If someone does not know why the Internet giants are stuck in the "near-field e-commerce", then they should know now

Image source @ Visual China

Wen | Internet monster gang

In the past five years, the sum of infrastructure investment and operating costs invested by internet giants, including Alibaba, Meituan, JD.com, and Pinduoduo, in the field of "near-field e-commerce" may be as high as hundreds of billions of yuan. The so-called "near-field e-commerce" is an e-commerce market that is very sensitive to timeliness and has strong localization attributes; the so-called "O2O", "local life", "surrounding economy" and "instant retail", all kinds of fashionable concepts, are part of it. In this market, the most typical goods are takeaway, fresh food, daily food miscellaneous, that is, everything related to the kitchen and restaurant.

Open the home page of the Meituan or Ele.me APP, we can see that most of the functions can be classified as near-field e-commerce: takeaway, gourmet arrival, taxi, daily supermarket, community group purchase, instant medicine, and so on. Most of the above services have strong demand rigidity for consumers, the frequency of use is extremely high, and the proportion of "Internetization" is often low. If the Internet penetration rate of these near-field retail transactions can reach the current level of traditional e-commerce, then it will undoubtedly form a huge market of tens of trillions, which is far more than traditional e-commerce.

However, as of recently, domestic investors and the media have not been very impressed with this vision. There are two reasons for this:

The Internet industry's bet on near-field e-commerce is nothing new: as early as 2013-15, the concept of O2O was very popular (although most of the unicorns at that time did not end well); in 2016, the concept of "new retail" was proposed; after 2017, fresh e-commerce has also become a market hotspot; community group buying, which became popular overnight in 2020, has already been tried by pioneers in 2018. Many people will sigh: near-field e-commerce is far ahead of practice in concept.

For traditional e-commerce, as well as all traditional Internet businesses, five years and enough to cause earth-shaking changes; however, the achievements of recent e-commerce in the past five years are too few, and there are even fewer cases of stable profitability. The recent temporary shortages in cities such as Shanghai have the potential to have a profound impact on the development of near-field e-commerce – a point we'll explore below.

In the final analysis, near-field e-commerce is not a pure Internet business, but a combination of the Internet and offline retail. therefore:

It doesn't have the replicability of a typical Internet business: a model that succeeds on one street in one city may fail when replicated to another street five kilometers away.

Its assets are very heavy and the supply chain requirements are extremely high: many people still don't know that the supply chain of fresh food e-commerce and community group buying is difficult to use.

Its requirements for operation are even higher than that of traditional e-commerce: if traditional e-commerce operations are nightmare-level, near-field e-commerce operations are hellish.

It needs to endure the most backward side of the traditional industry: all employees of Internet companies who have worked with offline supermarkets will still remember all kinds of unspoken rules and corruption.

The sum of so many unfavorable factors has not shaken the determination of Internet manufacturers to enter the near-field e-commerce. Ali is the one that invests the most and is the most comprehensive in this regard: Tmall Supermarket, Taoxianda, Hema Fresh, Hungry, Word-of-Mouth, Hungry, Hummingbird, Taocai, in the final analysis, it is built or acquired around the vision of "same city/local e-commerce system", not for expedient measures or pure financial purposes. Meituan's layout is also relatively complete, covering every aspect from instant catering to daily food and miscellaneous food, and also has a "near-field service" business in terms of travel and wine travel. The layout of Pinduoduo is narrower, mainly in the field of community e-commerce, but in this field, its competitiveness is very strong.

We can find an interesting phenomenon: Ali's near-field e-commerce business is doing better in first- and second-tier cities; Meituan has a more obvious advantage in second-tier cities and below. If China is full of first- and second-tier cities, then the scale of Hema Fresh, Tmall Supermarket, and Taoxianda may be much larger than it is now; if there are only third-tier cities in China, then meituan will probably have completely won the war, and only Pinduoduo is still causing trouble for it in individual fields. On the one hand, this is because Ali cannot obtain the WeChat traffic that is crucial in the sinking market, on the other hand, because its ground promotion capabilities can no longer be compared with Meituan and Pinduoduo, and it can only choose to strengthen the overall synergy of infrastructure and e-commerce ecology.

