In the past two years, with the shutdown of the hottest track "online education" and the strong supervision of "community group buying", the industry has to rely on Zuckerberg's meta-universe concept to continue the dream.
The old growth model has not been so flexible, 2021 Q3 financial report, Pinduoduo operating income of 21.5 billion, far less than the market expectation of 26.5 billion, the most imaginative sinking market, began to fill more than 10 billion dreams. In the same period, Southeast Asian e-commerce Shopee Q3 reached 1.7 billion, an increase of 123.2% year-on-year, and has maintained triple-digit growth for 9 consecutive quarters. The story of the global mobile Internet continues, just the market ceiling of 1.4 billion Chinese, clearly visible.
Everyone is asking the same question: "Where is the next outlet"?
"Finding the outlet" is the path dependence we have experienced in the past, but in fact, the IPO is not the end of the company, everyone has to go through the trough of the cycle and face the operating pressure outside of growth. If Chinese companies want to truly surpass the top companies like Procter & Gamble in 185 years, crossing the cycle is the only way to go.
Pictured: Procter & Gamble was founded in Ohio, USA in 185 years, with many world-renowned consumer goods such as Haifeisi, Braun, Shufujia, Pampers, Tide, Gillette, SK-II, etc., during which it experienced several ECONOMIC CRISES IN THE UNITED STATES.
As Internet practitioners, we are also going through cycles. In the future, whether it is choosing a company or doing a specific business, it is necessary to iterate the cognitive framework to adapt to the new era background, which I summarize as "understanding the boundary, focusing on the core, and learning to calculate the account".
Understanding Boundaries: The Infinite Game of Reform and Opening Up
Today, the development of all walks of life in China is based on the framework of reform and opening up, including the recent focus on "common prosperity", which is also the original content of the structure.
The "reform and opening up" led by Deng Xiaoping emphasized the need to know the truth in practice, respect common sense, respect the law, and respect human nature. If China's economic practice is considered a product, Deng Xiaoping's product methodology can be summarized as:
1. Fully understand the advantages of competitors and be willing to learn, rather than blindly denigrate
"For a while in the past, learning advanced science and technology from advanced countries was called "sublime to the outside." Now you understand, it's a stupid thing to say."
2. Have a very clear organizational vision and judgment criteria
"The purpose of socialism is to make the people of the whole country prosperous together, not to be polarized."
3. Dare to innovate and create conditions for it
"Reform and opening up should be bolder and dare to experiment; not to argue is to buy time to do it."
4. Do not casually All in, first grayscale test, the effect is good and then push the full
"Sezez-EZ is still an experiment; the policy of establishing SEZs is the right one."
5. Seek truth from facts and continue to iterate
"Work boldly, sum up experience every year, adhere to what is right, quickly change what is wrong, and grasp the solution of new problems."
Wang Xing once mentioned: "'Infinite game' means competition without boundaries. "Under the premise that the kernel is unchanged, the boundary is only a form under specific historical conditions, as long as the kernel is unchanged, the boundary can be constantly changing, do not set limits on yourself."
Compared with commercial competition, international politics is gamed in a higher dimension, and the law of the jungle always involves powerful countries in the center of the world and bears the challenges and pressures brought about by the development of other countries, which have no boundaries and are carried out in all aspects from multiple dimensions such as talent, science and technology, economy, military, and culture.
"Economic growth" has become the game field of unlimited games between China and the United States, and with more than two decades of continuous opening up and the implementation of the strategy of focusing on economic development, China's GDP has grown from $1.34 trillion in 2001 to 17.70 trillion, only 5 trillion yuan different from the United States.
The development strategy of Chinese enterprises is still constrained by the framework of reform and opening up: in the past, some people became rich first, and now they have reached the historical stage of common prosperity.
Second, focus on the core: understand the essence of vibrato
When discussing the "infinite game", Wang Xing mentioned that more important than the boundary are those things that remain unchanged (the core). Meituan defines the core as "Who do we really serve?" What services are provided to them? "This is the underlying logic (Food+Platform) for Meituan to develop diversified businesses.
