Taobao and JD.com have dominated online shopping in China for years. But now there's a new kid on the block -- and Pinduoduo is nothing like its rivals.

(Abacus is a unit of the South China Morning Post, which is owned by Alibaba -- the owner of Taobao.)

The company, founded by an ex-Googler, listed on the Nasdaq in July 2018 to much fanfare, raising more than US$1.6 billion. Still unprofitable right now, Pinduoduo has grown by targeting price-conscious shoppers in lower-tier cities -- but some of them say the chase for a good deal can, at times, lead to disappointing purchases.

All the things you can buy on Pinduoduo, from fruits to baby products to (really basic) phones.

Pinduoduo 101

If Amazon, Groupon and Facebook had a baby in China, it would probably look a lot like Pinduoduo.

Its name means “shop more together” in Chinese. The idea is to turn online shopping into a social experience. But it’s more sophisticated than just showing off what you’ve bought to your friends -- being social actually delivers better prices.

Here’s how it works: You message your friends about an item you like. If they want it too, you can join together in a group purchase to get a discount. The items are then delivered individually to each of you. Everyone is happy.

Using the app reminds me a lot of going to a wet market in China: It’s noisy, it’s crowded and you’re trying your best to get a bargain. Say you are interested in buying some garlic. They sell for 29.9 yuan (US$4.39) if you buy them on your own, or 4.9 yuan (US$0.72) if you buy them with someone else. Why would you pay more?

While you’re deciding whether to spend your hard-earned money -- possibly for something you didn’t even want to buy in the first place -- Pinduoduo isn’t going to leave anything to chance. Just like any eager market vendor, Pinduoduo will try to remind you what a great deal you could be getting by bombarding you with a stream of pop-up messages, showing users who have just successfully found friends to buy together with.

You can share information about a product on social apps like WeChat or QQ, inviting friends and families to join along a purchase. But if none of them are taking the bait, don’t despair. Scroll down and you can also see in real-time a list of users who are trying to find a buying partner. You can join one of them by clicking “buy together”. Alternatively, you can make a purchase on your own first and message your friends later to join in for a group deal.

Social Ecommerce

The idea of combining social with online shopping isn’t new. For instance, Instagram’s “shoppable photos” let users tap on products tagged in a post to get to an online store. But Pinduoduo is different in that it adds a huge incentive with discounts.

Pinduoduo’s filing to the US Securities and Exchange Commission says that as of March, its platform had reached 295 million active customers and more than 1 million merchants. According to the China Internet Report, Pinduoduo is now China’s third most popular shopping app, trailing only behind JD.com and Taobao.

The app is particularly popular among users in their 30s living in so-called third-tier cities, who are often less well-off than their peers in Shanghai or Beijing. But there are questions about whether Pinduoduo’s image as a discount retailer means it will only find success in lower-end markets.

Founder Colin Huang told Chinese media it’s wrong to divide customers into tiers. Instead, he believes all customers have multiple layers of needs -- and the goal of Pinduoduo is to fulfill one of them.

“We attract people who want value-for-money. [The typical customer] will buy a Hermès bag, and also a box of mangoes that costs 9.9 yuan. [Their shopping habit] has nothing to do with their spending power,” he said.

By turning online shopping into an entertainment, it hopes to keep customers hooked -- a model he compares to a combination of Costco and Disneyland.

Pinduoduo has been China’s third most popular ecommerce service since July 2017. (Picture: China Internet Report)

Huang believes he's creating the future of online shopping.

“If you look at the entire e-commerce market, its form is changing dramatically. The success model for Alibaba today is not necessarily the success model for tomorrow,” he wrote in 2016. “Our team are probably 20 years behind Alibaba, but I believe we might have a chance to build a different Alibaba.”

Knockoffs and fakes?

But just like Alibaba’s Taobao, Pinduoduo is facing accusation of being a counterfeit peddler. Browsing around the app, we found what looks like a PlayStation (US$8 including 500 games and three controllers), a smartphone called vjvj X21S that costs US$67 (the Vivo X21, which actually looks quite different, costs US$365), and an “i5”-branded notebook that has an Apple logo on the back (US$73).

In a news report from May that Pinduoduo linked to on their website, Huang said their quality control efforts are are still in infancy, but they’re working to “upgrade supply chains and fight fakes.” Following a spate of criticisms, the company said this month it shut down more than 1,100 stores and removed 4.3 million suspicious listings in just one week.

From Silicon Valley to Shanghai

After last month’s IPO, Huang’s US$13.8 fortune has made his China’s 12th richest person and among the world’s 100 richest people.

The son of factory workers, Huang showed exceptional mathematical talents at a young age. After winning a Math Olympiad contest, his suburban elementary school urged him to apply to the prestigious Hangzhou Foreign Languages School -- one of very few high schools in China during the early 1990s that had foreign teachers and offered overseas exchange. He recalled watching Hollywood movies in class, a rare privilege in the country at that time.

Pinduoduo’s Colin Huang is now one of China’s richest men. (Picture: Bloomberg)

From there, Huang was admitted to an experimental gifted education program in Zhejiang University, where he enjoyed the freedom to study advanced science and engineering without picking a major in the first two years.

In 2004, after graduating from the University of Wisconsin-Madison with a master degree in computer science, he joined Google as a software engineer and later became a product manager. He returned to China two years later to help set up Google China, but after a year, left to found his first startup, an electronics e-commerce site called Ouku.com.

In 2015, he introduced Pinhaohuo -- a fruit-selling platform that adopted many of the social elements you see in Pinduoduo today. With millions of dollars under his belt, Huang launched Pinduoduo, which sells a wider range of products than Pinhaohuo. The two platforms merged the next year and retained the name of Pinduoduo.