Understanding Pinduoduo and Search vs. Engagement-Focused Ecommerce (255)

This week’s podcast is about search-focused vs. interaction / engagement focused ecommerce. And a lot about Pinduoduo.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here is the link to our Tech Tours.

Interaction / engagement-focused product has three dimensions:

• Recommendations. This is passive consumption, not active searching. So that means machine learning-powered newsfeeds. Basically, just like TikTok and Instagram.
• Entertainment. That means features, games, and videos.
• Community. This is about tapping into group behavior. You want active communication and sharing between users. And on social networks. You also want livestreaming with friends. And, if possible, you want group buying.

I think there are two archetypes for interaction-focused ecommerce.

• Type 1: Newsfeed based. That’s TikTok. That’s the sushi train restaurants. This is TikTok Shop is a good example of this. With lots of little purchases. Mostly based on whose videos you like to watch and what surprises show up in your feed.
• Type 2: Carnival based. That’s early PDD. It’s lots of games. Which is very different than TikTok Shop.

Alibaba has three interesting use cases for ecommerce.

1. The Power of Livestreaming in Ecommerce
2. Image-Based Search Changes the Way We Find Products
3. Conversational Search

Photo by Hugh Han on Unsplash

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I am a consultant and keynote speaker on how to accelerate growth with improving customer experiences (CX) and digital moats.

I am a partner at TechMoat Consulting, a consulting firm specialized in how to increase growth with improved customer experiences (CX), personalization and other types of customer value. Get in touch here.

I am also author of the Moats and Marathons book series, a framework for building and measuring competitive advantages in digital businesses.

This content (articles, podcasts, website info) is not investment, legal or tax advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. This is not investment advice. Investing is risky. Do your own research.

Transcript

Episode 255 - Search Ecommerce.1
Jeffrey Towson: [00:00:00] welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy podcast from TechMoat Consulting. And the topic for today, understanding Pinduoduo and really search versus engagement focused e-commerce. Now, several years ago when Dudu had just gone public, I, I started talking about this a little bit, this idea of e-commerce that is focused on interactions and engagement as opposed to more traditional e-commerce, which is kind of like a big search engine, uh, in a really big store.
And, and why that was important and how Hindu ADU had done that. And I wanted to kind of go through some of how to think about those two strategies generally. cause they're kind of different, uh, paths, uh, engagement versus search focused. And really to tee up the idea that AI is [00:01:00] going to change e-commerce, it's already doing it, and it's going to change each of those paths kind of differently.
That was. My takeaway, I was at Alibaba Cloud, uh, not too long ago, and that was really what I was thinking about was how is AI going to change e-commerce? And I started to think, well, it, it kind of depends which strategy you're doing within e-commerce. cause search-based e-commerce, search focused e-commerce is definitely going to get transformed more.
By AI faster and sooner as well. So anyways, that's what I kind of want to go into today. Um, it's pretty interesting, I think. Well, I think it's an interesting subject for today. So that'll be it for today. Uh, let's see. Housekeeping stuff. Uh, these podcasts, if you're willing, uh, to do a review, that would actually be much appreciated.
That does help a tremendous amount, uh, pretty easy to do if you could do a review, that's great. Uh, in consulting, we are working with companies on what we're calling the, basically the customer experience sprint. Where we're working with, uh, [00:02:00] companies about seven to nine days, go in there, assess how they're dealing with customer experience, uh, really value provided to customers, uh, with digital tools, and then how can we move that forward really, really quickly.
Like in days, well at least the action plan, the assessment, get it going and launch it. That that's also kind of a huge area these days because that's where the battle's going to be fought. Is who can increase their value to customers the fastest. And the gen AI tools are really changing that game. Uh, so you want to kind of be fast on that.
If that's of interest, go over to Techmoatconsulting.com. You'll see the one hour, I'm sorry, the one week, uh, customer improvement Sprint. Uh, yeah, give us a call if that's something of interest to you. Okay. My standard disclaimer. Uh, nothing in this podcast from my writing or website is investment advice.
