Walmart co-leads $500M investment in Chinese online grocery service Dada-JD Daojia

Walmart sold its China-based e-commerce business in 2016, but the U.S. retail giant is very much involved in the Chinese internet market through a partnership with e-commerce firm JD.com. Alibaba’s most serious rival, JD scooped up Walmart’s Yihaodian business and offered its own online retail platform to help enable Walmart to products in China, both on […]

Walmart sold its China-based e-commerce business in 2016, but the U.S. retail giant is very much involved in the Chinese internet market through a partnership with e-commerce firm JD.com. Alibaba’s most serious rival, JD scooped up Walmart’s Yihaodian business and offered its own online retail platform to help enable Walmart to products in China, both on and offline.

Now that relationship is developing further after Walmart and JD jointly invested $500 million into Dada-JD Daojia, an online-to-offline grocery business which is part owned by JD, according to a CNBC report.

Unlike most grocery delivery services, though, Dada-JD Daojia stands apart because it includes a crowdsourced element.

The business was formed following a merger between JD Daojia, JD’s platform for order from supermarkets online which has 20 million monthly users, and Daojia, which uses crowdsourcing to fulfill deliveries and counts 10 million daily deliveries. JD Daojia claims over 100,000 retail stores and its signature is one-hour deliveries for a range of products, which include fruit, vegetables and groceries.

Walmart is already part of the service — it has 200 stores across 30 Chinese cities on the Dada-JD Daojia service; as well as five online stores on the core JD.com platform — and now it is getting into the business itself via this investment.

JD.com said the deal is part of its ‘Borderless Retail’ strategy, which includes staff-less stores and retail outlets that mix e-commerce with physical sales.

“The future of global retail is boundaryless. There will be no separation between online and offline shopping, only greater convenience, quality and selection to consumers. JD was an early investor in Dada-JD Daojia, and continues its support, because we believe that its innovations will be an important part of realizing that vision,” said Jianwen Liao, Chief Strategy Officer of JD.com, in a statement.

Alibaba, of course, has a similar hybrid strategy with its Hema stores and food delivery service Ele.me, all of which links up with its Taobao and T-Mall online shopping platforms. The company recently scored a major coup when it landed a tie-in with Starbucks, which is looking to rediscover growth in China through an alliance that will see Ele.me deliver coffee to customers and make use of Hema stores.

Away from the new retail experience, JD.com has been doing more to expand its overseas presence lately.

The company landed a $550 million investment from Google this summer which will see the duo team up to offer JD.com products for sale on the Google Shopping platform across the world. Separately, JD.com has voiced intention to expand into Europe, starting in Germany, and that’s where the Google deal and a relationship with Walmart could be hugely helpful.

Another strategic JD investor is Tencent, and that relationship has helped the e-commerce firm sell direct to customers through Tencent’s WeChat app, which is China’s most popular messaging service. Tencent and JD have co-invested in a range of companies in China, such as discount marketplace Vipshop and retail group Better Life. Their collaboration has also extended to Southeast Asia, where they are both investors in ride-hailing unicorn Go-Jek, which is aiming to rival Grab, the startup that bought out Uber’s local business.

Magic Leap One AR headset for devs costs more than 2x the iPhone X

It’s been a long and trip-filled wait but mixed reality headgear maker Magic Leap will finally, finally be shipping its first piece of hardware this summer. We were still waiting on the price-tag — but it’s just been officially revealed: The developer-focused Magic Leap One ‘creator edition’ headset will set you back at least $2,295. […]

It’s been a long and trip-filled wait but mixed reality headgear maker Magic Leap will finally, finally be shipping its first piece of hardware this summer.

We were still waiting on the price-tag — but it’s just been officially revealed: The developer-focused Magic Leap One ‘creator edition’ headset will set you back at least $2,295.

So a considerable chunk of change — albeit this bit of kit is not intended as a mass market consumer device (although Magic Leap’s founder frothed about it being “at the border of practical for everybody” in an interview with the Verge) but rather an AR headset for developers to create content that could excite future consumers.

A ‘Pro’ version of the kit — with an extra hub cable and some kind of rapid replacement service if the kit breaks — costs an additional $495, according to CNET. While certain (possibly necessary) extras such as prescription lenses also cost more. So it’s pushing towards 3x iPhone Xes at that point.

