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Wechat's Mini Programs and the Quest For Next Pinduoduo

Jul 4, 2018 by A. Alfaro
Wechat's Mini Programs and the Quest For Next Pinduoduo

With 300 million followers in three years flat, Pinduoduo, a Wechat baby, has emerged as the latest e-commerce sensation. And sure enough, its success isn't going unnoticed.

One of the several mini programs-- sub apps that work inside the Wechat ecosystem--Pinduoduo, founded in 2015, allows users to participate in group buying deals.

Banking on Wechat's 1 billion users that easily carve out niche consumer bases for products, Pinduoduo is arguably the most successful mini program and investors in China, buoyed by its success, are already in search of “the next Pinduoduo”.

Earlier this year, Pinduoduo handed its prospectus to the US Securities and Exchange Commission for its IPO at a valuation of USD 30 billion.

Wechat's mini programs need no separate download, and the messaging app by Tencent has its own payment system which only helped in Pinduoduo's phenomenal success.

Speaking to the Chinese portal 36ke, Sun Tingting, founder of the investment fund, Itjuzi, observed, “Wechat’s 1 billion monthly users and its payment system has shaped a perfect ecosystem for e-commerce”.

Others aren't doing too bad either.

SEE App, a mini program that sells electronic products has completed two financing rounds this year, raising USD 50 million in total.

Xiangwushuo, a mini program focused on second-hand products, has already reached 6 million daily users and has completed four financing rounds despite having been founded only eight months ago. Its market value has reached USD 250 million.

According to Aladin, a platform that analyzes mini programs, Wechat has launched one million mini programs in all and the total investment injected reached USD 3 billion in the first half of 2018.

Despite the buzz around mini programs investors are still trying to figure out how Wechat’s huge user pool and traffic could generate better segmentation and revenue.

According to Wan Xucheng, founder of See App, the current investment wave will last until next year.

Xu Shi, founder of Hike Capital, believes that mini programs peaked last year. According to her, investors should enter mini programs now while it is still profitable.

Zhu Xiaohu, CEO of GSR Ventures, a venture capital firm, has been following mini programs very closely since February. He recommends start-ups to first launch a mini program and launch an app only if the mini program has been successful. He also believes this current period will finish before next year. “Tech giants have not yet reacted to mini programs”, says Zhu Xiaohu. “When they do, there will be no more chances for small entrepreneurs”.

Xiaohu has a point. Many investors already believe that the best moment to invest in mini programs has passed. Now, mini programs choose the big players for their financing rounds. A “Matthew effect” is taking place.

Those who invested in mini programs in 2015 and 2016 have been the luckiest ones.

Gaorong Capital invested in Pinduoduo’s first and second investment rounds. It now controls 7 percent of the shares and it is the second largest shareholder after Tencent.

K2VC is also one of the first investment firms to notice mini programs. It invested in SEE App, Xiangwushuo and Duozhuayu, a platform for book selling.

Tencent, Wechat's developer, is adopting a cautious approach and the mini programs that do receive investment from Tencent interpret it as an official backing from Tencent, which after all is their “landlord”.

Despite the current hullabaloo, the situation was very different two years back.

Investors did not fully understand the concept of mini programs and those who finally invested took it as a leap of faith in those who were trying to convince them.

But Pinduoduo stunned everyone with its GMV reaching USD 40 billion earlier this year, only three years after its launch., the Chinese e-commerce giant, needed six years to reach that figure. Despite its rapid growth, Pinduoduo’s early steps were not easy.

During Chinese New Year in 2015, Wechat launched its Lucky Money feature which allowed users to send and receive cash from friends on the platform.

Huang Zheng, Pinduoduo’s founder, who was working in a video games company and an electronic appliances company, saw this new feature. Back when he Zheng drew inspiration from Costco, a membership discount store. Inspired by it, he thought of starting a company to fully use Wechat’s massive traffic. He did in 2015.

Huang Zheng knew that Wechat connects friends who have similar backgrounds and interests. Pinduoduo (then called Pinhaohuo) used this to its advantage.

Users could find friends who were interested in the same products to buy them at a discount.

Only four months later, Pinduoduo had 4 million paying users. However, operating costs were high and Pinduoduo was losing money with every order. Investors were still skeptical about this e-commerce+social network model. Huang Zheng was two years ahead of them. Gaorong Capital trusted him and invested in Pinduoduo’s first financing round.

In 2015, Pinduoduo predicted it would have 100 million users by 2018, but actually that figure has reached 300 million.

In July 2016, Pinduoduo started its second financing round but investors still had some doubts. Finally, Huang Zheng managed to convince New Horizon Capital, Lightspeed Capital and others and raised USD 100 million. In that same round, Tencent became the main shareholder. After that, Pinduoduo started to grow exponentially.

Wan Xucheng, founder of SEE App, followed a similar path. Earlier this year, the mini-program completed two financing rounds and it received strategic investment from Tencent, raising in total USD 50 million. The company just needed 14 days to raise that amount from Tencent and Sequoia Capital. Wan Xucheng declared to 36ke that the company is not desperate for funding but investors keep knocking on his door. Exactly the opposite situation compared to two years ago, when Wan needed six months to convince 120 investors. “Nobody had faith in me”, says Wan. Zhao Yang, partner associate of K2VC, did have faith in him and in mini programs.

Those mini programs which had completed two financing rounds by 2016 became the leaders, far ahead of the rest.

Xiangwushuo, has also gone through a viral growth, with thousands of new users every day. Zhao Yang attributes this to Xiangwushuo’s “use of social networks to reach potential buyers and its use of a virtual currency”.

Although most mini programs risk ending up swallowed by Tencent, its approval is crucial to succeed in its ecosystem.

But Tencent is very selective, it invests only in those mini programs that are leaders of its industry that do not lack financing. “A company that needs the assistance of another company to survive is not a healthy company”, says Wan Xucheng. He believes that we will see the birth of 3-5 new big mini programs.

Wechat is slowly adding new features for mini programs to create more growth and innovation opportunities for the companies and has set out some rules.

Mini programs are not allow to publish on Wechat’s Moments, cannot send push notifications and are required to send their updates to Tencent.

However, investors hope Tencent will be more flexible in the future. “Wechat could potentially become a secondary operative system”, says Zhao Yang. It is easier to develop a mini program than an independent app and it also has more chances to become viral. For example, Heika Camera, an image software mini program, got more than 90 million users in just three months.

Jiang Wen, its founder, told 36ke that 10 investors would come to talk to him every day. For him, “mini programs constantly offer new ways to play the game”. Heika Camera has a user retention of 24%, relatively high in the industry. This is one of the main factors investors consider when choosing a company.

Meanwhile, as investors keep looking for the next Pinduoduo, some think there will be none like it.

Hao Wei, associate partner of Sky9Capital explains, “The moment you enter the market is very important, the conditions for the birth of a USD 10 billion company are not there anymore”.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at 

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