For comprehensive platforms such as Alibaba, JD.com, Meituan, and Pinduoduo, even if most of the near-field e-commerce business is unprofitable, it is still worth doing: their demand frequency is extremely high, especially suitable as a traffic entrance, for other businesses with higher profits. However, for a single business startup, whether the entire business model works well and whether it is worth investing heavily here will be marked with a big question mark. Therefore, we can draw a clear conclusion: Internet giants (rather than vertical startups) will dominate near-field e-commerce.

Back to the discussion at the beginning of this article: until early 2022, neither the capital markets nor the media have understood the social value of near-field e-commerce; if this business cannot create social value, then how can it generate sustained economic value? In other words, does the general public really have a strong "rigid demand" for near-field e-commerce?

The recent shortage of materials in Shanghai and other places is the best illustration of the necessity and social significance of near-field e-commerce. In fact, what is lacking is not the material itself (China is rich in land and treasures, and there is no shortage of food), let alone money; what is lacking is the ability to distribute materials in a timely manner. We don't need to repeat the meituan to buy vegetables, Hema fresh, Tao vegetables, daily excellent fresh, Dingdong to buy vegetables, more to buy vegetables... How many households have been supplied with supplies; there is no need to dwell on the large amount of manpower and material resources invested by Internet companies to meet the needs of residents. Such a thing does not need to be remembered in the first place.

Whether in an emergency or in a day-to-day situation, a well-functioning market mechanism can greatly improve the efficiency of material distribution (and the efficiency of the allocation of all resources). The significance of near-field e-commerce is also here. Originally, it may take consumers 3-5 years or more to gradually understand this; but the situation in recent times has greatly accelerated the process of this understanding.

We're not here to discuss what new ways to play in the near-world e-commerce market will emerge in the coming years, and who will dominate each of the major tracks – that's not the subject of this article. We just want to point out that the complexity of near-field e-commerce is extremely high, and it may eventually form many fragmented and highly differentiated markets. Taking community group buying as an example, perhaps the winners of each province and even each city are different; the concentration of fresh e-commerce may be higher, but there will not be only two or three major players left in the country. At present, the near-field e-commerce track, which has basically divided the winners and losers, such as catering takeaways and travel services, is precisely the track that is the easiest to distinguish between wins and losses.

As for the other tracks, since the winners and losers have not been divided after such a long period of competition, there is also the possibility that they will never be able to distinguish between winners and losers in the future. Therefore, there is no need to worry about the emergence of a "natural monopoly" in the field of near-field e-commerce. Since there is no national natural monopoly in the field of highly replicable and obvious network effects in the traditional retail e-commerce field, it will not appear in the field of near-field e-commerce.

In the long run, when Internet companies have accumulated a large enough near-field e-commerce customer base, they can in turn transform the entire supply chain, or even directly transform the agricultural production model. This is a very distant vision, and it is also something that Ali, Meituan, JD.com, and Pinduoduo all want to do. In fact, in the United States, Amazon and Walmart have long been committed to such things.

In short: Internet companies can get involved in the process of standardization and commercialization of agricultural products. It can build large central warehouses in the country's main agricultural production bases for industrial screening, storage, and transportation; it can support direct shipments from the place of origin, thus abolishing the wholesaler system; it can also directly intervene in breeding and planting, thus completely changing the situation of domestic agricultural production and establishing a kind of intensive "agro-industrial system".

Something like this may sound like a fantasy, but it's possible to do it for a long time. After all, we know that NetEase is raising pigs, Nongfu Spring is growing oranges, Pinduoduo is supporting agricultural technology, and Alibaba is studying agricultural and manufacturing technology at the same time. If near-field e-commerce can integrate China's huge and fragmented terminal demand for agricultural products and create an orderly and large-scale agricultural product sales system, then the transformation of the upstream can be put on the agenda.

It's a very, very difficult thing. I don't think it will be done in 10-20 years. But it at least gives us a fresh perspective: the Internet can transform the supply side, it can transform the huge and traditional formats of agriculture, and from the seemingly "unskilled" business of community group buying, it is possible to grow amazingly large fruits.

This spring seems to be a little later than usual, but it will come. I hope that whether it is in Shanghai or other cities, victory can come as soon as possible, and spring will come as soon as possible!