The augmented reality startup, which has raised at least $2.3 billion, according to Crunchbase, attracting a string of high profile investors including Google, Alibaba, Andreessen Horowitz and others, is only offering its first piece of reality bending eyewear to “creators in cities across the contiguous U.S.”.

Potential buyers are asked to input their zip code via its website to check if it will agree to take their money but it adds that “the list is growing daily”.

We tried the TC SF office zip and — unsurprisingly — got an affirmative of delivery there. But any folks in, for example, Hawaii wanting to spend big to space out are out of luck for now…

CNET reports that the headset is only available in six U.S. cities at this stage: Chicago, Los Angeles, Miami, New York, San Francisco (Bay Area), and Seattle — with Magic Leap saying that “many” more will be added in fall.

The company specifies it will “hand deliver” the package to buyers — and “personally get you set up”. So evidently it wants to try to make sure its first flush of expensive hardware doesn’t get sucked down the toilet of dashed developer expectations.

It describes the computing paradigm it’s seeking to shift, i.e. with the help of enthused developers and content creators, as “spatial computing” — but it really needs a whole crowd of technically and creatively minded people to step with it if it’s going to successfully deliver that.

Fast-growing Chinese media startup ByteDance is raising $2.5B-$3B more

Fast-growing Chinese media startup ByteDance is looking to raise as much as $3 billion to continue growth for its empire of mobile-based entertainment apps, which include news aggregator Toutiao and video platform Tiktok. The Beijing-based startup is in early-stage talks with investors to raise $2.5 billion to $3 billion, according to a source with knowledge […]

Fast-growing Chinese media startup ByteDance is looking to raise as much as $3 billion to continue growth for its empire of mobile-based entertainment apps, which include news aggregator Toutiao and video platform Tiktok.

The Beijing-based startup is in early-stage talks with investors to raise $2.5 billion to $3 billion, according to a source with knowledge of the plans. That investment round could value ByteDance as high as $75 billion, although the source stressed that the valuation is a target and it might not be reached.

It’s audacious, but if that lofty goal is reached then ByteDance would become the world’s highest-valued startup ahead of the likes of Didi Chuxing ($56 billion) and Uber ($62 billion). Only Ant Financial has raised at a higher valuation, but the company is an affiliate of Alibaba and therefore not your average ‘startup.’

The Wall Street Journal first broke news of the ByteDance investment plan.

But there’s more: Earlier this week, the Financial Times cited sources who indicate that ByteDance is keen to go public in Hong Kong with an IPO slated to happen next year.

ByteDance is best-known for Toutiao, its news aggregator app that claims 120 million daily users, while it also operates a short-video platform called Douyin. The latter is known as TikTok overseas and it counts 500 million active users. TikTok recently merged with Musical.ly, the app that’s popular in the U.S. and was acquired by ByteDance for $1 billion, in an effort aimed at combining both userbases to create an app with global popularity.

The firm also operates international versions of Toutiao, including TopBuzz and NewsRepublic while it is an investor in streaming app Live.me.

The company’s growth has been mercurial but it has also come with problems as the company entered China’s tech spotlight and became a truly mainstream service in China.

ByteDance had its knuckles wrapped by authorities at the beginning of the year after it was deemed to have inadequately policed content on its platform. Then in April, its ‘Neihan Duanzi’ joke app was shuttered following a government order while Toutiao was temporarily removed from app stores. It returns days later after the company had grown its content team to 10,000 staff and admitted that some content it had hosted “did not accord with core socialist values and was not a good guide for public opinion.”

Chinese AI startup Tianrang raises a $26M funding round, launches new project to apply ML to cities

Chinese AI startup Tianrang has raised a $26 million (RMB180 million) funding round from China’s Gaorong Capital and co-lead CMB International Capital. Other investors included Ziniu Fund and Chinese fintech company Wacai. In 2016, the company raised an angel round led by Gaorong Capital and participated in by Shanghai Jindi Investment Management Ltd. Based on […]

Chinese AI startup Tianrang has raised a $26 million (RMB180 million) funding round from China’s Gaorong Capital and co-lead CMB International Capital. Other investors included Ziniu Fund and Chinese fintech company Wacai. In 2016, the company raised an angel round led by Gaorong Capital and participated in by Shanghai Jindi Investment Management Ltd.

Based on deep learning and other AI technology, Tianrang provides data analysis and smart solutions for enterprises. It was founded by in 2016 by Xu Guirong, former director of Alibaba’s Ali Cloud and chief scientist at Alibaba’s cloud platform Alimama. So no slouch on the AI front.

