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WECHAT E-COMMERCE: WHAT YOU NEED TO KNOW BEFORE 2019
HANG ON,
JUST BEFORE YOU GET INTO IT…
This report gives you leading insight into However, this report isn’t necessarily for
WeChat’s e-commerce landscape. everyone.
If you read it cover to cover, you’ll be up to The content goes deep, quick.
speed on this year’s key trends, opportunities
and challenges. As such, the report assumes you have a working
knowledge about e-commerce in China, such as
That’s my promise to you. the major platforms and shopping festivals.
2
WECHAT E-COMMERCE:
ESSENTIAL CONTEXT
3
THIS SECTION’S TL:DR
1 China’s e-commerce landscape is cut-throat.
10% “WINNERS”, 90% “LOSERS”
On large e-commerce platforms, only 10% of
stores make serious money.
2 INTENSE COMPETITION
Slower smart phone user growth and a growing
number of e-commerce platforms continuously
3 RISING COSTS push up customer acquisition costs.
Against this backdrop, big and small players
4 LOOKING TO WECHAT alike are looking to WeChat’s ecosystem for
growth.
4
10% “WINNERS”, 90% “LOSERS”
The 80/20 rule doesn't apply to e-commerce.
Instead, it's the "10% W, 90% L" rule.
IN E-COMMERCE,
ONLY 10% OF PLAYERS This holds only 10% of online stores generate
enough traffic to make serious money
AND SKUs MAKE (“winners”). The remaining 90% struggle to eke
SERIOUS MONEY out an existence (“losers”).
The "10% W, 90% L" rule can also apply to an e-
commerce store’s SKUs and marketing.
5
10% “WINNERS”, 90% “LOSERS”
SALES REVENUE DISTRIBUTION ON TMALL
ANNUAL SALES: RMB >10 MILLION
5%
5% ANNUAL SALES: RMB 5-10 MILLION
90% ANNUAL SALES: RMB
10% “WINNERS”, 90% “LOSERS”
SALES REVENUE DISTRIBUTION ON TAOBAO
ANNUAL SALES: RMB >240,000
6%
94% ANNUAL SALES: RMB
INTENSE COMPETITION
China’s internet population is still growing, but it’ll soon reach the end of strong single-digit growth.
CHINA’S INTERNET POPULATION (2013-18), MILLIONS
802
751
710
632 668 7%
590
6%
7%
2013 2014 2015 2016 2017 2018
Note: All figures rounded to nearest million; figures taken from June of each calendar year.
Source: China Internet Network Information Center, 2018,
8
INTENSE COMPETITION
Around 75% of China’s internet users are serviced by 35 apps or less.
NUMBER OF APPS PER CHINESE SMART PHONE USER (2016-2017)
DEC 2016 DEC 2017
27% 26% 26% 27%
25% 24%
12% 13%
10% 10%
45
Note: All percentages rounded to nearest whole number.
Source: Quest Mobile, 2017, Quest Mobile ‘TRUTH’ Data Set (Dec 2017).
9
INTENSE COMPETITION
Consumers are using a greater variety of e-commerce platforms.
NUMBER OF E-COMMERCE APPS PER CHINESE SMART PHONE USER (2016-2017)
48% DEC 2016 DEC 2017
29%
23% 21% 22%
16% 15% 14%
9%
5%
1 2 3 4 >5
Note: All percentages rounded to nearest whole number; some totals may not add to 100% due to rounding.
Source: Quest Mobile, 2017, Quest Mobile ‘TRUTH’ Data Set (Dec 2017).
10RISING COSTS
Major e-commerce platforms have struggled to keep pace with rising customer acquisition costs.
TMALL PLATFORM COST OF CUSTOMER ACQUISITION VS JD PLATFORM COST OF CUSTOMER ACQUISITION VS
AVERAGE REVENUE PER USER (2015-17), RMB PER USER
450
AVERAGE REVENUE PER USER (2015-17), RMB PER USER
450
400
400
CAC
350
CAC
350
300
361 300
250
ARPU 310 250
ARPU
225 225 237
200
200
150
150
188 170
148 134
122 134
100
100
50
50
98
0
0
2015 2016 2017 2015 2016 2017
Note: All figures rounded to nearest RMB; CAC = Cost of Customer Acquisition; ARPU = Average Revenue Per User; ARPU data is taken from Q1 each year.