The most important decision of Taobao in 2003 and 2004 was to make a big platform that sold everything, rather than focusing on a women's clothing category or home appliance category. If the US group only focuses on making movie tickets, it is impossible to win. ——Wang Xing
As the demographic dividend fades, China's technological competitiveness has yet to form a real barrier, and macroeconomic growth has slowed since 2012. Fortunately, China's economic cycle does not have a significant recession period like in the West, but is irreversibly moving towards a stable low growth rate.
Low growth rate means that the debt accumulated in the past will not be undertaken and resolved in the future, which is fatal to some high-leverage enterprises (Evergrande problem).
Chart: The change in China's economy since 2012 is that the growth rate of nominal economic growth has decreased and volatility has decreased. In particular, the volatility of nominal economic growth has decreased, source: Guosen Securities Yanxiang
At this moment, whether it is a business or an individual, if you want to go through the cycle, "focusing on the core" is the best way. Examine how much of the growth in the past has been brought about by the user value you provide, and how much has been brought about by dividends, dumping, and financing leverage.
Don't expect the wind to blow the pig away, as Wu Shichun warned entrepreneurs: "The era of surging passion has come to an end, and the era of picking the weeping fruit has become a thing of the past, and it is necessary to accumulate small victories to accumulate big victories." ”
Let's take Douyin as an example, a national product of 600 million DAU, to continue to grow, what is its core? How will its boundaries change?
As a short video platform, the business logic of Douyin can be briefly described as: through the optimization of the recommendation algorithm, continue to expand the scale of content creators and consumers, short video products per capita single-day browsing time of around 100min, 600 million DAU means that 60 billion min of content is exposed every day, which is mixed with a certain proportion of advertising content and e-commerce business, forming a commercial closed loop.
On a closer level, to continue to do large-scale, from the perspective of growth, you need:
Pull new users;
Retain old users,
Wake up the silent user.
A truly national content product, even if it is niche at the beginning, must eventually be compatible with the pluralistic preferences of the public. The result is a diversity of content and a thriving creator.
With clear goals, products and operations need to work together.
A typical type of product is to continuously optimize the ability of algorithm distribution, ensure the effectiveness of content distribution, and increase the number of retained users and the length of time spent in the market. However, algorithms are only a means of distribution, not the needs of content consumers, and the operation team also needs to ensure the diversity of the content supply side.
For example, at the topic level, through hot operation to guide KOL creation (the recent "#重回韩流2012", "#比比安慕希", "#保丽龙" of Douyin's popularity).
For example, at the level of creators, the operation of talents also has a strong timeliness.
After Gu Ailing completed the 1620 action to win the championship on February 8, in addition to sharing his life in Douyin, he also did an exclusive live broadcast on Douyin on February 19, which attracted a high degree of attention "pulling new + retention".
In the fourth quarter of 2021, Douyin promoted the rural life Internet celebrity "Classmate Zhang" to add 15 million fans in 2 months, with the goal of expanding the sinking market where there is still room for Douyin penetration.
But what we see is still just a phenomenon rather than a core, what is the core of TikTok?
In 2021, Zhang Nan gave the answer in an exclusive interview with Geek Park:
"We must deeply understand what the essence of vibrato is, the essence is people, what we do is around these people to provide them with services, video expression is a service, for example, we can let him sell goods on vibrato, have a small shop may also be a service, a variety of services."
From Zhang Nan's definition of the essence of Douyin, it can be understood why in the past two years, after the failure of multi-flash and fly chat, Douyin is still insisting on exploring the "friend" function and vigorously developing live broadcast and e-commerce business.
From the dimension of content, to provide visual expression services for "more people", live broadcasting and e-commerce are important scenes. From the beginning of young people to shoot exquisite videos of niche products, Douyin expanded to serve a large number of urban users, and then continued to expand to the sinking market, its growth path from top to bottom is relatively easier. The root cause is not due to the powerful "network effects" (i.e., when everyone around you is using it, you can't use it).
Instead, it benefits from the "law of descent" in communication science, which means that imitation is often from the top down, and the low-status classes and individuals always imitate the high-status classes and individuals, which is an imitation of radiation from high to low.
There are countless successful cases of "falling law", Tesla first built brand value through high-end Model S, and then relied on the civilian product Model 3 to ship a large number of shipments, becoming the biggest winner of the trend of new car manufacturing.