Tianrang claims to be able to automatically collect and analyze marketing trends and purchase-related information on Alibaba’s e-commerce platform, allowing vendors to make better marketing decisions.

Wang Hongbo, chief investment officer at CMB International Capital says: “With algorithm and AI, Tianrang lowers the requirement of complex machine decision-making and makes it accessible and scalable for commercial use.”

Tianrang also plans to set up a project to apply machine learning to the urban development of cities, led by Jessie Li, a professor at the College of Information Sciences and Technology of Pennsylvania State University.

LemonBox brings US vitamins and health products to consumers in China

China is rising in many ways — the economy, consumer spending and technology — but still many of its population looks overseas, and particularly to the West, for cues on lifestyle and health. That’s a theme that’s being seized by LemonBox, a China-U.S. startup that lets Chinese consumers buy U.S. health products at affordable prices. […]

China is rising in many ways — the economy, consumer spending and technology — but still many of its population looks overseas, and particularly to the West, for cues on lifestyle and health. That’s a theme that’s being seized by LemonBox, a China-U.S. startup that lets Chinese consumers buy U.S. health products at affordable prices.

Indeed, the recent scare around Chinese vaccinations, which saw faulty inoculations given to babies and toddlers in a number of provinces, has only fueled demand for overseas health products which LemonBox founder Derek Weng discovered himself when his father was diagnosed as having high blood sugar levels. Weng, then working in the U.S. for Walmart, was able to look up and buy the right medicine pills for his father and bring them back to China himself. He realized, however, that others are not so fortunate.

After polling friends and family, he set up an experimental WeChat app in 2016 that dispensed health information such as articles and information. Within a year, it had racked up 30,000 subscribers and given him the confidence to jump into the business fully.

Today, LemonBox allows Chinese consumers to buy its own-branded daily vitamin packs from the U.S.. Further down the line, the goal is to expand into more specific verticals, including mother and baby, beauty and daily supplements, according to Weng, who believes that the timing is good.

“For the first time in China, people are taking a major interest in health and are working out, while society is becoming more developed,” he told TechCrunch in an interview. “We estimate that Chinese consumers are investing 30 percent of their income in health.”

The LemonBox daily pack of vitamins.

Since its full launch three weeks ago, LemonBox has pulled in 700 customers with 40 percent purchasing a three-month bundle package and the remainder a monthly order, Weng said. Typical basket size is around 300 RMB, or nearly $45.

To get the business off the ground, Weng needed expert support and his co-founder Hang Xu — who is also LemonBox’s “Chief Nutrition Scientist” — has spent 10 years in the field of nutrition science. Xu holds a Ph.D. from Texas A&M University, is a U.S.-registered dietitian and has published over 10 research papers. The startup’s third co-founder, Eddy Meng (CMO), is a graduate of Chinese app store startup Wandoujia which sold to Alibaba two years ago.

Right now, LemonBox has offices in the U.S. and China and it is squarely focused on e-commerce but Weng said the company is looking to introduce other kinds of health services. That could include consultations with dietary experts and specific offerings for patients leaving a hospital or in other long-term care situations, as well as potentially own-label products.

“We look at Stitch Fix for inspiration,” Weng said. “Right now, it leverages data to develop its own in-house private label products that improve on margin and the accuracy of recommendations. This kind of data and further services will be the next stage for us.”

LemonBox raised a seed round in March, which included participation from Y Combinator, and as part of Y Combinator’s current program, it’ll present to prospective investors at the program’s demo day. Already, though, Weng said there’s been interest from investors which the company is thinking over.

Interestingly, it was forth time lucky entering YC for Weng, who had before applied with previous startups unsuccessfully. This time it was entirely circumstantial. He applied to be in the audience for Y Combinator’s ‘Startup School’ event that took place in Beijing in May.

Unbeknownst to him, YC picked out a handful of attendees whose companies were of interest, and, after an interview that Weng didn’t realize was an audition, LemonBox was selected and fast-tracked into the organization’s latest program. In addition, YC joined the startup’s seed funding round which had initially closed in March.

That anecdotal evidence says much of YC’s effort to grab a larger slice of China’s startup ecosystem.

The organization has aggressively recruited companies from under-represented regions such as India, Southeast Asia and Africa, but China remains a tough spot. According to YC’s own data, fewer than 10 Chinese companies have passed through its corridors. That’s low considering that the organization counts over 1,400 graduates.

