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Taobao's Record MAU: E-commerce Benefits from Platform Interconnectivity

On the evening of October 21st at 8 PM, Taobao and Tmall officially kicked off the first wave of spot sales. Prior to this, the "longest Double 11 ever" that started ahead of schedule, the most significant discounts for Double 11 with the first-ever government subsidies, and the platform's shift away from emphasizing "absolute low prices" have already sparked heated market discussions.

In addition to the updates to the "rules of the game," the biggest variable in this year's "Double 11" comes from the interconnectivity between internet giants, which has provided more robust infrastructure for the e-commerce super promotion and created new growth opportunities.

What strategic considerations lie behind the interconnectivity of platform companies, and what impact will it have on industry development?

This year's Double 11 has garnered much attention due to the interconnectivity between Taobao, Tmall, WeChat, and JD Logistics. In fact, the "wall-breaking project" between internet platforms began three years ago.

In 2021, under the impetus of the Ministry of Industry and Information Technology, major companies in the internet industry, including Alibaba, Tencent, Douyin, and Xiaohongshu, all followed the trend of "interconnectivity."

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For instance, in the payment sector, in 2021, Alipay's QR code and UnionPay's QuickPass achieved mutual QR code recognition, and online payment scenarios were opened in December of that year. In the gaming sector, earlier this year, Douyin and Tencent advanced the interconnectivity project, fully opening up live broadcasts of Honor of Kings on Douyin. In the content sector, Xiaohongshu connected its recommendation data with transaction data from other platforms in December last year, while Bilibili established the Spark Plan and Jinghuo Plan with Taobao and JD, respectively, and also established a corresponding cooperative relationship with Pinduoduo, enabling direct jumps.

Behind this series of "interconnections" is the arrival of the internet's stock era, rendering the old rules of competition increasingly ineffective, and platform companies, as the connection points of the industry ecosystem, feel this the most. Therefore, various platforms have adjusted their business strategies, abandoning the old mindset of building high walls, and moving towards a new type of competitive and cooperative relationship, hoping to achieve complementary advantages.

The platforms' "abacus" is ringing loudly, but the industry still lacks a convincing event to demonstrate the commercial value of interconnectivity to the market.

It wasn't until September of this year that the Taobao app supported WeChat Pay, becoming such a milestone event.

Looking at the data, the direct impact of Taobao and WeChat interconnectivity has exceeded expectations. The latest report from QuestMobile shows that, driven by interconnectivity measures, the scale of new installations of the Taobao app in September increased by 55% year-on-year, reaching the highest value in the past four years; in terms of monthly active user scale, Taobao added 18.67 million new users in September, with a total monthly active scale of 944 million, setting a historical record.A significant number of non-TaoBao users who were previously deterred by payment methods have flocked to the platform after Taobao enabled WeChat Pay. In this regard, QuestMobile believes that WeChat currently has an exclusive user base of 245 million compared to Taobao, with a comprehensive e-commerce user base reaching 190 million. Among them, users who utilize comprehensive e-commerce apps more than 40 times per month amount to 86.1 million. With WeChat Pay now integrated, these users will be able to shop directly on Taobao, potentially becoming Taobao's customers.

Image source: QuestMobile

At the same time, due to the rapid growth in usage frequency and user scale among younger users and those in the lower-tier markets, J.P. Morgan also pointed out in its report on Alibaba that platform interconnectivity could bring an increase of 20% to 30% in new users to Taobao, with a total scale reaching 200 million to 300 million.

Undoubtedly, the interconnectivity between Taobao/Tmall and WeChat has opened up new avenues for growth in the internet industry. These moves occurring before "Double 11" undoubtedly also bestow a different significance on this commercial feast: Double 11 provides an excellent opportunity for the market to see the commercial value of interconnectivity.

Rediscovering Double 11 through Taobao-WeChat Interconnectivity

Double 11 has always been a key node in boosting consumption. Goldman Sachs believes that the growth of online retail goods in the fourth quarter of this year will accelerate to 8% year-on-year, an increase of 1 percentage point from previous expectations.

The increased expectations indicate that under interconnectivity, the user activity on e-commerce platforms has exceeded expectations. Combined with "extended standby time" and "super preferential subsidies," this change is expected to stimulate consumer power.