The numbers and information for me in any guess may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment, legal or tax advice. Do your own [00:03:00] research. And with that, let's get into the topic. Now. We have a couple concepts for today worth keeping in mind, obviously search focused e-commerce.
And interaction and engagement focused e-commerce, those words change a little bit. Some people say interaction, others say engagement. Um, I kind of put 'em together. Uh, the, the basic difference there, well, there's a lot of differences, but the key one is what's the key metric? You're looking at search focused eCommerce, you're usually talking about GMV.
How much do we sell? I'll go more into this, but you know, GMV interaction and engagement, you know, focused eCommerce, you're looking at DAUs and MAUs, right? Those are kind of the biggest, so what’s, I'll go into it in detail. And I guess the third one would be sort of AI focused eCommerce. There's this idea that, okay, we have a couple types search focused, engagement focused.
Is AI going to transform [00:04:00] those and change those? Or is it going to create an entirely new type of e-commerce, which we could call AI focused e-commerce? And I don't know yet, but this is one of the things, like when I went to Alibaba Cloud, obviously there, in terms of generative ai, there. You know, in the top, let's say five in the world and top two three in China, but they also have the massive e-commerce business.
So, I was kind of really looking at that interaction. How is AI going to change e-commerce and what tools are they deploying? I did an article on this a month or two ago. It wasn't great. I'll, I'll link it. It was, it was too much, it was too dense, it wasn't very clear. And that was a lot of my notes from Alibaba.
I'm, I'm going to. Redo that I felt. Didn't real feel great about that one, but, you know, where are these AI tools being deployed within e-commerce right now? Not theory, you know, being built and deployed mostly at Alibaba and Taobao. So anyways, that will be the topic for today. So, three uh, concepts, and then [00:05:00] one company, we'll talk about du ODU mostly.
So, let's just talk to begin with, with, um. Overall e-commerce strategy. One thing that I've been hearing for years, and I've talked about this a little bit, that you know, you can kind of separate where you focus e-commerce. Uh, and this doesn't just apply to e-commerce companies, it really applies to brands and merchants selling on e-commerce.
But we'll talk mostly about the e-commerce giants. You know, I've kind of said, look, you can be attention focused or you can be infrastructure focused. We can see a spectrum. Now any e-commerce site is going to do both. You're going to do things to get attention and you're also going to have lots of logistics and warehouses and shipping, and maybe you have some retail, some offline retail, um, you know, cloud.
But we can kind of draw, draw a spectrum of Okay. Are you mostly focused on getting attention? Are you mostly focused on, uh, the infrastructure side? And that's going to play out differently in certain areas. Like, [00:06:00] uh, TikTok shop is really, really good at getting your attention. I mean, that's what TikTok does.
And so, if you're talking about beauty products, you know, serums, cosmetics, things like that, well, you know, having tons of eyeballs on screens, watching people apply these things is very powerful. And the infrastructure part is not that big of a deal. cause it's small, it doesn't weigh very much. You put it in a box, you ship it pretty easy on that side.
So, the winners there are going to be more likely something like TikTok Shop who are just better at the attention side. We could also switch over to say, furniture and larger appliances, refrigerators, things like that. Well, then it's all about the infrastructure. I mean, you might watch a video too, here or there about a sofa and a, you know, refrigerator.
But no, it's, it's a lot about, uh, getting it delivered, storing it, maybe having it in showrooms. We can sit on the sofa. It's the infrastructure. And for [00:07:00] most e-commerce, you're talking about it least national infrastructure, if not regional. So, you have to have a massive footprint of built-up infrastructure over time to support e-commerce.
And so that's kind of, I've talked about that before in something like Taobao and Amazon. They're much better at the infrastructure side, you know? Okay. Amazon finally added videos to their app finally. Uh, but you know, their user interface kind of sucks. It ain't awesome. And then there's a spectrum in between.
