Pinduoduo: A Startup is Challenging China's E-commerce Giant Alibaba

The company’s valuation has grown ten times in less than one year.

Author: Selina Cheng   

A Chinese e-commerce startup called Pinduoduo, or PDD, is said to have raised close to $3 billion at a valuation of about $15 billion, according to a Chinese news outlet Technode.

Its backers include Tencent Holdings and famous venture capital firm Sequoia Capital.

The company's valuation has grown ten times in less than one year. In 2016, Pinduoduo raised $110 million in B round funding led by Banyan Capital and Tencent at a valuation of just $1.5 billion, the company said.

Founded in 2015 by an ex-Google engineer Colin Huang, PDD has quickly become one of China's fastest-growing e-commerce unicorns with gross merchandise volume (GMV) reaching 100 billion yuan in 2017, a milestone that took Taobao five years and ten years to reach.

With its jaw dropping expansion rate, PDD has become China's third largest e-commerce company in terms of sales.  Although it is still small compared to the largest Alibaba (3.77 trillion yuan in GMV) and the second largest (1.3 trillion yuan in GMV), the gap between PDD and is shrinking. In November last year, PDD's daily volume once exceeded for several days.

Famous for its Groupon-like function, PPD has accumulated around 300 million users on its app since its release.

The app enables people to purchase commodities, such as clothes, flowers, toilet paper, fruits at a discount price, some as low as 80 percent off. To receive the discount, you need to share the deal on your social media pages and urge as many friends as possible to buy it with you. Once your bulk order requirement is met, PPD will ship products directly from their factories to its customers.

With Tencent's backing, the app is often used through Tencent's WeChat messaging service. By letting consumers buy directly from manufacturers in bulk orders, customers could enjoy low price products, from $1 toilet paper to $3 sportswear.


Sports Shoes sold on Pinduoduo, only 19.9 RMB (less than $3) 

Also because of the nature of its unique business model, users voluntarily promoting PDD's products to qualify for more discounts, PDD's growth rate is promising. 

To make the shopping experience more interesting, Huang, who worked on early search algorithms for e-commerce in Google, and his engineers also tried to add gaming elements to the whole shopping process, lucky draws and offering cash rebates or free products to its most loyal customers. 

However, looking ahead, the future of this e-commence unicorn may not be as bright as people expected.

"Pinduoduo suddenly jumped in popularity and this surprised Alibaba a bit," Analysys International's Wang said. "It will definitely take steps to counter Pinduoduo's growth."

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Taobao Special Price Edition, 9.9 yuan (Less than $2) for T-shirts and sportswear

And Alibaba did exactly that.  Last month, as a way to fight back, Alibaba Group Holding Ltd. (NYSE: BABA) launched a new service called Taobao Tejia, or Taobao Special Price Edition, which lets users make bulk purchases of cheap products in a way very similar to PDD, according to Forbes.