After Taobao/Tmall achieved interconnectivity with multiple internet platforms, Wu Jia, President of Taobao/Tmall's User Platform Business Division, stated that this year's Double 11 is expected to be the one with the most purchasing users in history.

At the same time, from the platform's user demographics, the new users brought by interconnectivity are mainly from lower-tier markets, which highly overlap with the "high cost-performance ratio" mindset of the Double 11 super promotion. This year is also the one with the largest and most coupons in recent years of Tmall Double 11. Tmall's 30 billion yuan in consumer vouchers and red packets, along with Taobao's subsidies for tens of thousands of brand products at discounts as low as 40%, meet the users' desire for "real value."

Sure enough, four hours after this year's Tmall Double 11 went on sale, brand products immediately saw an explosion in sales, with 174 brands breaking the 100 million yuan mark, over 12,000 brands seeing transaction growth exceeding 100%, and nearly 6,000 brands with growth exceeding 500%.Through these data, it is not difficult to see that Double 11 has once again regained its vitality, and the interconnectivity and changes in Double 11 reveal that the logic of the e-commerce industry's development is undergoing a shift.

Over the past year, various transformative measures in the e-commerce industry have been aimed at high-quality development, and the rules of the game for this year's Double 11 have also changed, providing consumers with a better shopping experience.

For example, this year, Taobao has focused on user experience and launched a number of initiatives, completing a comprehensive optimization of product quality, service upgrades, and interface design. These include shortening the delivery cycle, relaxing and optimizing the "refund only" policy, introducing free shipping to Xinjiang, and providing 88VIP members with unlimited free return shipping, among other important upgrades. They also include the launch of the new version of the Taobao homepage and the upgrade of the web version of Taobao.com.

The numerous optimizations and adjustments made by Taobao demonstrate that the development logic of e-commerce platforms has shifted from data supremacy to user supremacy. This is reflected in the theme changes of major platforms during the Double 11 period.

This year, the core of Taobao Tmall's Double 11 is "high quality and good price"; JD.com has also changed from "truly cheap, buy without looking" to "cheap and good". Both Taobao Tmall and JD.com have coincidentally chosen to correct the market environment for Double 11. At the same time, Taobao Tmall has emphasized at the Double 11 communication meeting that live e-commerce should also enter the "high-quality live broadcasting" era.

Thinking further, the essence of these changes is that the platform is more pursuing high-quality development, focusing on "user experience" and "merchant growth", and regarding interconnectivity as the "accelerator" for transformation.

On the one hand, as the e-commerce industry enters the era of "competing for service", "user experience" is the guarantee of long-term competitiveness, and interconnectivity is expected to significantly improve the user experience, increase user stickiness, and drive the development of enterprises.

For example, from the perspective of payment, after Taobao Tmall connects with WeChat Pay, it increases the payment channel options for Taobao users, making consumers' shopping more convenient, pleasant, and efficient. At the same time, WeChat's support for using Taobao to complete shopping without jumping within the app will further strengthen the experience upgrade.

The same applies to logistics. In mid-October, Taobao Tmall connected with JD Logistics, and JD connected with Cainiao Express and Cainiao Post Station, integrating the logistics resources of both parties, bringing about an overall improvement in the logistics efficiency and service quality of the e-commerce industry, and strengthening the entire process experience of consumer shopping.

On the other hand, platforms support the high-quality growth of merchants, allowing "good money" to drive out "bad money", optimize the platform ecosystem, and interconnectivity will help retail enterprises reduce costs and increase efficiency, and expand new business opportunities.On the eve of this year's Double 11, e-commerce platforms have rolled out a series of merchant support policies and differentiated measures, creating a mutually reinforcing development pattern. For instance, Taobao has previously optimized the business environment through a series of measures such as loosening the "refund only" policy, upgrading shipping insurance, and reshaping the competitiveness of price bands. Data indicates that the number of new brands joining Tmall in Q3 surged by 70% quarter-on-quarter, and the progress of merchants and products registered for Tmall's "Double 11" has exceeded expectations.