Temu is pretty good at engagement. Um, shoppee is pretty good. Uh, others like Taobao, well, Taobao Live is pretty good now, so everyone's playing. On most of these areas, but you can see who's better at certain areas. So, I've kind of talked about that before and another way to look at that same scenario is to talk about it in terms of adding value in terms of the supply side versus the demand side. [00:08:00] 
Now, years ago, I don’t know, 10. 12 years ago, um, there were articles floating around about, you know, the game in e-commerce is to continually add value to your customers because it's actually relatively easy to copy a basic e-commerce site. You know, if you have a bunch of products and some pretty decent prices, you can put it up online and you can be an e-commerce site.
So, you know, you have to sort of compete with scale. Well, you can build scale on the demand side or you can build scale on the supply side. Now really you do both. But the distinction that was often made, this is usually like 2010, 2012, when people would am sort of look at Amazon, they would usually talk in these terms that like, okay, if you build scale on the supply side, warehouses, trucks, all of that, you will get advantages.
Uh, and they will increase with increasing scale, but they do tend to [00:09:00] flatline over time, or at least the rate of increase tends to slow. You know, at a certain point, you've covered every town. Your warehouses are there. You've got 24-hour delivery to everywhere. You know that curve doesn't go on forever.
That was the argument. Now, I would argue that the tech side of infrastructure. You know the warehouses when you digitize them and putting robots and things, I think it actually goes up further than people think. But the argument was you really have to compete in terms of scale on the supply side. cause what you're doing is e-commerce companies relatively easy to copy, but the big guns are on the demand side, that you have to keep adding to the user experience and that line doesn't seem to flat line.
Yeah, there's always room for creativity and you can do things. I think this was, Ben Thompson used to talk about this, this Strite guy a long time ago. You know that you can almost continually add customer value [00:10:00] on the demand side. It doesn't seem to flatline. Uh, and I think that's roughly true. I think it's, uh, you know, some businesses are harder, e-commerce, it turns out.
You can add videos, you can add entertainment, you can add community, you can add, uh, services to products. There's a lot of dimensions to add value. Now, in other businesses, that's just not true. You kind of run if, if you're selling coffee. I'm talking not a good analogy. If you're selling coffee. There's not that many levers you can pull to add value.
People are still coming you to, to you to get a cup of coffee and then, you know, get on their way to work. But generally speaking, for e-commerce, I think that's roughly true. So, there's this idea that, you know, there's this attention strategy versus the infrastructure strategy within e-commerce, and you can kind of position yourself there, which is your primary focus, and you can also sort of rename all of that at demand side versus the supply side.
Uh, value add story. So that's kind of how [00:11:00] things have been talked about, and I mostly agree with that. My point here is on the demand side, on the customer improvement side, well, there's actually two different strategies. At least you can be search focused or you can be more interaction and engagement focused.
So, I would, I would call those sorts of two sub strategies on that side. And, uh, that's kind of what I wanted to dig into here. Now, when, when we start talking about this distinction that brings up Pinduoduo in 2020, uh, there was a gentleman named Matthew Brennan. Those of you who been around China for a long time might know him.
Uh, he had a, a website and he would publish some papers called the China Channel. I'm not quite sure where he went. He kind of disappeared a couple years ago. I don't see many publications that may be just me not. Knowing what he's doing. And uh, but you know, he was kind of writing a lot about Pinduoduo back then.
Uh, he wrote about TikTok, the Attention Factory. Um, that was, was him. Anyways, he did a [00:12:00] white paper back in 2020 talking about this sort of distinction between search and detention. And I interviewed him for a couple podcasts. For those of you who've been around, these were Podcast 45 and Podcast 46. This is currently Podcast 2 55, so it was quite a while ago.
So, a lot of this thinking I'm going to go through is kind of him and uh, I agree with most of it. I think it's pretty much on target. And let me sort of go into how to think about these sorts of, let's call it sub strategies within the overall e-commerce strategy. Now, search focused e-commerce, you can make a lot of analogies here.
When I think of search focused e-commerce, I usually think about Walmart. And Amazon, with Amazon for most of its history, sort of being a digital version of Walmart for the most part. Um, you know, why do you go to Walmart? You go there because you have a list of things you need to get. They have a massive selection and they have really good low prices. [00:13:00] 
You know, this is, it's a really big box. There aren't a lot of great business models within retail. It's a pretty hard space. One of the really great ones is the Walmart model because there's really no reason for a customer to go anywhere else for most things.
