Pinduoduo

Pinduoduo Inc. (; Pinyin: Pīn duōduō) is the largest agriculture-focused technology platform in China. It has created a platform that connects farmers and distributors with consumers directly through its interactive shopping experience. In 2019, nearly 600,000 merchants sold farm produce through Pinduoduo. That translated to some 12 million farmers who supplied their fruits and vegetables to the merchants. In August 2020, Pinduoduo pledged to sell $145 billion worth of farm produce annually by 2025.
It has pioneered several new trends including social commerce, and consumer-to-manufacturer (C2M) that have revolutionized the downstream and midstream of online commerce in China. One blogger wrote that “to understand the success of Pinduoduo is to understand the future of global e-commerce."
As of September 30, 2020, Pinduoduo has generated over RMB 1.45 trillion gross merchandise value (GMV) in the last twelve months, 731.3 million active buyers in the last twelve months, 643.4 million average monthly active users in the 3rd quarter of 2020.
History.
Founded in 2015, Pinduoduo has become the fastest-growing tech company in the world. In Q1 2017, the company ended its online direct sales model of acquiring fresh produce and other perishables from suppliers to sell to consumers, and transitioned to purely providing online marketplace services to third-party merchants across more categories. According to Pinduoduo Inc.'s July 2018 prospectus, this change from a first-party to a third-party marked the start of explosive growth for Pinduoduo.
In September 2016, monthly GMV surpassed RMB 1 billion. In 4Q 2017, Pinduoduo recorded its first profitable quarter. In July 2018, Pinduoduo was listed on the Nasdaq with the ticker, PDD. Pinduoduo then launched its New Brand Initiative in December 2018, which aimed to support factories and manufacturers in developing their own brands. In April 2019, Duo Duo Farm was introduced, an integrated program to equip farmers with skills like e-commerce, finance, business operations and online marketing that they need to be able to sell online.
Duo Duo Live was launched in December 2019 as a livestreaming feature available for merchants to better promote their wares. 
Duo Duo Maicai, a next-day, click-and-collect grocery service, was rolled out in August 2020, as a response to the changing consumer needs for buying groceries in the wake of the Covid-19 pandemic.
In 2019, Pinduoduo has a net deficit of 8.54 billion yuan (~1.32B USD).
In 2020, Pinduoduo has a net deficit of 7.18 billion yuan (~1.11B USD).
Corporate Governance.
As of September 2020, 7 members sit on Pinduoduo’s board, the majority of whom are independent directors Colin Huang Zheng, Haifeng Lin, Nanpeng Shen, Qi Lu, George Yong-Boon Yeo and Anthony Kam Ping Leung.
According to Pinduoduo, there are three committees within the board which oversee more specific matters. These committees include the Audit Committee, chaired by Anthony Kam, which oversees the company’s accounting and financial reporting processes and the audits of the financial statements of the company; the Compensation Committee, chaired by Qi Lu, which assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to directors and executive officers; the Nominating and Corporate Governance Committee, chaired by George Yeo, which assists the board of directors in selecting individuals qualified to become the company’s directors and in determining the composition of the board and its committees.
On July 1, 2020, Pinduoduo announced the appointment of Chen Lei as its CEO, Tony Ma as Vice President of Finance and Andre Zhu as General Counsel. Colin Huang remained as the Chairman of the board.
Business Model.
Pinduoduo monetizes primarily through advertising - about 90% of Pinduoduo’s revenues come from online marketing services with the remainder coming from transaction services.
Pinduoduo charges 0% commission rate on the sales that take place on its platform. This reduces the upfront costs a merchant has to bear when setting up shop on its platform and has helped it expand its merchant base rapidly to reach 5.1 million merchants within 5 years of its founding.
Pinduoduo provides merchants with value-added services, such as logistic infosystem services, marketing education services through its DuoDuo University, and payment services. Pinduoduo operates its own logistic infosystem that helps to track the parcels generated from its platform. It started the services to improve the efficiency of its logistics, and to track and crack down on illegal activities such as online gambling and brushing. The e-waybill system was launched during the first quarter of 2019. The system is integrated with all major logistics services providers in China, as well as the store management systems of sellers.
Social Commerce.
Pinduoduo is known for its interactivity and value-for-money offers. On Pinduoduo, users can discover and purchase products from a wide range of sellers. What sets Pinduoduo apart is the social aspect where users can easily share what they have browsed or purchased with their social network, inviting them to join "teams" of mostly two people within 24 hours to enjoy a lower price. Users get a clear benefit of enjoying a lower price while still having the convenience of getting the product shipped to them individually. This in turn drives greater sales volume for sellers, allowing them to continue offering value-for-money prices due to economies of scale. Pinduoduo scored higher than its online peers in the brand attributes of adventurous, fun, and playful. Afterall, Pinduoduo’s founding team has a background in game development and e-commerce operation.
The user experience is anchored around browsing and interactions, as opposed to deliberate, search-based discovery. The company presents users with a personalized feed of products to encourage them to explore, a user experience that is designed to more closely resemble visiting a real-world shopping mall or a bazaar.
While browsing on the platform, products that users’ friends have purchased or reviewed positively before are flagged as such, and there are also features that enable users to ask each other for recommendations and also see their friend's reviews. These features mimic the spontaneity and experience of browsing and shopping offline with friends, and the more fun the shopping experience is, the more users naturally engage and generate even more signals. These buyer-to-buyer interactions that drive trust, inspiration and relevance are a key part of social commerce. Thereafter, as the number of users and interactions grow, the platform is able to refine the recommendations it presents to users based on its social graph formed from the browsing, sharing and team purchase behavior of its users taken in combination.