With events like the one in May, which helped snare LemonBox, and a new China-centric role for partner Eric Migicovsky, who founded Pebble, YC is trying harder than ever.

Chinese tech stocks tumble from more than just trade tensions

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China. Reports of trade tensions between China and the US in the past few months have been hard to ignore. In early July, the US imposed $34 billion on Chinese goods, prompting the Shenzhen Component Index, dominated by technology and […]

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China.

Reports of trade tensions between China and the US in the past few months have been hard to ignore. In early July, the US imposed $34 billion on Chinese goods, prompting the Shenzhen Component Index, dominated by technology and consumer product stocks, to fall to its lowest point since 2014, igniting fears among investors.

“The U.S. tariffs, coupled with a falling yuan, will significantly increase the cost for many Chinese technology companies that rely on imported raw materials, such as semiconductors, integrated circuits, and electric components,” Zhang Xia, an analyst for China Merchants Bank Securities, told the South China Morning Post.

Additionally, the U.S. commerce department announced yesterday it will place an embargo on 44 Chinese companies—including the world’s largest surveillance equipment manufacturer Hikvision—for “acting contrary to the national interests or foreign policy of the United States.” The move caused the companies’ share prices to fall by nearly six percent.

However, the focus has shifted to more than just the trade war. And a number of big Chinese tech companies have seen their share prices plummet for other reasons.

Pinduoduo, China’s latest e-commerce giant to list on the Nasdaq, found that an initial public offering (IPO) is not a panacea. Conversely, its listing has drawn attention to the company’s counterfeit products. And investors are not happy.

Tencent’s shares have nosedived by over 25 percent since its peak in January, erasing $143 billion in market value over the past seven months.

Search giant Baidu also hasn’t been immune. The company’s stock price dropped by nearly 8 percent this week following news that Google plans to re-enter the Chinese market.

Government crackdowns

While IPOs are usually a cause for celebration, Pinduoduo has proven this past week they can also be bad for business. The company—which has integrated e-commerce and social media—caters to low-income consumers living outside first and second-tier cities. It has been plagued by accusations of facilitating the sale of counterfeit low-quality goods.

Just days after going public, its share price tumbled by 16 percent, falling below its offer price of $19. The drop was, in part, initiated by requests made by television maker Skyworth to remove counterfeit listings of its products from the e-commerce firm’s marketplace.

The company announced (in Chinese) this week that it had removed 10.7 million listings of problematic goods. However, this did little to assuage concerns from investors and regulators after the latter launched an inquiry into Pinduoduo’s product listings. Its stock price dropped to 30 percent below its closing price on its first day of trading, wiping out over $9 billion in value.

This is unlikely to be helped by the fact that seven U.S. law firms have launched investigations into the company on behalf of its investors. The statement issued by the firms shows that investors suffered financial losses after Chinese regulators began looking into the company’s dealings. The company met today with regulators and agreed to improve its products’ vetting procedures.

However, it’s not only e-commerce platforms that have been affected. Video streaming service Bilibili has seen its stock price drop by almost 21 percent since July 20. The decline comes amid renewed efforts led by the Cyberspace Administration of China (CAC) to crack down on what it deems to be “vulgar” or “inappropriate” content.

The company has subsequently had its app removed from app stores in the country for one month. Nasdaq-listed Bilibili responded by saying it is “in deep self-review and reflection.”

Screenshot of the drop in Bilibili’s stock price. Accessed August 3, 2018

Rumored competition

Baidu, which runs China’s biggest search engine, found that even unconfirmed competition can cause stocks to tumble. In a move which could mark its re-entry into the Chinese market, news broke this week that Google has plans to launch an Android app that could provide filtered results to users in China.

Baidu currently commands nearly 70 percent of China’s search market. Google shut down its search engine in China in 2010 over censorship concerns, giving up access to a vast market. China’s online population now exceeds 770 million, double the entire populace of the U.S. and more than that of Europe.

Baidu’s income is still highly dependant on ad revenue, which increased by 25 percent in the second quarter. Google’s return is clearly seen as a threat, causing Baidu’s stock price to fall from $247.18 on July 31 to $226.83 on August 2. This marks the most significant fall since the company announced the departure of its chief operating officer Lu Qi in May.

