By LIN Beichen
Pinduoduo’s active users hit 788 million last year, streaking ahead of Alibaba on 719 million. The market is still wrestling with the fact that a highly unorthodox upstart has usurped the previously untouchable brainchild of Jack Ma. Pinduoduo is now the largest e-commerce platform in China.
But that’s not all: Founder and ex-CEO Colin Huang is off to the countryside to become a scientist.
In a letter to shareholders, Huang explained that the company which started out as a marketplace for third-party sellers has invested heavily in logistics and supply chain and he no longer feels he is the best person to lead the next phase of growth. Huang plans to pursue research in food and life sciences, seeking new opportunities for Pinduoduo. With more than 270 billion yuan (US$42 billion) in agriculture-related GMV in 2020, Pinduoduo has also become China’s largest agriculture platform.
Huang will not sell his shares for at least three years and has entrusted the board to exercise his voting rights, 80 percent control of the company. Corporate governance has quickly swung around from strongman rule to decentralized meritocracy. The transition already began last July, when Huang handed over the reins of CEO to co-founder CHEN Lei, the new chairman.
Hail to the departing chief
The market didn’t take the news well. Pinduoduo shares plunged 10 percent on Wednesday morning, closing at US$149, losing a quarter of its US$202 high just a month ago, partly due to lost earnings. Despite strong revenue growth — sales reached 26.5 billion yuan in Q4, 146 percent up from Q4 2019 — the company reported a non-GAAP net loss attributable to ordinary shareholders of 184.5 million yuan, underperforming the Wall Street estimate of a net profit.
Nevertheless, the fall reflect anxiety over Huang’s departure. Although Huang had long relinquished day-to-day control, it is unclear whether he will continue to drive strategy. The market isn’t the friendliest of places at the moment. Chinese regulators are closing in on big tech monopolies, tightening scrutiny of competition and data privacy. More worryingly still are exposés of Pinduoduo’s internal management issues. The company is reportedly plagued by information silos and micromanagement. In December last year, the death of a 23-year-old employee ascribed to “overwork” caused a nationwide outcry. Now five years old, Pinduoduo has long outgrown startup-style governance.
Overdue reckoning
Despite its more than adequate growth, Pinduoduo has had a bad press. It’s been scandals and crises since day one. For years the company has been unable to ditch its image as the go-to place for cheap rubbish. Since its massive IPO, merchant disputes and bad working practices have been all over the headlines.
In 2018, a botched crackdown on counterfeit goods caught the eye of regulators and lawmakers. Investigations into the death of the young employee last December revealed an out-of-control overtime culture, including such dubious practices as employee surveillance. A manager at another tech company in Shanghai said that Pinduoduo’s aggressive hiring had “severely disrupted” the local labor market. Pinduoduo is the defendant in over 12,000 commercial litigations, so many that an entire group in the local business administration bureau is dedicated solely to Pinduoduo cases.
Many attribute this mess to Pinduoduo’s growth-driven principles: all problems can be taken care of later as long as sales numbers continue to grow. But now bigger and heavier than ever, Pinduoduo has many harsh reckonings ahead.
The price of groceries
The old strategies that turbocharged Pinduoduo’s early growth may be undermining new business. In Q4, costs blew up to 11.5 billion yuan, six times as much as a year ago. This includes lavish discounts and customer giveaways that have been the bread-and-butter of Pinduoduo’s business model from the very beginning. The surge is mostly driven by money poured into online grocery business Duoduo Maicai, where the deceased employee worked.
Duoduo Maicai is Pinduoduo on steroids. In August 2020 Maicai was a comparative latecomer to raging online grocery war, but expanded to more than 300 cities in less than six months as a result of the “distorted overtime culture” criticized by state news agency Xinhua, and thanks to aggressive hiring and relocation practices.
Talent was poached from other tech companies. Offers were preposterous. If an employee relocated to a new city where Duoduo Maicai is expanding, they were given a 40-percent raise. In return, they worked excruciatingly long hours. The well-known “996” mantra - 9 am to 9 pm, six days a week, and the norm in tech industries – describes “a breezy vacation,” according to one lucky Pinduoduo worker patrolling “the frontier.”
This is the monetary and human challenge facing all e-commerce companies, fighting to the death in every subsector. No longer able to grow by simply showing up, the ceaseless battle for growth compels the whole operation to migrate upstream, through supply-chain infrastructure and closer ties with merchants and suppliers. For seasoned frontiersmen Alibaba and JD.com, this has proved surprisingly capital intensive.
Huang’s dream
Pinduoduo is no stranger to headlines detailing its nasty disputes with renowned brands. For most, Pinduoduo still means cheap crap, unreliably delivered. In his letter to shareholders, Huang reflected that Pinduoduo had made a lot of money for a lot of people. The problem the company faced was that efficiency, distribution and supply chains do not “fundamentally improve the value of products.”
As so Huang departs on his mission to feed the people through profound changes in the cultivation process (and of course to create value at the very source of the stream for his company). It’s a beautiful dream, but one which requires a very different Pinduoduo.