You know, Walmart's going to have most of what you need, and you know that no one is going to be cheaper, so what's the point of going somewhere else? Let's just pick it up there. Now, there are some niches around that, but generally speaking it's a pretty good strategy. And maybe the only strategy better was the Costco strategy and the, uh, Sam's Club, which is similar but a little bit different.
So, you know, Amazon for much of its history was sort of a digital version of Walmart. We have everything you need and we have really, really low prices. At least, you know, no one's going to be cheaper significantly, so why not just come here for everything? And on top of that, we'll make it super convenient.
You know, one click shopping, we deliver [00:14:00] it as you know, in a couple days faster and faster delivery. So, it's kind of that big, huge product selection. Low prices, very convenient. You know, that's sort of the core offering of Amazon for a lot of its history. Now, that whole model, you know, within that model, what's the problem?
Well, the problem is, you know, you have a massive. Inventory of different products. You know, this is why you walk up and down the aisles of Walmart with your list in your hand, hunting for things, and it takes some time, well, it's even worse when you go on to Amazon because suddenly you're dealing with, you know, millions of products.
So, the search engine becomes central to everything. So hence search focused e-commerce. And, you know, you spend a lot of time, if you think about the next time you go on Amazon, you spend a lot of time and effort searching. Uh, you're looking in for what you want. You have to get the right keywords. You have to, oh, maybe I have to change the keyword.
It didn't quite pop [00:15:00] up what I wanted. Then I have to find what I'm looking for, uh, a scale, electronic scale. Then I got to look at all the different brands and I got to sort of look at all the specifications. Maybe I look, you know, look at the prices, maybe I checked the reviews. Um, search is kind of a lot of work, but you know, it's like going to the library.
It's, you know, there's a massive library and this is the card catalog. It's the only way to do it. So, search is key. And you know, Walmart, you can think of the same thing walking up down the aisles. Now. Very good business model for a couple reasons. Number one, everyone who goes to Walmart, everyone who goes to Amazon has purchase intent.
They are there to h buy stuff. They're not just hanging out, killing time, scrolling. No, they, they're already motivated to purchase. They're probably there with a list of something they're looking for. Most people, no one's going to Walmart to have fun. Right? You got a list; you're walking up down the aisle with your little list thinking about you.
[00:16:00] Same with Amazon. Okay. That's very, very good. Uh, it also tends to be that Amazon was very, very good in the age of the pc. You know, PC to smartphone was a massive change in that, you know, basically behavior. Most people when they're on their pc, let's say they're shopping, they may do it at home at night.
They may do it at the office, maybe they do it in the morning, but they're only going to do it a couple times a day in Windows, and they're actually going to spend quite a bit of time searching on their pc. That's very different than a smartphone where it's in your pocket all day long. You may be opening that thing and going into an app 10, 20, 30 times per day, maybe for just 10, 20 seconds.
So, it's a very high frequency fragmented engagement on a smartphone versus rare, infrequent, but much more intensive engagement on a pc. So, a lot of Amazon's history was the fact that it was built for a PC to [00:17:00] begin with. And it was only, you know, 15 years later when smartphones dropped that they started to change what they were doing.
So long sessions, and as I said, within an e-commerce company like Amazon and Walmart, really, you know, it's all about the GMV. We want to have a lot of products we want to sell as much. So, our goal is to make the searching and purchasing super-efficient. You know, it's all about efficiency. And then along the way, you know, you want to be convenient, you want to make it easy, you want to move the pain points.
And you know, if you can add some customer improvements along the way, which Amazon does, that's even better. But it's never really been their big, big lever. Um, you know, they've grown a little bit like Walmart, at least within core e-commerce. Um, and now again, the weaknesses of this model, as mentioned, it, it does place a pretty big burden on the user.
Um, lots of choices. Searching takes time, comparing features takes time. [00:18:00] Anytime you're in a search mode, uh, it's less efficient and it's more work. This is why I let Google search really got sort of challenged by something like TikTok, because Google search is a pull mechanism. You have to go online and make an effort to go look for what you want.