Steady decline

Nonetheless, all these losses seem insignificant in comparison to Tencent’s. The company saw its stock price increase by 114 percent in 2017, reaching a record high in January 2018. However, since then, the price has dropped by nearly $130 per share, eviscerating a considerable portion of its market value. In July alone, its stock price fell by 9.9 percent. The company’s devaluation tops Facebook’s $130 billion rout following its earnings call last month.

In April, the company lost over $20 billion in value after South African investment and media firm Naspers — an early and loyal backer — announced it was trimming its stake by two percent. Additionally, Martin Lau, the company’s president, sold one million of his shares in the company. This, added to the Naspers sale and warnings of margin pressure, led to a loss of $51 billion in market value.

“Investors are increasingly pricing in lower expectations for Tencent’s interim results,” Linus Yip, a strategist at First Shanghai Securities in Hong Kong, told Bloomberg.

Yip expects the downward trend to continue, and not just for Tencent. “Overall, tech companies are facing a similar problem. They have been enjoying fast profit growth in the past few years, so it will be difficult for them to maintain similar growth in the future as the competition grows and some segments are saturated,” he said.

Starbucks partners with Alibaba on coffee delivery to boost China business

Starbucks is palling up with Alibaba as it seeks to rediscover growth for its business in China. China has been a bright spot for some time for the U.S. coffee giant, but lately it has struggled to maintain growth — its China business dragged on its Q3 financials — and it is up against some […]

Starbucks is palling up with Alibaba as it seeks to rediscover growth for its business in China.

China has been a bright spot for some time for the U.S. coffee giant, but lately it has struggled to maintain growth — its China business dragged on its Q3 financials — and it is up against some ambitious new rivals, including billion-dollar startup Luckin Coffee.

One-year-old Luckin recently raised $200 million from investors and it has already built quite a presence. It claims over 500 outlets across China and it taps into the country’s mobile trends, with mobile payments and orders and delivery, too. Then there are some deep discounts aimed at getting new users, as is common with food, cars and other on-demand services.

In response, Starbucks is injecting some of that ‘New Retail’ strategy into its own China presence — and it is doing so with none other than Alibaba, the company that coined the phrase, which signifies a marriage between online and offline commerce.

The partnership between Alibaba and Starbucks is wide-ranging and it will cover delivery, a virtual store and collaboration on Alibaba’s “new retail” Hema stores.

The delivery piece is perhaps most obvious, and it’ll see Starbucks work with Ele.me, the $9.5 billion food delivery platform owned by Alibaba, to allow customers to order and receive coffee without visiting a store. The service will start in September in Beijing and Shanghai, with plans to expand to 30 cities and over 2,000 stores by the end of this year.

Starbucks is also building its app into Alibaba’s array of e-commerce sites, including its Tmall brand e-mall and Taobao marketplace. That’s a move that Starbucks President and CEO Kevin Johnson told CNBC would operate “similar to the mobile app embedded right into that experience” and open Starbucks up to Alibaba’s 500 million-plus users.

Finally, Starbucks is bringing its own “Starbucks Delivery Kitchens” to Alibaba’s Hema stores, which feature robots and mobile-based orders, that will combine Starbucks stores to boost its delivery capacity and speed.

Starbucks, as mentioned, needed a boost in China but the deal is also a major coup for Alibaba, which is battling JD.com on the new retail front as well as ambitious on-demand service Meituan. The latter is reported to have recently filed for an IPO in Hong Kong that could raise it $4 billion.

The incredible rise of Pinduoduo, China’s newest force in e-commerce

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China. From Alibaba to JD, China is not short of e-commerce powerhouses. Although the country’s e-commerce market is highly consolidated, it’s not impossible for startup teams to crack this market as long as they are solving the right problems for […]

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China.

From Alibaba to JD, China is not short of e-commerce powerhouses. Although the country’s e-commerce market is highly consolidated, it’s not impossible for startup teams to crack this market as long as they are solving the right problems for the right group of customers.

Chinese social e-commerce platform Pinduoduo just proved this. The Shanghai-based company just went public raising $1.6 billion through a U.S. IPO this week, which stands out as one of the largest deals of the year. Excitement is quickly intensifying surround the company, which claims 195 million monthly users and has managed to become successful within China’s highly competitive e-commerce market inside just three years.

What is Pinduoduo and what has it done right?