Source: Company Financial Data;
11RISING COSTS
Even e-commerce upstarts can’t escape rising customer acquisition costs.
PINDUODUO MAU (Q1 2017 - Q1 2018), MILLIONS
166
THAT’S GREAT, BUT…
141
16x
INCREASE IN NON-GAAP
71 SALES AND MARKETING
EXPENSES BETWEEN
Q4 2017 AND Q1 2018
33
15
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
Note: All figures rounded to nearest million.
Source: Pinduoduo’s SEC Filing (Form F-1).
12LOOKING TO WECHAT
Strong sales growth shows potential for continued e-commerce growth inside WeChat.
ESTIMATED SALES IN WECHAT THROUGH (MAR 2018), BILLION RMB
522
360
182
24 95
2013 2014 2015 2016 2017
Note: includes individuals and platforms transacting in WeChat’s ecosystem; all figures rounded to nearest billion.
Source:
13LOOKING TO WECHAT
WeChat Mini-Programs have boosted and diversified large e-commerce players’ traffic.
DISTRIBUTION OF E-COMMERCE PLATFORM TRAFFIC (MAR 2018), MILLIONS
529
APP MAU TOTAL MINI-PROGRAM ENTRIES
144
229
233
70
86 53
TAOBAO PDD JD VIP
Note: All figures rounded to nearest million.
Source: Quest Mobile, 2018, Quest Mobile ‘TRUTH’ Data Set (March 2018).
14WECHAT E-COMMERCE:
IMPORTANT DEVELOPMENTS IN 2018
15THIS SECTION’S TL:DR
1 PDD INSPIRES PDD’s ascendancy is a highly-covered growth
story. However, its most long-lasting impact is
the extent to which it ‘infiltrated’ WeChat Chat
Groups and Moments. Brands and other e-
commerce platforms have been quick to take
2 MINI-PROGRAMS GETTING THERE note.
618 proved that Mini-Programs will be an e-
commerce fixture. This further added hype
around WeChat e-commerce, which already
3 EVERYONE’S DIVING IN attracted large and small e-commerce players,
and a flurry of investment dollars.
16PDD INSPIRES
PDD brought many previous e-commerce innovations to bear inside the WeChat ecosystem.
HERO SKU
LIMITED-TIME OFFERS LUCKY DRAW
DISCOUNT
SHARE TO DAILY CHECK-IN
GET DISOUNT FOR CASH
17PDD INSPIRES
PDD systematically ‘infiltrated’ individual chat, group chat and Moments.
INDIVIDUAL CHAT GROUP CHAT MOMENTS
PDD USES WHAT IS KNOWN
AS (‘SOCIAL
FISSION’).
THIS TACTIC TAKES SOME
PROFIT MARGIN AND
INVESTS IN INCENTIVES (RED
PACKETS, DISCOUNTS,
FREEBIES, SPECIAL OFFERS)
FOR PRODUCT LINKS TO BE
‘INVITE TO SHARE FOR MOMENTS SHARED IN CHAT OR
WIN’ OFFERS DISCOUNT ADS MOMENTS.
18PDD INSPIRES
Brands are now rethinking how they can get more ’air time’ in individual chat, group chat and Moments.
LUCKIN COFFEE FM
TRY YOUR FIRST CUP PAID CONTENT CAN
OF COFFEE FOR FREE BE LISTENED TO FOR
WHEN YOU FREE, WHEN SHARED
DOWNLOAD THE APP TO A FRIEND
SHARE APP
IF FRIEND GOES ON
DOWNLOAD LINK
TO PURCHASE FULL
WITH FRIENDS SO
SUBSCRIPTION, CAN
THEY CAN ENJOY THE
RECEIVE DISCOUNT
SAME OFFER TOO
19MINI-PROGRAMS GETTING THERE
Mini-Programs service the same fields that apps do, but traffic is still app-centric.
DISTRIBUTION OF USER TRAFFIC ACROSS APPS AND MINI-PROGRAMS (JULY 2018), MILLIONS
639
APP MINI-PROGRAM
528
525
360 550
252 264 234
175 42
E-COMMERCE LIFESTYLE SERVICES VIDEO GAMES TRAVEL VIDEO
Note: This chart includes data from the Top 100 apps with an accompanying Mini-Program; all numbers rounded to nearest million..
Source: Quest Mobile, 2018, Quest Mobile ‘TRUTH’ Data Set (August 2018).