I want to learn about X. That is very different than a push mechanism, whereas I just open up TikTok, I sort of zone out, and it pushes one video to me after another. Now, typically in day, you spend the vast majority of your time as a passive recipient, a passive consumer of push content. And then every now and then you actively pull something that you want to know.
But that's actually a very small minority of your time and your sort of content is, you know, we really are sort of passive consumers of things that get pushed to us all the time. So that's a problem. This is an active pull mechanism. Um, and as mentioned, it's fairly easy to [00:19:00] replicate the basics of Amazon digitally.
You got to get a big product catalog, fine. You need an app. Um. But that's actually not that hard. Uh, so you have to build on top of that in other ways, which they do. They add other things like, um, you know, rewards and services that they can put on top, but I would still argue that that is the minority of what they do.
When I look at Walmart or I look at, you know what, that looks to me like if you go to a Walmart or if you're in, let's say Thailand, you go to Lotus's or something. It's mostly about the store, but then outside of the store, near the cashiers, they will have a couple other things, like maybe some food, you can get some tea, maybe there's a little food court that would be additional customer value added onto the core product, but it's fairly minor in terms of the offering, I still think it's mostly about the superstore, the big box store.
Okay, now let's switch over to PinDuoDuo and sort of interaction engagement [00:20:00] based, um, e-commerce. Now Pinduoduo you have to kind of break it into phases. When it really first came out, there was kind of a different phase one strategy where they, you know, at that time nobody thought a new e-commerce company could break in against Alibaba and jd.
You know, it was a mature e-commerce market. It's, you know, game over like Amazon is in the US really. And then outta nowhere, this startup just broke in, got real traction and everyone's like, how'd they do that? Well, their phase one strategy was a lot about breaking into a mature market that's different than the strategy they're doing today.
And you know, I'll give you the short version, is they had a couple really effective tactics. Uh, number one, they had low prices. That was a very good idea. In fact, if you look at a lot of these Chinese companies, when they go international to the us, usually the first thing they're doing is low prices.
That's how [00:21:00] BYD is growing everywhere. That's how Tim and Sheen broke into the us. Um, I mean, low prices is a big, big lever to pull and people like it. So definitely low prices. But they were also targeting fourth and fifth tier cities in China, which are really close to villages where the income levels are much, much lower.
It's, and people are super value conscious consumers in fifth tier cities are a lot like consumers in first and second, third tier cities from 2000. Um, you know, they don't buy lattes. That's a waste of money. You know, every RMB counts. You know, most of them have never had a passport. Uh, you know, this is very low-income group, so they focus on the necessities, like tissue paper, uh, daily sort of things you need for the home.
And Pinduoduo targeted those sorts of weekly, daily necessities, like toilet paper, that was one of their biggest sellers and came in at [00:22:00] a crazy low price. So, the low-price thing was good but being a first mover in these fourth and fifth tier cities that cared about price. You know, a lot. That was a nice fit.
And when you look at these fourth and fifth tier cities, everyone's like, oh, it's fourth and fifth tier cities. No, you're, you're talking about hundreds and hundreds of millions of people and their aggregate spending is actually quite large even though the individual spending is small. So that was a powerful tool.
The other big powerful tool they had was they had a strategic partner with ship with WeChat, you know, back then, 10 years ago. You know, there's, there's typically 600 million people doing e-commerce in China, but there was 1 billion people with smartphones and on WeChat, well, what are the other 400 million doing?
Well, Dudu went after that 400 million by doing e-commerce within WeChat. And using group buying as a tactic where if, you know, [00:23:00] you buy something and then there's a price, but if you get three of your friends who are connected to you on WeChat to buy with you, you could literally get stuff for free, which is what people were doing in huge numbers.
Now WeChat does not generally let people do that. Uh, but, but because, um, Pinduoduo was a strategic partner, they allowed them to do that. You know, group buying is a viral mechanism. It's a really powerful mechanism for growth. So, they had a couple big tactics, um, and people got all interested in their business model.