But in the e-commerce business, the "decline rate" cannot make the interest of Douyin e-commerce win-all with potential energy. In the competition with Kuaishou, Taobao Live, Pinduoduo, Tmall and other live broadcast and shelf e-commerce, Douyin has chosen the strategy that best matches its commercialization strategy and capabilities, "vigorously expand brand store broadcasting".
Why are content platforms subject to the "decline rate" mandatory contract, and e-commerce platforms are not? The essential reasons for this are:
There is no concept of budget for content consumption, but there will be e-commerce consumption. The same is to buy paper towels, Pinduoduo paper towels although there is no brand but very cheap, in the case of limited income people will make a trade-off between the price and the brand premium. But in the content platform, watching videos does not cost money, users will naturally use the platform that can see more videos and live content that they are interested in, and there will be no balance between price and brand premium.
The e-commerce platform is only a buying platform, and the goods consumed by users are affected by the "decline rate", and the core competitiveness of the purchasing platform is "price and experience", which Liu Qiangdong has repeatedly emphasized.
Therefore, without the blessing of "decline rate", Douyin will either support the head anchor to provide competitive "price and experience" like Taobao Live, and expand the GMV of e-commerce business in the short term. Or support the brand store broadcast, like Tmall to feed the brand store, long-term sales of traffic ads to it.
There is no doubt that the latter has a higher synergy with the TikTok commercialization strategy. That is, instead of being tough with shelf e-commerce in the traditional e-commerce business that they are not good at, they give full play to the brand value of Douyin media, so that the self-broadcast of brand stores becomes a means of product-effect integration, and gives a lot of traffic support.
In this way, the brand's marketing link in Douyin can truly achieve a closed loop: find a talent to shoot advertising and grass (talent to make money) find a Douyin advertising promotion brand (Douyin to make money) through the Douyin small shop monetization (brand, DP to make money), each role has benefits in the closed loop, this game can be played for a long time.
There is also a question, is there any difference between the development of douyin and the store self-broadcast?
There is an essential difference.
If the vigorous development of "talent with goods", the brand side of the distribution channel is KOL (Li Jiaqi), the brand side of the distribution and promotion fees are handed over to the KOL, Douyin e-commerce at this time is the distribution channels (KOL) aggregation of the platform, by collecting traffic fees to the talent to realize. However, due to the strong and weak ROI between the talents, the brand side will naturally gather on the best channel of ROI.
This makes the talent with goods model has a relatively strong head effect, resulting in the growth of the platform GMV is very dependent on the performance of the head talent, taking Li Jiaqi as an example, when Douyin had spent a lot of money to introduce him, Taobao was forced to give the core traffic location to be exclusively retained. Relying on the distribution of Wei Ya and Li Jiaqi has also led to the brand flagship store not being able to give the best discount in the festival promotion activities.
The platform and brand side are weak, only the channel is strong, and such a business model will continue to compress the interests of the platform and the brand side. In Douyin's advertising revenue of 200 billion+ yuan, the marketing expenses of major brands account for the majority. In the long run, it is clear that the business logic of store broadcasting is more in line with its overall strategy of commercialization.
Third, learn to calculate accounts: improve the quality of decision-making
The economic activity of a firm can be abstractly summarized as a cyclical process that begins "from cash to cash". The company invests capital in purchasing equipment, hiring employees, marketing and promoting, and ultimately benefiting from the sale of goods/services.
Regardless of the original story, in the end, it is necessary to move to a balanced business model, otherwise it can only rely on financing to maintain or continue to lose money.
It is foreseeable that the trough of China's economic cycle will not end soon, credit and equity financing are more difficult to obtain than in the past, Chinese stocks continue to be under pressure after the Didi incident, and many large manufacturers have begun to reduce investment in "non-core".
Under the contraction, the business investment is more cautious and more clear than in the past. When we try to evaluate business decisions from a financial perspective, we can do it in three steps:
First, understand the income and expenditure and profitability of the business. By simply analyzing the operating income and cost taxes in the income statement in the financial report, you can have a preliminary understanding of the profitability of the business.
