In the constantly changing world of e-commerce, what factors will shape its future?

On November 28th, PDD, the parent company overseeing China's budget-friendly shopping app Pinduoduo and its global counterpart Temu, unveiled its Q3 earnings report. The report showcased a remarkable 93.9% year-on-year earnings surge, significantly outpacing the 4% growth of the established market frontrunner, Alibaba.

The impressive financial results of PDD triggered a wave of online discussions among industry observers, particularly following a notable post by an Alibaba employee. The post reflected a sense of unease and urgency within Alibaba, acknowledging PDD's rapid ascent and the potential threat it posed to Alibaba's long-standing e-commerce dominance.

This escalating discourse prompted Jack Ma, the founder of Alibaba, to break his post-retirement silence. In a rare internal message circulated on November 28th, Ma addressed the concerns raised by the employee's post and affirmed his confidence in Alibaba's capacity to evolve and enhance its position in the face of mounting competition.

The Alibaba staff member's post conveyed a mix of apprehension and determination, highlighting PDD's transformation from an obscure contender to a formidable leader. While hesitant to share such a pessimistic sentiment, the employee felt compelled to document these thoughts as a reminder and motivator for the team to persevere, contribute incrementally, and ultimately overcome the challenges ahead.

In his response, Jack Ma acknowledged the competitive landscape and expressed his unwavering belief in Alibaba's ability to adapt and improve. He conveyed his confidence that the entire Alibaba team was closely monitoring the situation and emphasized his conviction that the company would successfully navigate the changing tides of the e-commerce market.

"All great companies are born in winter." The rise of AI e-commerce presents opportunities and challenges for all. Pinduoduo's success is commendable, but true respect goes to those who innovate and sacrifice for a brighter future.

A watershed moment arrived on December 1st, Beijing time, when PDD's market value surpassed Alibaba's for the first time in its eight-year history, signaling a shift in the e-commerce power balance.

PDD's rise, fueled by its innovative "shop like a billionaire" model, marks a significant milestone in the industry, according to Cui Lili, Director of the Institute of E-Commerce at Shanghai University of Finance and Economics.

Social commerce, which seamlessly merges social media platforms with e-commerce features, has transformed the way users discover, share, and purchase products. PDD, a Shanghai-based company founded in 2015, has emerged as a pioneer in this landscape, revolutionizing social commerce through its innovative group-buying model. This model encourages users to collaborate, forming groups to make collective purchases that unlock significant discounts. By leveraging this approach, PDD has rapidly expanded its user base. Additionally, the Pinduoduo platform, known for its wide variety of remarkably affordable products, has resonated strongly with price-conscious consumers in China, further fueling PDD's growth and influence in the market.

Cui emphasized that PDD's remarkable growth in market capitalization is significantly attributed to its substantial advancements in cross-border e-commerce. Since its U.S. launch in September 2022, Temu, PDD's international platform, has experienced rapid expansion, establishing a presence in over 40 countries and regions, including major markets like the U.S., Brazil, the U.K., Japan, and Australia, as well as emerging economies such as South Africa and Saudi Arabia. This global expansion has been a key driver of PDD's impressive market performance.

The business model that propelled PDD to success in China has been effectively replicated in international markets, creating a global e-commerce phenomenon renowned for its focus on affordability. The name "Temu," derived from the phrase "team up, price down," perfectly encapsulates the core principle of this model. Furthermore, its catchy slogan, "shop like a billionaire," has been instrumental in attracting consumers, tapping into the universal appeal of discounts.

Data from Euromonitor, a global market analysis firm, reveals that China's e-commerce penetration rate reached 27.21% in 2022, surpassing the global average of 20.4%. This high penetration rate indicates the widespread adoption of e-commerce in China. Even in the well-established e-commerce market of the United States, the penetration rate was slightly lower at 26.26% in the same year.

In contrast, emerging markets in Southeast Asia, Latin America and the Caribbean, Africa, and the Middle East exhibit lower e-commerce penetration rates, remaining below 10% in 2022. This presents a significant opportunity for cross-border e-commerce platforms like Temu, as increased penetration in these markets could lead to unprecedented growth and expansion.

Cui highlighted the growing importance of cross-border e-commerce as a driver of foreign trade, predicting that digital trade through these platforms will be a crucial part of international trade in the future.

Guo Tao emphasized that PDD surpassing Alibaba signifies more than just a shift in market dynamics; it represents the emergence of new trends and opportunities in the Chinese e-commerce landscape.