It's more engagement focus, which I'm going to talk about, but you know, don't overestimate the value of that in the first phase, the first phase was overwhelmingly get to a new market. Have super low prices, which by the way, this group really cares about. And then have a partnership with WeChat. So it wasn't, you know, it wasn't Dudu versus Alibaba, it was Dudu and Tencent against Alibaba.
And keep in mind the other players like Meine also tied [00:24:00] with Tencent and even JD was as well. So, you know, there's always been at least two major teams in e-commerce in China, the Alibaba team and the Tencent team. Uh, a couple strategic partners there. Okay. But let's move on to what we want to talk about here, which is alright.
They did definitely come in with a completely different focus for e-commerce, which is we are focused on interactions and engagement, that's our KPI, daus and maus. And people used to do a really bad analysis like of DU Duo early on. cause they would use metrics like, let's look at the average sales per monthly average user.
So, they'd do a ratio and they'd compare Alibaba to Dudu, uh, Dudu and Dudu number look crazy. They look terrible. cause it's like, oh my God, you know, they're selling dramatically less per monthly visitor than Alibaba. I mean that [00:25:00] their ratios look ridiculous. And that's like, no, no. They have a different strategy here.
Uh, this is not Walmart. You know, the anal, there's a bunch of analogies. This is more like a carnival. You've put a carnival on the edge of town, it's full of games you can play, and it's fun. And our whole goal is to get people to come to the Digital Carnival, play lots of games. There's lots of promotions, there's offers, there's videos, there's all sorts of stuff.
And if you hang out at the carnival all day long, we think you'll probably buy some stuff too while you're here. It's more like a Disneyland model than a Walmart or a shopping mall model. And you could really see it in their ratios of sort of users to purchasing. It was, it was way out in left field. So, you know, they look at DAUs, they look at Maus, cause that's engagement KPIs.
But you also need to think about not just satisfaction, so net promoter score, but really they're looking for happiness. Uh, you're, [00:26:00] because that's why you go to the carnival. You're not going to the carnival with purchase intent. You're going then there to have fun and to be entertained. So, you start looking at KPIs for customer happiness.
The one I usually like is delight. Delight is a really interesting KPI and the way it's often broken down is its satisfaction plus surprise. You know, you go to a nice hotel. You want to check in and have a good experience, that satisfaction? Yes. I checked in at the hotel, it was great. And when I got to the room there was a little gift on the things, you know, on the bed saying, Hey Jeff, welcome to the, you know, whatever.
We know you love mango, so we got a special mango for you. It's a surprise. And when you couple surprise with satisfaction, that gets you delight, uh, which are really good. KPI to think about it. BCG writes a lot about this as a topic and a lot of luxury brands focus on this. [00:27:00] So anyways, so you're not just looking at DAUs and Maus, you're looking for engagement, you're looking for happiness, you're looking for delight, you're listening for customer satisfaction.
Uh, that's a really a big deal and you can see it in the numbers immediately. People are logging in. To Pinduoduo all day long. Every time they got a free five minutes, they log into Pinduoduo, maybe they play a game. There's a lot of free games. There's special deals being dropped all the time. There's little surprises everywhere.
There's promotions, there's points. It's like a digital carnival, and sure enough, because it's based on smartphone and not PCs, people are checking in all day long. So, you got high frequency little interactions, and then maybe along the way they also buy things here and there. That's the model. And they really did lean into that as a completely different business model, um, than we had seen before.
I, I think they're real pioneers and innovators in sort of what is e-commerce. Uh, and Colin [00:28:00] Huang, the founder, I mean, he's not a one sort of trick pony here. He has come up with very clever moves repeatedly. Temu No, that came outta nowhere and sort of shook everybody, including she and. And he's, you know, he's routinely sort of surprising people with the level of innovation they have at that company.
That team is very, very impressive. So now think about, okay, so you're, you're building a carnival. A carnival is different than a Walmart. How does that change, uh, e-commerce, not just hanging out and playing games and stuff, but shopping the phase that really, the step it really hits is the discovery process.