Taking Moutai as an example, the total revenue in the first three quarters of 2021 was 77.1 billion yuan, but its operating cost was only 6.575 billion yuan (including: wine raw materials, packaging, workers' wages, etc.), and the gross profit was as high as 70.5 billion yuan (gross profit margin of 91.5%).
Even after deducting marketing expenses, managers' salaries, income tax and other expenses, Moutai's net profit is still as high as 39.6 billion yuan (net profit margin of 51.4%), with excellent profitability.
As a top consumer product, Moutai's brand equity itself is a source of traffic, which reduces marketing expenses. In the first three quarters of 2021, the sales expense of Moutai Camp was 1.923 billion yuan, accounting for only 2.5% of the operating income.
However, not every company sucks up gold like Moutai and traditional companies are often trapped in:
The industry is competing in the Red Sea, and the gross profit of participating in the price war has been seriously reduced;
The long account period of large customers brings financial pressure and bad debt risk;
Production of inventory for timely sale occupies working capital;
New product design production and launch, long cycle, high cost of trial and error.
In contrast, the operating income of Internet companies mainly comes from advertising, transaction commissions and value-added services (games); due to the company's light assets and online services, Internet products can be quickly iterated without being restricted by physical conditions, and the business model based on C-end users is mostly instant payment, generally without account period and bad debt pressure.
Considering that the marginal service cost of Internet users is very low, in theory, as long as the platform is large enough and has a sustainable payment model, it can eventually obtain considerable financial benefits. But is that true?
Taking Pinduoduo as an example, the operating income in the first three quarters of 2021 was 66.7 billion yuan, and the revenue was mainly composed of advertising and transaction commissions, of which advertising revenue exceeded 80%.
Pinduoduo's operating cost of 25.2 billion yuan is mainly composed of payment fees (WeChat payment), distribution and warehousing fees, operator bandwidth, customer service salaries and other expenses, and the gross profit of 41.5 billion yuan (gross profit margin of 62.2%) is a relatively high level.
However, due to the sales expenses of up to 33.4 billion, the final result is only 1.15 billion yuan (net interest rate of 1.7%), sales expenses include: 10 billion subsidies, more to buy vegetable subsidies, and Pinduoduo in Douyin, David TV and other media advertising costs.
During the period of rapid growth, most of Pinduoduo's business gross profit was turned into marketing expenses, with the goal of increasing Pinduoduo to a larger user scale. As of Q3 2021, the platform's annual active buyers were 867 million, an increase of 26 million month-on-month.
Each annual active buyer can bring Pinduoduo 93.1 yuan / year revenue (including: advertising + commission), an increase of 57% year-on-year. The increase in the income of a single active buyer shows that Pinduoduo merchants have a positive attitude towards the advertising products of the platform and are willing to increase their purchase budget.
After having a basic understanding of the income and expenditure and profitability of the business, we can disassemble the ROE (Return on Net Assets) to further identify the business problem.
ROE represents the level of net income brought by shareholders' investment (ROE = net profit / shareholders' equity), which we break down into "net profit margin" * "total asset turnover rate" * "equity multiplier", which represent the profitability (efficiency), asset conversion speed (efficiency), and liability level of the enterprise, respectively.
Compared with the performance of the first three quarters of 2021, pinduoduo and Ali ROE are 6 times + different, mainly because pinduoduo's net profit margin is too low (1.72% vs 15.27%).
However, given that Pinduoduo invests a large amount of gross profit in expanding new buyers (Douyin purchases) and increasing the per capita GMV of active buyers (tens of billions of subsidies), the low efficiency of Pinduoduo is understandable. Considering pinduoduo's gross profit margin of 62.2%, reducing the proportion of revenue from marketing expenses in the future is the core factor of whether Pinduoduo ROE can be improved.
Of course, products have different positioning and competitive strategies, some products can achieve "differentiation", you can get high profits (Maotai), but relatively more vertical, niche, resulting in the scale is not as small as the mass products, in the financial performance is reflected in high net profit (53.02%), low total asset turnover (0.34).
There is also a category of products that choose the "cost-leading" competitive strategy (Gujing Gongjiu), through low profit (19.49%) + high turnover (0.50), can also obtain a better ROE.
In addition, the competitiveness and profitability of products are examined from the perspective of profit.