20MINI-PROGRAMS GETTING THERE
This year’s 618 signalled Mini-Programs will be a permanent fixture in WeChat’s e-commerce landscape.
TOTAL MINI-PROGRAM USERS OVER 618 NEW MINI-PROGRAM USERS OVER 618
164 MILLION 53 MILLION
INCREASE IN ORDERS VIA MINI-PROGRAMS AVERAGE MINI-PROGRAM USE TIME
66x 2 MINS 48 SECS
Note: This year’s 618 ran between 1 June 2018 and 18 June 2018.
Source: Aladdin Index and Goldman Sachs analysis.
21MINI-PROGRAMS GETTING THERE
Key e-commerce players are still experimenting with different Mini-Program functions and arrangements,
with different results.
RED JD
ONE MINI-PROGRAM SIX MINI-PROGRAMS
4 STRIPPED BACK
FUNCTIONALITY,
92 DIFFERENT SERVICES
HAVE OWN MINI-
MILLION COMPARED WITH APP MILLION PROGRAM
MP USERS MP USERS
35% INCREASE IN RED 26% OF JD’S USERS
(JUNE 2018) MINI-PROGRAM (JUNE 2018) USED ONE OF ITS
USERS BETWEEN MAY MINI-PROGRAMS IN
AND JUNE 2018 JUNE 2018
Source: Quest Mobile, 2018, Quest Mobile ‘TRUTH’ Data Set (August 2018). 22EVERYONE’S DIVING IN
All major e-commerce players have deployed either a Mini-Program, support for , or both.
E-COMMERCE
PLAYER
WECHAT WS MP MP MP MP
E-COMMERCE
PLAY
MP Mini-Program WS MP WS WS
WS Support for
23EVERYONE’S DIVING IN
In H1 2018, investors followed large e-commerce players into WeChat e-commerce.
H1 2018 WECHAT E-COMMERCE INVESTMENT
COMPANY DESCRIPTION FUNDING ROUND AMOUNT RAISED
SaaS ANGEL RMB 100M
LUXURY FASHION PROVIDER SERIES A USD 22M
S2B2C MALL SERIES A RMB 100M
PLATFORM + SUPPLY CHAIN SERIES A RMB 30M
SECOND-HAND GOOD SWAP SERIES A & B UNDISCLOSED
SaaS SERIES B USD 120M
GIFTING SERIES C RMB 100M
SaaS SERIES C RMB 30M
SUPPLY CHAIN N/A RMB 100M
Source: Company Data, Aladdin Index, Goldman Sachs analysis.
24WECHAT E-COMMERCE:
WHAT’S AROUND THE CORNER IN 2019
25THIS SECTION’S TL:DR
KOLs PLACE PRESSURE ON In 2019, I think there’ll be three potentially
1
LUXURY E-COMM PLATFORMS disruptive changes to WeChat e-commerce:
Firstly, KOL Mini-Program stores will become
one of the top online channels for luxury
products.
2 EVERYONE’S A
Secondly, a highly-social, highly-gamified form
of will encourage more transactions
between friends.
Thirdly, sharing may become a mainstream way
3 THE ¥0 STORE
to buy things in WeChat.
26KOLs PLACE PRESSURE ON LUXURY E-COMM PLATFORMS
LOOK has quietly snapped up leading fashion and beauty KOLs.
LOOK LOOK KOLs’ TOTAL ACTIVE FAN BASE
20 MILLION
PROVIDES TECH,
MERCH AND
LOGISTICS SUPPORT
TO WECHAT STORE
TOP 10 LOOK KOLs’ TOTAL MONTHLY SALES
SERVICES OVER 100
KOLS
COMPLETED
USD 22 MILLION
~ RMB 50 MILLION
SERIES A IN 2018
Source: 22 March 2018, 1 November 2017, 27KOLs PLACE PRESSURE ON LUXURY E-COMM PLATFORMS
LOOK’s near monopoly on top talent will make it one of the top online luxury channels.
LOOK’S KOL TALENT LINEUP TOP THREE ONLINE LUXURY CHANNELS (2019)*
LOOK SERVICES 30 ‘TIER ONE’ KOLs,
WITH 90% CONTRACTED EXCLUSIVELY
66%* 62%*
ANNYSTYLEONTOP
57%*
GOGOBOI
FRESHBOY BOYNAM BRAND WEBSITE BRAND WECHAT KOL WECHAT MINI-
MINI-PROGRAM PROGRAM
Note: Figures with an asterisk (*) represent the author’s prediction of results in Bain Luxury Report 2019; total exceeds 100% as consumers can choose multiple channels.
