Social e-commerce in China illustrates the success of the innovation economy

Editor’s Note: Andy Mok is a non-resident researcher at the Center for China and Globalization. The article reflects the views of the author, and not necessarily those of CGTN.

Social e-commerce is a term that is rapidly gaining popularity in China. Seeking advice from friends, family, or other trusted people before making a major buying decision is nothing new. In the digital age, social e-commerce has sometimes been described as the process of turning strangers into friends, friends into customers, and customers into sellers.

Chinese-style social e-commerce is unique in several ways.

The Chinese are internet-connected and tech-savvy consumers. / Photo VCG

The Chinese are internet-connected and tech-savvy consumers. / Photo VCG

First, there is a Marxist principle which says: “Quantity has a quality of its own.” The Chinese people are a huge potential force and we can see this force applied in the adoption of social e-commerce.

One of the leading companies in this space is Xiaohongshu (or Little Red Book), which launched in 2013 and currently has over 150 million registered users and 50 million monthly active users. As of 2017, its sales volume exceeded 10 billion yuan, making it the largest social e-commerce platform in the world.

Unsurprisingly, Little Red Book also achieved unicorn status with its latest funding round of $ 300 million, giving it a valuation of over $ 3 billion.

According to WWD (Womens’ Wear Daily, a magazine of the fashion industry that insiders consider the Fashion Bible), Little Red Book’s revenue is expected to reach $ 2.9 billion next year, this which makes it the essential partner of world fashion. brands.

Like many other economic and technological features in China, social e-commerce with Chinese features is both important and fast.

Little Red Book’s evolutionary arc also illustrates the growing sophistication of China’s innovation economy. According to successful investors like Warren Buffet, one can be greedy in the short term or greedy in the long term. Businesses built to last are hungry for the long haul as long as they have the vision and discipline to not succumb to making quick profits and often cutting corners along the way. In the United States, Amazon is the classic example of a long-term hungry company.

Jilin University students line up to collect their packages after 11.11 in Jilin, China on November 16, 2018. / ‍VCG Photo

Jilin University students line up to collect their packages after 11.11 in Jilin, China on November 16, 2018. / ‍VCG Photo

Little Red Book started out as an online space for young women to share information about cosmetics and other related products (think Quora or Pinterest for makeup, fashion, etc.). As a source of reliable and authentic information, its group of KOLs (Key Opinion Leaders) has grown to include some of the biggest Chinese celebrities like Fan Bingbing who currently has 10 million followers on this platform.

By avoiding premature monetization, Little Red Book has created a large and sustainable community of predominantly urban women with a strong desire for high quality products with high purchasing power. Laying that foundation has allowed them to create a virtuous circle where users read other users’ products, make a purchase from Little Red Book, and then share their experience, completing the cycle. Along the way, Little Red Book earns up to 30 percent of the revenue generated on its platform.

In addition to showing the sophistication of China’s innovation economy, Little Red Book can also solve the problem of underserved retail in China’s third, fourth and fifth largest cities.

Unlike the United States or Western Europe, many parts of China have not invested decades, if not centuries, in physical offline retail infrastructure.

By providing a trusted source of product information and advice coupled with the ability to actually purchase products, social e-commerce businesses such as Little Red Book can not only exploit an explosive growth opportunity, but also accelerate the transition to a consumer-driven economy more quickly. and more efficiently.

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