The founder of group-buying platform Pinduoduo has called for more open competition for the benefit of merchants and consumers amid increasing rivalry in China's e-commerce industry where merchants are often forced to choose sides.
The current "forced exclusivity" in the e-commerce market, where merchants and customers are constrained to a certain platform or choice of payment method, will hurt the industry in the long term, Pinduoduo founder and chief executive Colin Huang Zheng said in his first letter to shareholders since the company went public on Nasdaq in July.
Pinduoduo has challenged the existing exclusivity by providing choices to its merchants and customers in areas such as logistics waybill systems, cloud computing services, and payment platforms, Huang wrote. "Our strategy has never been to disrupt a monopoly in order to create a new one of our own, but to disrupt in order to provide a choice."
China's e-commerce landscape, as well as the country's broader internet sector, is dominated by big players with hands in various aspects of the process, so they can block competitors with exclusive products and services. China's biggest e-commerce services provider, Alibaba Group Holding, for instance, developed and deployed its own logistics network Cainiao and online payment system Alipay, while excluding similar offerings from rivals such as WeChat Pay from social media giant Tencent Holdings. Tencent, meanwhile, blocks links to Alibaba's Taobao Marketplace from opening within its flagship messaging and social media app WeChat.
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"Attempts to establish or prolong any monopolistic control are both wasteful and destructive," Huang wrote. "These exclusivities are bound to be broken."
Alibaba and Tencent did not immediately respond to a request for comment.
New York-listed Alibaba is the parent company of the South China Morning Post.
In China's trillion-dollar e-commerce market dominated by established players Alibaba and JD.com, the meteoric rise of Pinduoduo has unnerved the incumbents. Last year, both Alibaba and JD.com launched group-buying services, a model Pinduoduo pioneered with the help of the WeChat social media platform operated by Tencent, a Pinduoduo investor.
The Shanghai-based newcomer took only four years to become China's third largest online retail provider behind Alibaba and JD.com, and its market value surpassed JD.com at one point in January.
Comparing Pinduoduo to Chinese basketball star Yao Ming when he was in elementary school, Huang said the four-year-old company is still a "little grown-up" despite its scale and pace of growth, adding that the market should have been "more open" for newcomers.
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As competition intensifies, Pinduoduo is spending heavily on marketing and technology to grow its share.
Last month, the company reported six-fold year-on-year growth in 2018 revenue to 13.2 billion yuan (US$1.9 billion), but that came at the price of a huge climb in spending on marketing as well as research and development into technologies including artificial intelligence and big data, which respectively rose nine and eight times year on year. Its net losses reached 10.8 billion yuan last year, 20-fold more than losses in 2017.
However, the spending spree will continue despite the widening losses. Pinduoduo has the ability to generate revenue, but it will continue to make long-term investment where it sees healthy return, Huang said.
"We should not be afraid to invest for the future," he said in the shareholders letter.
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