Generally speaking, high gross margin means that "the product is competitive", customers are willing to pay a high premium, and high net interest rate means "the product is profitable", and the two need to be treated differently.
The article mentions many times that Moutai is a high gross profit and high net profit product.
Pinduoduo, on the other hand, belongs to the "competitive product", but the money earned is spent to maintain and buy users, resulting in the current company not making money. Ultimately, it also depends on whether Pinduoduo can get rid of high marketing expenses and move to high net interest rates.
Of course, there is a third category of companies: "Not only is the gross profit margin low, but the net profit is even negative." WeWork is typical, the product is neither competitive nor makes money. "Before the IPO, wework valuation had been valued at $47 billion with the support of SoftBank, and it also packaged a lot of technology concepts, but in fact, the company is still doing the traditional real estate leasing business, which is very heavy."
In the first three quarters of 2021, WeWork's cumulative revenue was $1.852 billion, gross margin was -26.94% (the product was not competitive), and the net profit margin was -206.75% (very cost-effective), and the current wework market value was only $4.334 billion.
Finally, when making business decisions, figure out which part of the income statement you want to influence. Whether the design scheme is reasonable (ROI). When we are ready to design new functions, activities, and human processes, how much the cost can ultimately have on "operating income", although it is not the only decision condition, but it needs to be considered, especially in the commercial business.
Pinduoduo 2021 Q3 invested 34.4 billion yuan in marketing expenses to bring 26 million new buyers, even if 1/3 of the marketing expenses are all regarded as new costs, the average cost of customer acquisition is only 128 yuan, but at present, a single buyer for Pinduoduo can bring 93.1 yuan / year of advertising + commission income, indicating that ROI is OK. In the Q3 earnings call, Pinduoduo CEO Chen Lei also mentioned:
Pinduoduo's investment in marketing, we have always had a high standard for ROI, and we have not changed. However, as the number of our users increases and the needs of users further diversify, we have been constantly fine-tuning and putting roi models, but at the core of this is that we want to be able to meet the diverse needs of users.
Fourth, through the cycle, pain is inevitable
When the tide of mobile Internet receded, there were far fewer cries of financial freedom. Ant Financial once spun off from Ali in the controversy, and also fell at the door of the IPO in the controversy, and more entrepreneurs turned back in the wind and rain.
Reality is not satisfactory, and loss is inevitable.
In the article "In Zhengzhou, every person who cuts off the supply has a sad story" written by Ji Day Studio, the real estate agent "Dachu", who has been in the industry for 8 years, talks about the depression of the Zhengzhou property market:
For a whole month, the Zhengzhou Airport area, which is 70% or 80% large in the main urban area, only sold single-digit houses on the whole platform - in the second half of the year after the rainstorm, even his more than 3,000 real estate agents had to use a credit card to meet daily expenses for the first time. "The house really can't sell." Dachu said that young new colleagues can only live on dumplings sent by friends, and he also began to cook his own meals and help them - "In Zhengzhou, every donor has a sad story"
In the Internet industry, widespread infighting and uncertainty exacerbate the fatigue of practitioners. Exhaustion can even drown out the feelings of life, mentioned in the "Youth Health White Paper" jointly released by Tencent and Okamoto: "40.7% of young men and women do not even have sex."
Unexpectedly, the three-child policy was about to land, and more than 40% of the people were stuck in the first layer of the transformation funnel, and what was even more disturbing was that the inflection point of "negative population growth" came ahead of schedule, and in 2021, the Chinese only increased by 480,000.
Once Zhongguancun Chuangye Street, restless emotions like a dream. IPOs are not the end of giants, once they relied on growth magic to embark on the glorious road, the white horse stepped on thorns, and now they are going to fight in new battlefields.
Unfortunately, the hero arrived early, Teacher Ma, Zhang Yiming, Huang Zheng, Wang Huiwen left the scene, and the men and women in the plaid shirts of the big factory were still frantically looking for the "next outlet", it is obvious that these people who have witnessed the surge are difficult to calmly accept a mediocre life.
The story of China's strivers continues.
Reference Articles:
"Xiao Xing's Financial Thinking", Xiao Xing
Analysis of International Relations (2nd Edition), Yan Xuetong