Like Alibaba’s Taobao and rival JD.com, Pinduoduo is an e-commerce platform that offers a wide range of products from daily groceries to home appliances. Pinduoduo’s twist lies in its integration of social components into the traditional online shopping process, which the company describes as the “team purchase” model.

By sharing Pinduoduo’s product information on social networks such as WeChat and QQ, users can invite their contacts to form a shopping team to get a lower price for their purchase. The mechanism keeps the users motivated and better hooked for a more interactive and dynamic shopping experience. Coupled with other incentives such as cash, coupon, lottery and free products, Pinduoduo manages to acquire users at a very low cost. Combined with the extra satisfaction of scoring a good deal with your friends as a team, Pinduoduo soon became a viral sensation in China.

Extremely low prices are another compelling attraction of Pinduoduo. The discount is usually up to 90 percent, including everything from RMB 10 ($1.50) bed sheets to RMB 1,000 ($150) PCs. But the bestsellers are daily items at unbelievable low prices. More than 6.4 million units of tissue paper were sold at RMB 12.9 ($1.90) for 10 boxes and 4.8 million umbrellas were purchased at RMB 10.3 ($1.51) apiece.

The company’s bulk-selling model easily creates huge orders for the sellers and leaves them more room to cut prices. At the same time, Pinduoduo’s app is designed to facilitate this, an expert explained to local media: “Alibaba Taobao’s interface is search-based and centered on multiple product displays, while Pinduoduo’s is more similar to a news feed and thus gives more exposure to a single product and easy to create “爆款” [baokuan, meaning viral items]. Taobao has more products listed, but Pinduoduo put its focus on fewer bestsellers that attract more buyers.”

Pinduoduo (l) and Taobao (r) interfaces

Pinduoduo’s C2B model allows it to ship directly from the manufacturers eliminates layers of distributors, not only reduces the price tag for buyers but also raises the profit of manufacturers. This approach is particularly effective for the sales of perishable agricultural and fresh products, where the speed for matching supply and demand is critical.

Lesser-known brands were chosen over famous brands to erase any premium that comes from branding. Additionally, the costs for advertising and marketing are also lowered through user sharing to social media. The approach is both cost-saving and effective. Through social sharing, users are sending the product information precisely to friends and groups that may have similar income and consumption preferences. Viral marketing is a more clever way to build the identity of all the lesser-known brands on its platform. Financially, the platform could even out part of discounts with less marketing budgets.

Price and social features are not only the only path to Pinduoduo’s meteoric rise, and spotting the right user profile is the last piece to the puzzle.

Operation director of Chinese mobile e-commerce platform Chuchujie, Yang Lin shot to the core of the problem in an interview with local media: “Taobao has over 500 million users while WeChat has over 1 billion, the gigantic missing group between two of China’s giant apps is distributed in third- or lower-tier cities, mostly senior citizens. This group, which only recently came online and depends on the ubiquitous WeChat as the chief source of information, is the target users of Pinduoduo.”

Data from research institute Jiguang shows that users from third- and lower-tier cities account for around 65 percent of Pinduoduo’s total user base, while JD’s users in first plus second-tier cities and the rest of China were half-and-half.  Additionally, females account for 70 percent of Pinduoduo’s user base. They are responsible for family purchases and more price sensitive. This guarantees more active sharing and purchases.

User demographics and average order value of JD, Taobao, and PDD (Image credit: GGV)

Consumption upgrade, a trend in which affluent Chinese customers are increasingly willing to pay for quality, has dominated China’s e-commerce industry in the past few years. Taobao and JD’s globalization initiatives to bring overseas quality products, the boom of cross-border e-commerce sites like Red and NetEase Yanxuan and Kaola are all based on the consumption-upgrading backdrop.

But the growth of Pinduoduo has sparked an argument focusing on whether the platform represents consumption downgrading. Maybe consumption upgrading or degrading isn’t the key problem. It is just one more piece of evidence for how big and segmented the Chinese market can be. Rising income may give part of Chinese urban citizens the freedom to vote for quality, but RMB 1 difference in price tag may be enough of an incentive for their countryside counterparts, who have been more neglected by e-commerce so far.

Cost performance is still the most important factor to consider for consumers. A higher price tag does not necessarily represent the better quality or vice versa. The huge potential in this often-overlooked market is luring more competitors. Taobao launched Taobao Tejia, a dedicated app for China’s low-end users.