Discovery is no longer an active search. I'm looking for a, you know, washing machine, uh, which requires active effort. No, it's, it's more like, okay, I'm playing games. I'm sort of passively consuming things, having a good time. I'm [00:29:00] scrolling videos, and within that, let's say a newsfeed, which is a good way to do that.
I'm being pushed content. I will discover things sort of organically and surprise becomes a really big thing. So, the analogy that, uh, Matthew Brennan used here, which I thought was good, and he said, think about like when you go to a restaurant and there's a big menu that's more like an active search. I'm going through the menu; I'm looking for what I want.
Um, but when you go to sort of a sushi train restaurant where you sit down and the little sushi trays just come by. Um, that's when you can be surprised. Something come by, you know, comes by and you think, oh, that's interesting. I'll take that. And you pick it off and, you know, put it on your plate and take it, you know, that's kind of what Du will do is the discovery process is more sort of passive.
Uh, it's a lot of surprises. It's not with so much intent and search and that, that's kind of a good way to think about it. You could also kind of think [00:30:00] about it with, you know, walking around a carnival, you may see things, Ooh, that's cute. I'll get that. Um, okay. And, and we do see aspects of that in things like shopping malls.
People wander around the shopping mall and they sort of window shop and they discover things that way more passively. But usually in a Walmart, you're not just strolling up and down the aisles taking a look, you kind of know what you're looking for, for the most part. So, you know, the, the sushi on the conveyor belt.
Okay, that reminds me of like basically a newsfeed. It's a physical version of a newsfeed. Pretty interesting way to think about it, and we can make other analogies here for those in Asia. Okay. There's not a lot of carnivals in Asia. You know, think about a night market or bizarre, you know, they're everywhere.
You, you kind of stroll around and see what you're looking for and maybe get surprised and you buy something and it's pleasant and there's music and everybody's out. Um, so if that, if that's a better analogy for you. Okay. So how do you get engagement and happiness and interactions? Well. [00:31:00] I mean, there's a playbook for this.
Um, you know, obviously you need a really lively and dynamic user interface. It's got to be fun. You got to have games, you got to have features and they always have to be changing, right? You always check in what's new, what's new, what's new. You want lots of new things all the time, especially if it's promotions.
People will check in a lot like flash sales, stuff like that, if they think they can get a good deal. Uh, but the way Matthew laid it out in the white paper. Was, you know, three sort of buckets, uh, recommendations, entertainment and community. That's a pretty good way to think about it. That's pretty much how Alibaba has talked about this for years.
Recommendations? Well, we kind of talked about that. You know, passive consumption means, you know, an algorithm is recommending things to you all the time as opposed to searching. So that's your average, you know, TikTok. Uh, scrolling video after video. Oh, what's next? Or it could be your Facebook newsfeed or Instagram, whatever.
So [00:32:00] the recommendation things, the algorithm becomes incredibly important. Um, you know, that's TikTok Entertainment. Okay. Videos, obviously that's a big deal. Games, big deal, lots of features, points, membership programs, all of that. The third one is community. That's really interesting to think about. Um. You know, the more you can activate communication and sharing, especially of content between users, you know, there's real power to that.
Uh, if you can tap into group behavior, there's a lot more power. I'll talk about this one, Alibaba. Alibaba's really focused on this step. If you think about how you discover a product. Okay. Is it on my search list where I'm going into the Walmart to get my list? Is it more sort of organic passive discovery like I'm looking at a newsfeed or did one of my friends recommend it?
Now, that's an entirely different type [00:33:00] of discovery process if it comes to you through colleagues, your social network, your friends and family. So active communication and sharing between users. I would argue is maybe the most powerful form of discovery that we can see in e-commerce. Um. Group buying with Du Odo.
You could argue that was part of this, although I think that was more just about getting a discount. But yeah, those interactions and forming of communities, uh, can be very powerful. We can see this like in live streaming. Live streaming is a really cool way to do e-commerce because you have a sort of a top-down authority, like an influencer talking about here's this new, you know, protein serum that makes your skin look good.
Fine. That's entertaining. It's video, um, maybe there's a degree of trust there. You're not going to get from just looking at a brand. But at the same time, on the side of the video, people are commenting and maybe, you know, some of 'em, maybe it's a very active community where people are always doing [00:34:00] that.
