easy to spend one hour or more surfing on Douyin every
day after work and there are a lot of influencers selling all
kinds of things," she said.
    
    CHEAP AND POWERFUL
    At the other end of the e-commerce spectrum is Pinduoduo.
It's popular among China's rural residents thanks to rock-bottom
pricing and a group buying model that encourages users to share
their purchases on messaging platforms to get cheaper prices.
    Its GMV surged 66% to 1.67 trillion yuan in 2020. While more
modest 20% GMV growth is expected in the fourth quarter,
according to Goldman Sachs, that would still be much stronger
than Alibaba's recent showings.
    Pinduoduo declined to comment.
    Rural e-commerce is more of a people business than regular
e-commerce and Alibaba is years behind Pinduoduo in forming
relationships with key local merchants and manufacturers,
analysts say.
    "For consumers who are already used to Pinduoduo to buy
bargains, it's hard for them to switch to a new platform. The
same goes for factories or local grocery vendors who are used to
Pinduoduo," said Daphne Tuijn at Shanghai-based analytics
company Chaoly.
    Alibaba also can't engage in viral marketing as effectively
as Pinduoduo, hampered by its lack of direct access to a
messaging platform like Tencent Holdings'  0700.HK  WeChat, she
added.
    
    RIVALS AND REGULATIONS
    Alibaba is revamping its e-commerce business - the newly
unveiled reorganisation follows the launch of Taobao Deals last
year and a rebranding of two community marketplaces into
Taocaicai in September.
    Even so, its challenges are plentiful and analysts doubt
Alibaba can turn back the clock to when it was showing the
fastest growth in Chinese e-commerce.
    Douyin and Pinduoduo are only two of at least 10 established
competitors. JD.com  JD.O  remains its closest rival while
Meituan  3690.HK  and Baidu Inc  9988.HK , giants in search and
food delivery respectively, are expanding their e-commerce
offerings. At the same time, smaller startups are targeting
niche segments like shoes 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
exclusively set up shop on its platforms. 
    "I don't believe Alibaba can reverse the situation...it can
only adopt a defensive strategy," said Wanqing Consultancy's Lu.

($1 = 6.3749 Chinese yuan)

 (Reporting by Josh Horwitz, Sophie Yu and Yingzhi Yang; Editing
by Brenda Goh and Edwina Gibbs)
 ((Sophie.Yu@thomsonreuters.com; 861056692136;))