Guo emphasized that PDD's success story serves as compelling evidence of the viability and vast untapped potential within the social commerce sector. This achievement not only marks a positive turning point for PDD but also signals promising developments for the entire e-commerce industry. Moreover, PDD's trajectory has unveiled new opportunities for China's manufacturing sector. By adopting a customer-to-manufacturer model, PDD facilitates direct interaction between manufacturers and consumers. This approach enhances supply chain efficiency and transparency, ultimately driving progress and transformation within the manufacturing industry.

Many China-based sellers on Pinduoduo and Temu report a streamlined process where their involvement is primarily limited to accepting orders and shipping products to designated domestic warehouses. The platforms then take over, managing sales, delivery, and after-sales services. This model allows manufacturers to concentrate on core competencies like product research and design, significantly reducing the barriers to entry for small and medium-sized enterprises venturing into cross-border e-commerce.

China's status as a leading global manufacturer, with its vast production capacity, diverse product range, and well-established supply chain, further amplifies its potential in the cross-border e-commerce sector, according to Guo. This advantage positions the country to exert even greater influence in this rapidly growing domain.

China's e-commerce penetration rate has surged ahead, reaching 27.21%, surpassing the global average of 20.4%. This indicates a strong adoption of e-commerce within China. Even in the mature U.S. e-commerce market, the penetration rate was slightly lower at 26.26% in the same year. However, emerging markets across Southeast Asia, Latin America and the Caribbean, Africa, and the Middle East lag behind, with e-commerce penetration rates remaining under 10% in 2022. This disparity presents a significant opportunity for cross-border e-commerce platforms. As e-commerce adoption grows in these emerging markets, there will be unprecedented opportunities for expansion and growth in cross-border e-commerce.

Cui emphasized the growing importance of cross-border e-commerce as a catalyst for foreign trade. She predicts that digital trade, facilitated by cross-border e-commerce platforms, is set to become a fundamental part of international trade in the future. This highlights the transformative potential of cross-border e-commerce in reshaping global trade dynamics.

Guo Tao, an angel investor and senior AI expert, highlighted the significance of PDD surpassing Alibaba in market value. He emphasized that this event represents more than just a change in market dynamics; it symbolizes the emergence of new trends and opportunities within the Chinese e-commerce landscape. PDD's success serves as a strong testament to the viability and untapped potential of social commerce, indicating positive developments for the entire e-commerce industry. Moreover, PDD's growth trajectory has opened up new possibilities for China's manufacturing sector. Through its customer-to-manufacturer model, PDD enables manufacturers to interact directly with consumers, improving supply chain efficiency and transparency, and driving progress and transformation within the manufacturing industry.

Pinduoduo and Temu have simplified the selling process for many China-based manufacturers. These sellers only need to accept orders and ship their products to designated domestic warehouses. The platforms handle all subsequent processes, including sales, delivery, and after-sales service. This model allows manufacturers to concentrate on product development and innovation, significantly lowering the barriers to entry into cross-border e-commerce for small and medium-sized businesses.

China's position as a global manufacturing leader, with its extensive production capacity, diverse product range, and efficient supply chain, further strengthens its potential in cross-border e-commerce. According to Guo, these advantages position China to exert even greater influence in this rapidly expanding market.

In the dynamic landscape of e-commerce, PDD's current success doesn't guarantee future dominance. The global stage is set for intense competition, and the source of the next major breakthrough is uncertain. However, one thing remains clear: innovation will be the driving force behind any significant advancements.

PDD's achievements signal a future where the manufacturing industry plays a more prominent role in the e-commerce sector, according to Cui. Chinese manufacturers have the capability to provide high-quality products at competitive prices. As PDD expands its product offerings, it should also focus on branding strategies to elevate the perceived value of Chinese-made goods, fostering a positive reputation and brand recognition.

In the future, the global e-commerce landscape will extend far beyond the current key players. To maintain its leading position, Alibaba is focusing on AI-powered live commerce, which merges live streaming with online shopping to create a more interactive and engaging customer experience.

Guo stated that the use of AI has the potential to revolutionize the e-commerce sector. AI can enable more precise user profiling and personalized recommendations, significantly improving user experience and purchase conversion rates. Additionally, AI-powered technologies can be employed to deliver more intelligent and efficient livestreaming services, further boosting user engagement and purchasing intent.

However, AI-powered live commerce also presents challenges, including data privacy and security concerns, technological costs, and the need for skilled professionals, according to Guo.

As Jack Ma previously mentioned, the AI-driven e-commerce era is still in its early stages, offering both opportunities and challenges for everyone involved in the industry.