Even by the boomtown standards of China’s fast-growing online retailing arena, Pinduoduo’s growth has been impressive.
The shop-with-friends social commerce platform has grown to 200 million users in just two years, and its mobile app was installed on 19.9% of China’s smartphones as of December 2017, according to Jiguang Data, which researches mobile app activity in China. That put Pinduoduo’s app at No. 3 in terms of penetration among e-commerce apps, behind only the 53.4% of the Taobao app of China’s dominant e-commerce company, Alibaba Group Holding Ltd., and 20.7% for JD.com, Alibaba’s nearest competitor.
Behind Pinduoduo is Shanghai Xunmeng Technology Co. Ltd., a company founded by former Google Inc. engineer Colin Huang, which got its start with an $8 million funding round in 2015. The company raised an additional $110 million in 2016, in part from Tencent Holding Ltd., the online gaming giant and operator of the ubiquitous Chinese social messaging system, WeChat.
Pinduoduo hitched its star to the WeChat mobile app, creating an account on WeChat, as many Chinese e-retailers have, that allows consumers to buy products at a discount. Each item offered on the platform has a retail price and a discount price—but to get the discount shoppers have to invite friends to buy as well.
A consumer who wants to buy a product posts a link on Pinduoduo’s WeChat account and invites friends to purchase using that link. In some cases, for example, nine consumers have to buy the item for everyone to get the discount.
In addition, consumers who invite family members and friends to shop receive additional incentives in the form of cash or free products. For example, if a shopper invites nine new users to follow the Pinduoduo WeChat account and install the Pinduoduo app, the shopper gets a free bag of snacks.
Thanks to its competitive prices and shoppers posting actively about the deals on social media, Pinduoduo quickly attracted more than 200 million users, as well as tens of thousands of merchants that sell on its platform.
Monthly sales by merchants on the Pinduoduo platform reached 2.5 billion yuan in 2016, the company reported. That would have been about about $360 million per month based on the late 2016 yuan/dollar exchange rate. While it has not disclosed its 2017 sales, Bloomberg News quoted unnamed sources in April 2017 as saying that Pinduoduo was valued by investors at $1.5 billion.
”Consumers are always looking for high-value products and deals,” says Zhang Zhouping, a senior analyst at the China E-commerce Research Center, a private market research firm. “Pinduoduo offers online shoppers an alternative channel to Taobao.com and JD.com. This is the reason for its rapid growth.”
JD.com is No. 1 in the Internet Retailer China 500 ranking of China’s top online retailers. While Alibaba’s Taobao and Tmall online marketplaces account for a majority of online retail sales in China, they are not ranked because, like eBay.com, they are not the merchant of record for any transactions, instead offering a platform where other merchants sell their products.