RED’s recent woes give rivals the green light to catch up on social commerce giant
The trend of social commerce is fast becoming a mainstream form of marketing in China. It’s a combination of e-commerce and social media, and such apps have been on the increase in the Chinese market. The app RED (also known as “Little Red Book”) is at the forefront of the social commerce movement, however other similar apps have also entered the fray.
RED launched in 2013 and was originally gained popularity as an online platform offering information on overseas shopping. Two years on, it has evolved into a smartphone app, social media-type elements were added, enabling users to post photos and prices of the products they’d bought and communicate with other users. , At the end of 2014, e-commerce functions were added to basically bring it to its current form.
Since then, RED has opened up its platform to manufacturers and brands and built itself up as an e-commerce mall. In June 2018, they achieved rapid growth thanks to 300 million dollars’ worth of Series D funding led by Alibaba Group. As of May 2019, their number of users has ballooned to 250 million — 79% of whom are the post-90s generation (those born during the 1990s) — and their monthly active users (MAU) has surpassed 85 million. In terms of gender demographics, 79.2% of their users are female as of March 2019.
While social media and e-commerce go well together, because user posts are tied directly with product sales, some posts draw suspicion as to their degree of truthfulness. In response to criticisms about fake posts, RED added new regulations in May. Now, only those influencers who meet certain standards — such as having at least 5,000 followers — are allowed to collaborate with brands.
However, RED has recently been confronted with a new challenge: the app has been suspended from both Android and iOS app stores. The reason hasn’t been made clear yet, however, according to local media, the removal has been attributed to reasons including fake posts, the selling of counterfeit items, pharmaceutical recommendations by firms without medical licenses, and cigarette marketing (which is banned in China). Even now, after two months, the app remains absent from the app stores, and rival apps are seeing this as their chance to knock RED off the industry top spot.
Rival Yunji lists on the Nasdaq
So what type of apps in China are currently rivaling RED?
Yunji, an app that launched in 2015, is a platform for selling low-cost goods that implements the S2b2C business model advocated by Alibaba Group. During the 2017 edition of “Singles’ Day” — an annual mega event of the Chinese e-commerce industry — Yunji’s total sales reached 1 billion yuan (US$138 million). In the second quarter of 2019, their number of paying members who sell their wares on the app grew to 10.7 million.
Having achieved rapid growth in such a short time, Yunji listed on the Nasdaq in May this year, with their aggregate market value at around 1.5 billion dollars. According to financial reports, before auditing for Q2 2019, their total earnings have been 3.06 billion yuan (US$424 million), a 5.9% drop from the same period last year, and their net profit was a 3.4% drop of 84.5 million yuan (US$11.7 million). Although, combined with the first quarter they’re in the black and profits seem to only have gone down due to the slowing of the Chinese economy. On the other hand, their gross merchandise value (GMV) has been good at 8.2 billion yuan (US$1.1 billion) with a 46.4% increase from the previous year, showing that they’re increasing in size.
mia.com home started out in 2011 as “mia fashion”, a store on Taobao opened by now-CEO Liu Nan. Its fully-fledged e-commerce site, mia.com, was launched in 2014 and at first, sold imported baby goods. Its app version was released in the same year in June, and it went on to develop as a cross-border e-commerce service. In 2018, the number of mia.com users grew to 50 million. From 2019, they added more product categories, including beauty, apparel, digital home appliances, and foodstuffs. They now handle over 3,000 brands and over 20,000 different items.
The app Xiangwushuo distinguishes itself with its original point system for making purchases. Users buy points in the app and use them to buy products. Rather than having the e-commerce aspects at the forefront, Xiangwushuo concentrates more on the social media side. Users’ posts appear on a timeline, where you can also view their recommended products. However, not all products are sold via the app — some products have a link to their equivalent Taobao site where purchases can take place.
As of February 2019, Xiangwushuo has over 80 million users, of whom the main demographic is females aged 18 to 35. The company running the app also launched its credit card in 2018 in partnership with one of China’s largest banks, China CITIC Bank. When using the credit card, users are able to simultaneously earn points for the app.
RED users’ loyalty remains strong despite removal from app stores
While there is a diverse range of social commerce services in China, at the end of the day RED still stands out amongst its rivals. The app especially features many powerful beauty influencers who help encourage new and emerging cosmetics brands.
At a forum for entrepreneurs held in September, RED’s co-founder Qu Fang spoke about how she believed that within the next three to five years a golden age of “new consumption” will arrive for China’s domestic brands. She asserted that RED will come to be an important platform for new brands to connect with consumers.
Users’ faith in RED is strong, reflected in the fact that the app’s removal hasn’t actually affected its business that much. On August 1st, the company declared on its official Weibo account that they’ll “investigate the matter of the app store removal] thoroughly and make reforms”. This post garnered over 4,000 comments, the majority of which were supportive of the company.
RED is aiming to also list on the Nasdaq, however, if after listing it’s discovered that a large number of fake goods are distributed via the app, they’ll likely come up against accusations in the US of neglecting intellectual property rights. There being shut out from the app stores may also have been due in part to the Chinese government is worried about such an incident occurring. However, if the company can eventually work out these issues, there’s no reason why RED won’t once again rise to great heights.
Text: Ching Li Tor
Original text (Japanese): Team Roboteer
