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Human beings are social and tribal by nature. We crave interaction.
We first assembled in small hunter/gatherer groups, then in towns and villages, and finally in cities filled with skyscrapers and over-priced ugly glass condo buildings. But now, we predominantly gather online.
Why “hang out” with those only in your immediate physical proximity when you can expand this circle to make it a little more interesting?
This is where social networks step in. They expand your tribal radius.
But in order to find a potential friend or lover, discoverability also becomes more difficult because there are so many people to choose from.
So we need a filtering system so that we can be told what we like. This is where features like: “You know Bob, he is friends with Anne, so you might know Anne, here is the option to add her to your tribe.”
However, these recommendations are still primarily based on proximity because so many of the personal connections we make still involves aspects of physical interaction - food, sex, entertainment.
Social networks although primarily digital, are extensions of physical tribes
At the same time, we’ve got a rapid rise in eCommerce, thanks to the Amazonification of consumption. People get outraged when shipping isn’t free or if it takes more than 2 days to get there. They also want a fair price.
Manufacturers and wholesalers love eCommerce because it allows aggregation of product orders so they can achieve economies of scale.
When you pair the characteristics of social networks of today with those of eCommerce, you get a potent combination… Social Shopping.
This week, in <5 minutes, we’ll cover Social Shopping:
Big eComm 👉 Amazon vs. Walmart
Shopping on Social Media 👉 Instagram Shopping
Social Shopping 👉 Platform Native
Case Study 👉 Pinduoduo
Let’s get started!
1. Big eComm 👉 Amazon vs. Walmart
The first iteration of eComm was a massive scale and capital investment game. One of my favorite interviews of all time is with Jeff Bezos back in 1997 with an intro slide that I probably created in one of my high school presentations using PowerPoint WordArt.
In the interview, he explains why books are the first best product to tackle - because there are a massive amount of individual items (3M active books in print at one time). This allows you to build a store that exists online that could not be built any other way.
The rest, as they say, is history…
Bezos’ secret on the way to global domination and launching phallic-shaped rockets into space would be one of scale. He was known for relentlessly reinvesting every dollar into the business. His rationale was that these capital and operational expenses were vital to getting and staying ahead, rather than worrying about building up a balance sheet or paying a dividend.
Scaling up would be achieved through a spider-like web of distribution warehouses, with no actual physical storefronts.
Amazon then introduced prime, which is one of the greatest product features of all time, I would argue. This not only turned the model into a subscription basis, but also increased the frequency of orders drastically.
Walmart, however, went at this in a different (but also massively successful) manner because they already had a retail footprint and huge network of not only storefronts, but also distributors, warehouses, and suppliers.
But Walmart was mostly playing defense with their eComm strategy, just trying to keep the monster at bay, which would ultimately result in Amazon winning the eComm square.
We’ve seen this so many times in technology. Those that pick a winning strategy (like eComm) and start off on that new type of medium or platform far outpace the incumbents who are trying to adapt to change.
Change is hard, and if you start on the right (new) path, you win.
2. Shopping on Social Media 👉 Instagram Shopping
We all know about the proliferation of social media. Which went from being controlled by one creepy white dude…
Joking aside, I’m a big fan of Zuck and think he has the capacity to make Facebook the largest market cap company on the planet. Think about it, he’s the only founder-led CEO left of the megacaps, and he’s still only 37 years old. He can use the cashflow that Facebook prints and dominate the next ACTUAL frontier, while all the other bored billionaires go after the final frontier (space). But I digress…
As we all know, Facebook also owns Instagram.
Instagram introduced a feature called Instagram Shopping. It allows brands to easily implant buttons on top of content in order to direct the consumer to ultimately make a purchasing decision.
The theory behind this is that consumers are shopping at the “moment of discovery,” AKA while you're mindlessly scrolling through your feed in the morning while trying to chug down that coffee to jumpstart your day.
My problem with this feature is that shopping is not why people are on the platform.
I don’t know about you, but when I get jammed all these super-targeted ads (to the point where it’s creepy) I skip through them quickly and have never bought a product off the platform.
I’m there to look at cute dog pictures and follow that lifestyle account in Hawaii because that’s what I like.
I don’t boot up Instagram thinking, “Let’s go baby, I’m ready to get an advertisement about indestructible sunglasses or a snap-on bidet…”
This is where the next iteration comes in… Social shopping that is platform-native.
Under the Radar…
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3. Social Shopping 👉 Platform-native
Any time you have a platform-native experience, it always feels more organic, and the conversion rates are much higher.
Someone that loads up a shopping-centric app like Etsy, Ebay, or Pinterest, is looking to buy. The discovery from there feels much less invasive and more like, “OK lets do this together you magical piece of engineered user experience software.”
But there’s a new sheriff in town, and that’s social shopping. Social shopping is when a group with similar interests come together to buy products - just like when you would go to the mall with friends. By doing this as a group - the seller benefits from the increased volume sold and the buyers are usually incentivized with a group discount.