Pinduoduo didn’t invent the social e-commerce model. Groupon pioneered the group-buying concept years ago. But it is succeeding thanks to a new ecosystem consisting of super app WeChat, mobile payment infrastructure, and mobile-first users.

Pinduoduo’s history and major milestones

Founded in September 2015, Pinduoduo is the fourth startup of Colin Huang, an ex-Googler who once worked on early search algorithms for e-commerce. His previous startups include consumer electronics e-commerce site Ouku.com, Leqi, e-commerce platform marketing agent service and a WeChat-based role-playing game company.

With experiences in both e-commerce and gaming, Huang founded Pinduoduo with a vision to combine the secret success recipe of both Alibaba and Tencent, the two Chinese internet giants known for their e-commerce and gaming /social dominance respectively. “They don’t really understand how the other makes money,” Huang said to Bloomberg.

Huang seems to be right about how the two industries can work together. Pinduoduo’s annual GMV (gross merchandise volume) surpassed RMB100 billion ($14.7 billion) in 2017, that’s around two years since its inception. To hit the same milestone, Taobao took five years, VIP.com took eight years and JD ten years. Pinduoduo now claims more than 343.6 million active buyers with an annual GMV of RMB 262.1 billion, or $38.5 billion.

A huge turning point occurred in the third quarter of 2017 when the weekly active rate, penetration rate, and open rate of the Pinduoduo app all surpassed those of JD. Compared to the previous year, it reaches up to 1,000 percent year on year growth according to data from Jiguang.

Image credit: GGV Capital

Steep growth trajectory lured financial backings. In 2015, Huang launched Pinhaohuo, a social commerce platform for fruits, with the team from his second startup Leqi. His gaming startup incubated Pinduoduo.

Four months after Pinduoduo received undisclosed A round from IDG and Lightspeed China in March 2016, the company secured over $110 million in Series B financing four months later from Baoyan Partners, New Horizon Capital, Tencent, and others. In April 2018, Pinduoduo completed a new round of financing raising $3 billion at a valuation of nearly $15 billion. Given Pinduoduo’s WeChat-based ecosystem, Tencent joined the round as a returning investor.

Given the history between Pinduoduo and Pinhaohuo, then of the two largest players in the social e-commerce sector, the two companies merged to form one dominator.

Another counterfeit heaven in China?

“If you close your eyes and visualize the next stage for Pinduoduo, it would be a combination of ‘Costco’ and ‘Disneyland’, driven by a distributed network of intelligence agents,” Huang wrote in the IPO prospectus. Huang’s comparison was thus interpreted as a combination of “value for money” and entertainment, but many are questioning whether or to what degree Pinduoduo can live up to the founder’s expectation.

Although Pinduoduo claims to have several channels to lower product prices, increasing product quality and counterfeit complaints still raise concerns for a possible low-cost and low-quality association. The percentage of complains on Pinduoduo is 17.87 percent, and the user satisfaction rating is only 1 star, according to the 2017 National User Satisfaction Survey of Major E-commerce Platforms released by the China E-Commerce Research Center. Complaints mainly target at the problems of poor quality, slow delivery, misleading ads, etc.

In addition to mounting domestic complaints, the Chinese shopping app was hit by a trademark infringement lawsuit in the US, shortly after filing for a US IPO. Alongside Alibaba and JD’s efforts to remove fake goods on their platforms, fake goods are flooding to emerging e-commerce platforms like Pinduoduo and Weishang, according to Alibaba.

As Pinduoduo gets into life as a public company, the firm is following the e-commerce giants in cleaning up the platform. According to the company’s annual consumer rights protection report for 2017, it has taken down 10.7 million problematic listings, blocked 40 million suspicious external links, representing 95 percent of the fake good sellers from the platform. The company set up an RMB 150 million ($22 million) fund to deal with after-sales disputes.

But tightening regulation is causing more friction between Pinduoduo and its merchants on the platform. In June, fourteen store owners who sell products on Pinduoduo protested under the company’s office building claiming that Pinduoduo conducted improper product-quality checks which damaged the owners’ rights. Company founder Huang insisted Pinduoduo’s decision and punishment of the owners is just and fair.

Many also questioned the validity of entertaining features in Pinduoduo’s value proposition. “We have observed that a few users find shopping on Pinduoduo to be very entertaining, which is attributable to its extremely low pricing and interaction among Weixin users,” according to research institute 86 Research.