Now, with the deepening of interconnectivity, Taobao's new mechanisms and strategies for Double 11 have brought significant support for the overall growth of merchants. After Taobao integrated WeChat Pay, merchants can better integrate data from different payment channels to optimize their marketing strategies. At the same time, the interconnectivity between Alibaba's marketing platform and Tencent's advertising also aids merchants in expanding their marketing reach and broadening market boundaries.

In summary, this Double 11, e-commerce platforms have placed an unprecedented emphasis on user experience and merchant growth. It is evident that, under the traffic dividend of user growth after interconnectivity, e-commerce platforms are attempting to achieve a positive cycle of "merchants-platform-users" joint development.

From the small to the large, the changes in Double 11 are essentially the e-commerce industry's quest for change, and interconnectivity is the epitome and essence of this transformation in rules and logic. From this, we see a broader development prospect for the e-commerce and even the internet industry.

Reassessing Chinese E-commerce: The Great Cycle Between Platforms Releases Reform Dividends

The great cycle between platforms can generate social value greater than the small cycle within a single platform, which will undoubtedly bring new reform dividends.

Taobao's integration with WeChat Pay has given the market the opportunity to verify this judgment. According to the QuestMobile report, the total deduplicated MAU of Chinese online shoppers is 1.073 billion. Among them, Taobao has a relatively lower proportion of elderly and lower-tier city users compared to WeChat users, and the removal of payment barriers will further expand the integration of this user segment.

Looking at specific numbers, the difference between the highly active online shopping preference users in the lower-tier market and Taobao's MAU is about 140 million. This group of people is the target of high cost-performance strategies and super promotions.

Based on this calculation, with a conservative estimate of the DAU/MAU ratio at 55%, Taobao is expected to gain an increase of about 77 million DAU; according to the platform's average annual consumption of around 9,000 yuan per person, Taobao will increase its GMV by about 700 billion yuan; with a monetization rate of 4.5% and an EBITA rate of 60%, Taobao's potential annual revenue increase is about 31.5 billion yuan, and the profit increase is approximately 18.9 billion yuan.

According to the long-term upper limit, the potential increase in DAU, GMV, and profit is quite considerable. Although it will take a certain period for the platform to achieve the target through penetration, the growth figures in September indicate that such growth may not be far off. This also shows that interconnectivity is becoming a new growth trend for platform companies in the era of stock competition.Against this backdrop, Chinese internet companies have once again captured the attention of the capital market. With the premise of interconnectivity and major events like Double 11, the investment value of China's e-commerce platforms is undergoing a reassessment.

Goldman Sachs recently pointed out in a report that the 12-month forward price-to-earnings (P/E) ratio for China's internet industry is 14.3 times, which is still more than 40% cheaper compared to the U.S. internet industry. Among them, the total market value of China's e-commerce market is $500 billion, while Amazon's market value is as high as $2 trillion. They believe that e-commerce companies like Alibaba have tremendous potential for value reassessment.

From a business logic perspective, after Taobao and Tmall's integration with WeChat Pay, the increase in active users and the growth of monthly active users have laid a solid foundation for the long-term monetization capabilities of Taobao and Tmall, also proving that they have begun to find a new rhythm.

This means that if the policy warmth in the coming period can stimulate the economy with greater strength, Alibaba's fundamentals could also recover further. Based on this, CICC (China International Capital Corporation) published a report stating that looking forward to the stabilization of Taobao and Tmall's monetization rate and recovery in the second half of the fiscal year, the introduction of WeChat Pay is expected to bring more than 200 million new customers in the long term, driving continuous growth in gross transaction revenue.

It is worth mentioning that as the industry leader, Alibaba is an important weathervane for changes in the internet ecosystem. The interconnection between Taobao and WeChat reveals the future trend of China's internet industry: openness, collaboration, innovation, and sharing are the inevitable trends in the development of the internet industry.

Looking ahead, the development of Taobao and Tmall is expected to stimulate the industry to accelerate the process of interconnectivity, and the interconnectivity between applications is rich, with huge development potential for cross-terminal, cross-scenario, and cross-ecosystem interconnectivity. As interconnectivity among various platforms continues to deepen, China's internet industry will enter a new cycle of development.

From this perspective, during this Double 11 period, the market may witness not only the interconnectivity between giants but also a moment of value reassessment for China's e-commerce and even the internet industry as a whole.

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