Users come on to the app to browse - not to look for one specific thing. When I get to the bottom of my toothpaste tube, I boot up Amazon and immediately type in toothpaste and it comes the next day. This is not the intent of social shopping.
This is powerful because the nature of consumption fundamentally changes. Looking for new trends with friends and finding deals is a USER EXPERIENCE, rather than a simple exchange of currency for goods.
If shopping online is so user experience-based why do Amazon’s website and app still look terrible? I would argue Amazon is not competing with social shopping. Amazon is a search and commerce site. People know what they want. Social Shopping tries to tell you what you want. Now let’s dive into my favorite company in the space to better understand this - Pinduoduo
Now, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel!
4. Case Study 👉 Pinduoduo
Pinduoduo means “Together, more savings, more fun”. It was started in 2015 and focused on helping farmers sell fruit. Today, it is worth over $110B and is China’s second-largest eCommerce company.
The concept in the early days was very straightforward - piece together a group of buyers, then purchase in bulk directly from the supplier. They started off in the fresh fruit market because the unit price was low. Best case scenario, a fresh apple arrives and you’ve saved 50% on it. Worst case scenario, the apple doesn’t even come or comes rotten and you’re out 25 cents, big whoop. This would be a whole different ball game with larger ticket items like electronics.
After passing Alibaba and JD in the fruit category, they started to expand to other areas like meat and seafood before moving into nearly every product category like toys and clothes.
Pinduoduo was built entirely on WeChat, the #1 messaging app in China from Tencent. This was vital to scaling the business early because it leveraged existing infrastructure and userbase to essentially bootstrap growth.
It is also directly aligned with the business thesis. WeChat is where social groups gathered in group messages, so this is directly where consumers would coordinate purchasing decisions.
Scaling Pinduoduo required the entire overhaul of their supply chain. Pinduoduo had to have boots on the ground to make sure the fruit wasn’t rotten and also had to build out fulfillment and distribution. This looks a lot like a traditional eComm business on the backend, but the user experience and buying process is different.
This social aspect and group buying are what helped create virality. Pinduoduo has an incentive where all you have to do is invite one other person to purchase a good, then you can get a “group rate.” That friend will then invite another, and so on… you get the picture.
Having the entire business built within WeChat was the perfect strategy for this. They would have blanket advertising to create familiarity and top of the funnel, but they also combined gamification and notification dopamine hits.
They built in gamification aspects where you needed to water a virtual tree regularly through purchases, actions with friends, and time spent in app. When this tree grew, you would get sent actual fruit as your reward from low-income farmers.
When a person in a friend group made a purchase, a banner notification would pop up and inform you of this purchasing decision, ultimately making a call-to-action for you to get in on it (FOMO).
These features created high user retention and increased users on the platform.
Long story short… PDD makes shopping online fun again.
Any time you can take a typically linear encounter and make it more interactive, you have a better user experience. For example, when I sit down at Thanksgiving dinner and my boomer uncle talks to me about how bitcoin is a scam without hearing my side of the story, it sucks.
The same applies to all the technological user interfaces we use today. We want feedback and interaction. The companies domiciled in China seem to be very good at curating content and “learning” what you like to see. This turns using an app into a two-way interaction that is had not by actual conversation, but by metrics on how you engage with certain content on the app over time.
When this is done in a group setting rather than individual experience - what we end up having is an awesome new category of Social Shopping. This can take the desires and needs of an entire group and serve content that ultimately leads to a positive purchasing experience for both the suppliers and the consumers.
“Together, more savings, more fun”
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
P.S Bitcoin shot up +25% this week because Amazon posted a job listing for a "digital currency and blockchain product lead" on its “payments acceptance” team. The company denied any specific plans for crypto. Best move here is: ‘watch what they do, not what they say’ ; )
What else we Grittin’ On?
BILLIONS. If you buy Robinhood on Robinhood and get a margin call does Vlad cover it? Technically he can’t because he doesn’t have a license to sell securities. On the eve of the blockbuster IPO a regulatory probe was looking into this (eye roll).
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AMAZING. Big EPS beat for Amazon $15.12 versus $12.30 expected. Put simply, they made profit of $85.5M PER DAY. Stock fell 7.6% Friday for its worst day in +3 years. The market is forward looking and Bezos may have temporarily peaked.
CRYPTO. Blockchain Foundry has been on a tear! Through various partnerships, they’re developing white-label NFT products for sports & entertainment, building an extended reality NFT marketplace, AND a crypto & NFT gifting platform! Get blockchain exposure without the steep price tag.*
SOCIAL. What makes Public.com stand out from the other investment platforms out there? Social feeds, Town Halls, daily audio shows, and a transparent business model. That means no payment-for-order flow (PFOF)! Get up to $50 in free slice of stock when you deposit as little as $1.*
OJ. My morning routine: wake up, have a shower, drink coffee, check which commodity has gone up +30% because of inflation. This week its orange juice giving us a run for our money.
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