While team purchase was the main reason for Pinduoduo’s rapid growth, a few pillars supported its growth and success, the high penetration of logistic network, that supported fast and low cost delivery services, prevalence of online payment facilities, and the fact China is the manufacturing base of most items sold by e-commerce platforms worldwide.
Agriculture.
Pinduoduo is the biggest online marketplace for agricultural produce, and is known for applying consumer insights to help revamp the traditional supply chains to benefit both consumers and producers. In 2019, it sold RMB 136 billion worth of agricultural goods, constituting 13.5% of its total GMV for the year. The number of active buyers of agricultural products on Pinduoduo surpassed 240 million in 2019. In the first quarter of 2020, Pinduoduo helped open more than 270,000 new agriculture-related online shops.
Later, Pinduoduo launched its Duo Duo Farms initiative in April 2019 to help farmers in impoverished counties in China improve their productivity and find new sales channels online. Through its Duo Duo University programs, Pinduoduo equips farmers and entrepreneurs in rural communities with skills such as finance and marketing to fill the rural talent gap.
During the Coronavirus outbreak in China, which paralyzed traditional wholesale distribution networks, Pinduoduo helped to collect information about supply and demand and connected the farmers with consumers through its platform to help farmers sell the perishable stock.
Pinduoduo has helped 180,000 farmers in nearly 400 agricultural areas sell the equivalent of 120,000 metric tons of agricultural produce from February 10 to March 18 through its "Help the Farmers" Covid-19 response program.
Consumer to Manufacturer (C2M).
Pinduoduo has actively promoted the concept of "consumer to manufacturer" which they call C2M. The consumer-to-manufacturing (C2M) model aims to evolve traditional manufacturing from a marketing-driven process into a consumer-driven process by leveraging consumer insights to create and refine designs and specs to cater to different users demands.
Pinduoduo has implemented this by helping brands and factories so that they in turn can produce products users need the most. By cutting down on unnecessary production and guess work, less resources are needed and the cost savings can be passed on to consumers. The R&D of product design therefore is done with real user feedback to be incorporated by manufacturers and brands.
In December 2018, Pinduoduo introduced its "New Brand Plan". Through this initiative, Pinduoduo supports its partners with analytics, product development suggestions and marketing support on its platform.
Thus far, Pinduoduo has partnered with a variety of manufacturers in different industries to develop tailor-made products for its users. For instance, Pinduoduo signed a strategic cooperation agreement with Shenzhen MTC Co., Ltd, a contract manufacturer that produces more than 10 million TV sets annually for renowned global brands. The cooperation covers joint research and development, design and manufacturing as well as marketing. Songfa Ceramics and Sipiao, a tissue paper manufacturer, are other partners that have been named. According to MIT Technology Review, in 2019, 106 such manufacturer-owned brands were launched on Pinduoduo.
Investments and Partnerships.
Pinduoduo has made a few investments and partnerships with both international and Chinese retailers.
In late Nov 2019, Amazon.com Inc opened a pop-up store on Pinduoduo to coincide with its Black Friday Sales. The pop-up lasted through the end of December and featured a selection of 1,000 products from Amazon’s global stores. The partnership gave Amazon access to Pinduoduo’s user base in lower tier markets while helping Pinduoduo to expand its premium product offerings.
In April 2020, Pinduoduo made its first strategic investment by subscribing to US$200 million in convertible bonds issued by Gome Retail Holding, a major household appliance and electronics retailer in China. This investment is expected to strengthen Pinduoduo’s position in the household appliances and electronics sector and also accelerate its push into C2M, with more tailor-made appliances made available to its users.
Intellectual Property Protection.
In 2018, Pinduoduo came under scrutiny following a spate of negative press calling the company out for inferior and imitation products. The company responded with an open letter stating that it had in a single week in August shut down 1,128 stores, taken down more than 4 million listings and blocked 450,000 suspected counterfeit goods listings from being published. The company also disclosed that it had removed 500,715 items and closed more than 40 stores as of February 4, 2020 to protect consumers from counterfeit and substandard masks being sold by merchants hoping to profit amid pandemic.
Pinduoduo has been applying its 10x penalty policy on counterfeit goods, which is stricter than the three times penalty required under Chinese law. Its 10x penalty policy is the strictest among all platforms in China. If the platform finds a product to be fake, it would impose a penalty on the merchant that is ten times the total value of the entire batch of problematic goods. This implies potentially huge losses for merchants found guilty and has sparked merchant protests at Pinduoduo offices as a result.
The penalty is deducted from the deposit and outstanding funds of the store concerned as well as from others owned by the same merchant if necessary. These funds are then disbursed to affected consumers as a compensation.
In November 2018, Pinduoduo launched an online Intellectual Property Protection portal to communicate with brand owners. The portal allows brand owners and rights-holders to make takedown requests. Brands working with Pinduoduo can set their own requirements and characteristics, choosing from specific parameters and design rules, and in some cases pre-screening models. Pinduoduo also has a dedicated team that addresses inquiries from rights-holders’ about its IP protection portal. By late 2019, over 12,000 brand owners had registered their IP rights on the Pinduoduo protection program.
In 2020, Pinduoduo introduced mini programs that enable users to verify the authenticity of branded products. The mini programs are tailored to the unique features of each brand and provide consumers with the manufacturing information and supply chain details of the product they have purchased.