How Pinduoduo Made it Big | History of Pinduoduo

Alibaba (Taobao and Tmall) and JD was dominating the China e-commerce space and no other company was able to match their scale until a new company emerged with an aim to serve the tier 3 and 4 cities that remained underserved. It focused on perishable products and daily necessities to make sure the users have high purchase frequency and it was also their category of choice because of low competition. It growthhacked its way by offering group buying feature at too good to believe discounts. It took it to the next level by focusing on interactivity by making the app browsable for fun and rewards. The company’s IPO prospectus referred to the platform as mix of Costco and Disneyland, the pricing is the Costco part and the fun browsing is the Disney part. Pinduoduo built a recipe for building a social commerce platform that mimicked the way people shop offline. It took cues from the gaming world to entice users to spend time on the app. All these viral elements made Pinduoduo the largest e-commerce platform in China in terms of monthly active users within six years of its existence. And now this social commerce model popularized by Pinduoduo is thought to be replicated elsewhere in the world.

If we want to trace back to the roots of Pinduoduo, we have to start with the story of Colin Huang, the founder of Pinduoduo. Colin Huang was born in Hangzhou, China in 1980. Colin’s parents were factory workers and maintained a middle class lifestyle. Colin loved math, went to one of the top schools in China and later he went to Zhejiang University, one of the most prestigious universities in the country, for studying computer science. In the following years he would find his ways into the silicon valley to get experience in the fast growing tech companies that were soon to become the giants. First, he interned at Microsoft in Beijing. Then he moved to USA to do internship in the same organization.

At this point Colin was building his own network of influences. Colin met with NetEase Founder, William Ding, through online forum who became mentor to him and introduced him to some other influential tech entrepreneurs most notably Duan Yongping, BBK Electronics founder. Colin was also getting along with Pony Ma, the founder of Tencent.

At the time Colin continued his education in computer science. He enrolled for University of Wisconsin-Madison’s computer science master’s program. At the same time he continued his internship at Microsoft. During the internship period, Microsoft offered Colin to join the organization as full time employee. Colin’s mentor William Ding advised him otherwise. William told Colin to consider applying at Google as he thought Colin had some experience in Microsoft and built some network there and now it would be better for him to join this fast growing tech company who as William thought was doing more interesting things.

Colin applied and joined Google six months before its IPO in the year 2004. He started going up in the organization ladder as he kept putting up superior performance. In 2006, he joined a secret team at Google with plan to launch Google in China. But that plan was later aborted. Now Colin was thinking of wearing the entrepreneur hat. He left google and wanted to start an e-commerce company to ride on the rising middle and affluent class of China and increasing consumption.

He started a company called ouku.com in 2007. ouku.com was an online retailer that sold electronics and other goods. Within three years of its operations, Colin sold the company and went onto become a serial entrepreneur building and funding multiple companies in the following years. The next one on the line was called LEQI who helped bring foreign brands online in China and sell them on the then leading ecommerce platform Taobao and Tmall that are owned by Alibaba.

Around the year 2012 Alibaba was in talk about going public as the biggest ecommerce platform which eventually did happen in 2014 and JD was the number two in China ecommerce space. There were some other interesting things that were happening in China internet that fascinated Colin. Mobile and social gaming were emerging as the next big industry. Tencent just launched WeChat. And Colin started gaming studio with the plan to launch mobile social games on the new emerging WeChat platform.

And at this point things were falling into place for Colin. Having worked at Microsoft and Google, doing business that directly corresponded with his future competitors and after gaining some experience in mobile and social games, Colin was about to put these pieces together to build something unique. What is that thing that would find its place at the intersection of ecommerce and social gaming? Yes, this is when the concept of Pinduoduo emerged. But before Pinduoduo there was Pinhaohuo. Here Pin means doing something together and Hao Huo means good goods. So it roughly translates to getting goods together.

Colin figured out food and vegetable items were the first category to go for as China agriculture is built of many individual farmers and their platform could connect these individual farmers with large consumer segment. He also figured out this category would lead to lots of repeat purchase and the items would be small ticket items which would lead consumers to try out the platform without thinking much about trust issues. It would gradually build trust among the consumers and then the platform could add more categories. Moreover, incumbents were focused on non-perishable items leaving the fruits and vegetables category less crowded and Pinhaohu and later Pinduoduo, being late in the e-commerce party, had to think about competition. At this point Pinhaohuo was not even an app. Pinhaohuo used WeChat as acquisition vehicle and built their operation on the same platform. Connecting with farmers and consumers and conducting the transaction and payment process were all done on the same platform. Eventually they rolled out the app.

So, Colin and his team started Pinhaohuo as a retailer. The business model was that they were the retailer who managed their inventory and sold products directly to consumers. It was mid-2015 and they raised some venture capital money and the company was fully functional. But this business model didn’t play out well. Being the first party retailer meant inventory management which turned out to be very tricky especially when you dont’ want to sell rotten tomatoes. Instead of pivoting Pinhaohuo to a better model that worked, Colin and his team built a separate company from its gaming studio that would be a marketplace. The plan with this new company was to take no inventory, take very little cut on the transactions (less than 1.0%) and sell products at cheaper price than any other marketplace.

For the new company name they stuck with the Pin part of “Pinhaohuo” and added duoduo to the name meaning together, more savings, more fun. With no requisite for holding inventory and managing own logistics, it turned out Pinduoduo was doing better than Pinhaohuo. It raised money as separate entity and many investors who invested in Pinhaohuo were willing to invest in Pinduoduo as well. By September 2016 Colin and his team transitioned their venture from being a retailer to a marketplace by merging the two companies into one. The transition to marketplace and leaving the delivery on the merchant part was also feasible because of China’s mature third party logistics market. Leaving the control of inventory and delivery was pretty obvious thing for Pinduoduo at that point.

Pinduoduo isn’t only about low take rate and cheap pricing. It is also about adding social and gaming element as a form of growth hacking. They brought group buying offer which became a power tool to bring in consumers on the platform. Through group buying users could get large discount on their desired products. Group buying was already popular in China offline and bringing that aspect of the shopping experience online was a game changer. And most of the group formation happened over WeChat where users would send invitation link to their friends and family members to buy something together. WeChat ecosystem became a great enabler for Pinduoduo to acquire user at a stellar rate. And Tencent (owner of WeChat) being one of the investors of Pinduoduo also helped the company to build a strong presence on the ecosystem. Within the first year of its operation, the company bagged USD 70 million in revenue with such low take rate (~0.6%) on gross merchandise value. Fast forward to this day, Pinduoduo is now the the largest e-commerce platform in China in terms of monthly active users. In the full year of 2020, the platform generated GMV (Gross Merchandise Value) of USD 256 billion and revenue of USD 9.1 billion with 788 million active buyers. This is a mindboggling fast paced growth story of an e-commerce company that is reshaping the way to do commerce online.

History of Pinduoduo

• Year 2015 Founding of Pinhaohuo as a retailer

  Colin Founded Pinhaohuo (Pinhaohuo means getting goods together).
• Year 2015 Transition to marketplace model

  Pinduoduo was founded as a separate company and worked as a marketplace. The marketplace model worked better. Pinhaohuo and Pinduoduo was merged and the merged company was named Pinduoduo (Pinduoduo means together more savings, more fun).
• Year 2020 Going big

  Pinduoduo generated GMV (Gross Merchandise Value) of USD 256 billion and revenue of USD 9.1 billion with 788 million active buyers.