IPO and beyond

Pinduoduo went public on NASDAQ market on July 26 and raised more than $1.6 billion with a valuation of $60 billion. However, shareholders should still be concerned about the company’s fundamentals

Financially, the company is still in the red. Pinduoduo suffered a net loss of RMB 292 million ($43 million) and RMB 525.1 million ($77 million) in 2016 and 2017, respectively. Its net losses reached RMB 201 million ($30 million) in the first quarter of this year. The net loss is expected to be widened, mainly attributable to investments in branding and ads. Over 88.4 percent of Pinduoduo’s RMB 1.2 billion ($180 million) Q1 revenue was spent on marketing. This could be translated as a sign of difficult traffic acquisition.

The most typical Pinduoduo users are price sensitive women that reside in low tier cities. Merchants are selling at a low price to appeal to this group. But how to maintain these users and its growth momentum is a big challenge for Pinduoduo now given rising product quality complaints.

“The retention rate is a big challenge of Pinduoduo, implying potential GMV slow down. Pinduoduo will have difficulty in upgrading to a marketplace of premium products because of its user demographics and brand image,” according to 86 Research.

FinAccel raises $30M to build a digital credit card for Southeast Asia

FinAccel, a Southeast Asia-based startup that offers a digital credit card service in Indonesia, has closed a $30 million Series B round as it begins to consider overseas expansion. The company launched its ‘Kredivo’ service two years ago to help consumers pay online in Southeast Asia, where credit card penetration is typically low, and it is essentially […]

FinAccel, a Southeast Asia-based startup that offers a digital credit card service in Indonesia, has closed a $30 million Series B round as it begins to consider overseas expansion.

The company launched its ‘Kredivo’ service two years ago to help consumers pay online in Southeast Asia, where credit card penetration is typically low, and it is essentially the combination of a digital credit card and PayPal. The service is available in Indonesia, Southeast Asia’s largest economy, where it uses a customer’s registered phone number — there is no physical credit card — and a dedicated checkout on online retail websites.

For consumers, the service offers a 30-day payback option and then more longer-term options of three, six and 12-month payback windows. The 30-day option is interest-free, but other plans come with a 2.95 percent per month charge on the reducing principle, which effectively makes it 25 percent flat.

FinAccel says it has credit scored close to two million consumers in Indonesia, while on the retail side it has partnered with 200 online sales platforms including large names such as Alibaba’s Lazada, Shopee (which is owned by U.S.-listed Garena), and unicorn Tokopedia, which counts SoftBank and Alibaba among its investors.

This new investment, by the way, is a notable one for Southeast Asia, which has generally been considered to have a gap in Series B funding, so $30 million for a two-year-old business is quite something.

The round itself is led by Australia’s Square Peg Capital — in what is one of its highest-profile overseas deals to date — alongside new investors MDI Ventures, which is affiliated with Telkom Indonesia, and UK-based Atami Capital. Existing investors Jungle Ventures, Openspace Ventures, GMO Venture
Partners, Alpha JWC Ventures and 500 Startups also took part in the round.

FinAccel founders (left to right) Umang Rustagi (COO), Akshay Garg (CEO) and Alie Tan (head of product engineering)

The startup raised a seed round of over $1 million in 2016, before quietly raising a $5 million Series A last year, FinAccel co-founder CEO Akshay Garg revealed in an interview with TechCrunch.

Garg, who founded ad tech firm Komli, said the company is processing “hundreds of millions” in U.S. dollars per year and the immediate plan is to keep growing in Indonesia. Already, however, it is eyeing up potential expansions with its first move overseas is likely to be in Southeast Asia in early 2018, although he declined to provide more details.

“Our goal is to become the preferred digital credit card for millennials in Southeast Asia,” he told TechCrunch. “Those are consumers who are mobile-first and already bankable. The credit gap in this market is huge, there’s no electronic verification and other things that we take for granted in the West just don’t work here.”

FinAccel isn’t going after the unbanked in the region, but it also isn’t going after banks either. Garg said that it is possible that the company might try to work with banks in the future in order to grow its market share and offer new products.

One area it is looking at is financial products — such as loans for personal, educational and emergency purposes — but there could be ways to leverage its online presence and adoption among young people and work with existing financial institutions, which he believes simply aren’t equipped to reach out in the same way.

“We don’t see ourselves disrupting the banks, we are more partners,” he explained. “We could partner on balance sheet and on issuing credit cards to offer more efficient and seamless financial inclusion at best possible rates.”