Source: 25 April 2018 28EVERYONE’S A
dramatically lowers the barriers for to start their own Mini-Program Store.
TAILOR HOW PRODUCTS ARE PRESENTED AND SOLD
OPEN YOUR OWN
MINI-PROGRAM
STORE IN < 1 MIN,
USING ’s
STORE TEMPLATE
SELECT WHAT
PRODUCTS TO SELL,
AT WHAT PRICE
~10% COMMISSION
ON ANYTHING SOLD
29EVERYONE’S A
Coffee Box showed how brand, product and gamification can combine for a simpler, more social .
COFFEE BOX VIRTUAL COFFEE SHOPS OPENED
CUSTOMISE OWN
> 500,000
VIRTUAL ‘COFFEE
SHOP’
FRIENDS RECEIVE
DISCOUNTED COFFEE
WHEN THEY BUY % OF COFFEE SHOPS THAT MADE SALES
FROM YOU
YOU GET FREE
COFFEE WHEN YOU
HIT ‘SALES TARGET’
10%
Source: , 7 August 2018, 30EVERYONE’S A
In 2019, we’ll see the more social, less commercial extend to all kinds of products and services.
FOOD FOR THOUGHT
HOW CAN
WILL THIS CHANGE HOW TO PUT THIS DO YOU INCENTIVISE
CUSTOMIZED STORE
HOW WE UNDERSTAND MODEL IN BRAND SELLERS WITH
OWNER AVATARS
? ADVOCATES’ HANDS? GAMIFICATION ONLY?
BE USED?
ARE THERE ANY LEGAL
WHAT ARE THE MOST IS THIS HOW BRANDS DO SELLERS SEE THIS
BARRIERS TO
INTUTIVE PRODUCTS CONNECT BETTER AS A GAME OR A
COMMISSION THAT
FOR THIS MODEL? WITH ? BUSINESS?
CAN BE OFFERED?
31THE ¥0 STORE
We’ve seen different ways ‘share to pay’ has been applied to products and services.
PDD
GRADED READER
EVERY SHARE AND
SUBSCRIPTION
ENTRY RESULTS IN
(RMB 149)
FIXED AMOUNT
TAKEN OFF THE
RETAIL PRICE
GET YOUR MONEY
BACK IF YOU SHARE
AN ARTICLE YOU CAN SHAVE PRICE
READ TO WECHAT DOWN TO $0
MOMENTS EACH DAY
OVER THE LIFE OF
THE SUBSCRIPTION APPLIES TO SELECT
SKUs ONLY
32THE ¥0 STORE
In 2019, we’ll see new market entrants rely heavily on ‘share to pay’ to create buzz and hero SKUs.
FOOD FOR THOUGHT
WHAT PRODUCTS ARE WHAT SERVICES ARE HOW CAN THIS BE WHAT OTHER
BEST SUITED TO THIS BEST SUITED TO THIS USED TO CREATE ACTIONS COULD
MODEL? MODEL? A HERO SKU? TRIGGER DISCOUNT?
DO YOU GIVE ‘SHARE WILL WE SEE A WILL WE SEE A
DOES THE CONTENT
TO PAY’ TO NEW FLAGSHIP THAT PLATFORM THAT
SHARED EVERYDAY
CUSTOMERS OR LOYAL ALLOWS THIS ALLOWS THIS
DIFFER? HOW?
CUSTOMERS? FOR ALL SKUs? FOR ALL SKUs?
33HOLD UP,
JUST ONE FINAL THING
This report distils observations about a large,
complex and rapidly-evolving ecosystem.
If you’re looking for more detail on something
in this report, scan the QR code on the right and
submit a question.
34YOU’RE ALL UP TO DATE NOW!
THANKS FOR READING
ABOUT THE AUTHOR:
Michael Norris is presently Research Manager at Resonance Michael has quickly developed a reputation as one of the
China’s consumer insights, strategy and digital innovation most dynamic and thoughtful commentators on China’s
team, SMART. digital landscape.
He delivers breakthrough insights and analysis to local and You can find more of Michael’s commentary on LinkedIn:
international brands, including Harbin Beer, Unilever, Shell
and Tiffany. https://www.linkedin.com/in/michaeljohnnorris/
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