People are saying, hey, I tried it and it was really good. You should, yeah. That combination of community plus entertainment and live streaming e-commerce is really pretty great. Uh, I think that's, we're thinking about. So anyways, those three numbers, uh, sorry, three factors. Recommendation engine, entertainment and community.
That's a good way to think about entertainment. Uh, I'm sorry. Interactive and engagement focused, e-commerce in all of that, I tend to think about it as sort of TikTok shop versus. PIN duo, I, I tend to think of it as a newsfeed-based e-commerce experience versus a carnival-based e-commerce. If you're on TikTok shop, it's all about the videos, right?
It is all just a newsfeed, a video being pushed to me, one after the next, after the next. And maybe there's a live streaming channel right next to it, like that's TikTok shop. To me, that's one really specific model, uh, that's easy to understand. [00:35:00] Dudu is I is much more for me in the carnival category. Lots of games, very different than TikTok shop.
So those could be sort of two archetypes, uh, to think about. One sort of point within this, which is interesting to think about is when you're thinking about product category. You can usually break them into sort of commonly purchased products and a long tail of products. So, you know, the early Dudu example I used was really about just focusing on very commonly purchased things like tissue paper.
Whereas the Amazon model was like, we have a massive selection of products. We have a huge, long tail. Now, generally speaking, a long tail of products tend to be more powerful. Uh, it's definitely true for content, right? TikTok is all about matching unique, strange user interests with unique, strange [00:36:00] categories of content in a long tail.
That's why it's so powerful. That's interesting to think about, but. Early Pin Duo Duo because it was so much about low price, the way they would achieve those low prices would, they had a fairly limited set of products they were offering, but then they would go negotiate directly with the manufacturer and get a good price.
And you know, if you are on early Pin du o Duo, you might have to wait five or six days to get your product, but you were willing to do it because you got such a good price. So. There's interesting variations. Now, TikTok shop is actually kind of different, you know, early Pinduoduo, I would characterize that as engagement-based e-commerce, uh, but with a fairly limited set of products.
TikTok shop is the opposite. It's engagement-based e-commerce, but it's the idea that anybody. Any SMEA farmer, a small shop, can start [00:37:00] making little videos and pushing their products. So, you have a massive, long tail of small products. Um, now is that accurate or is it really a long tail of content? It's kind of a mix there, but yeah, within all of this, it's um, you can see interesting variations when you start to take apart this sector.
And it was fun to think about. TMU is actually even kind of an interesting variation on this because it's Pinduoduo, right? That's their cross-border C to M model connecting US consumers directly with Chinese manufacturers. Now, the reason you connect directly with Chinese manufacturers is low, low price.
That's the goal. Um, okay, fine, but you have a limit. Your big problem in life is. Cross-border e-commerce by definitions at least five to seven days. Why would I want to wait five to seven days? You got to have a good reason for that. Now, one reason is the prices are super low. Okay? That's true. Another reason is we have more products that you haven't seen in strange little, long tailed categories. [00:38:00] 
Like if you're in Southeast Asia, Malaysia, Thailand, and you're on e-commerce, you're probably using Lazada and Shopee. Um, I find that when I can't find what I'm looking for on Lazada or Shopee, I go onto Temu and I always find it like strange, weird, you know, categories, plant shelves and special pillows and all of that such that I'm willing to buy it and wait five to seven days to get it.
Where if I was on Shoppee, I could get it in 24 hours. So, when you've got that five-to-seven-day window, you have to kind of have an interesting answer to that question. If you've ever played on Temu, which is doing incredibly well in Southeast Asia right now, TikTok Shop and Temu are just rocking and rolling across Southeast Asia.
Um. Temu is just crazy cause it's Pinduoduo. They're sort of the original engagement focused e-commerce company. Temu is there, things are pop. I'm always closing popups. It's crazy, but it is engaging. I'll give 'em that. So anyways, there's lots of interesting variations in [00:39:00] this bucket. It's pretty fun to think about, but the long tail versus sort of the common, uh, product distribution is, is an interesting thing to think about.
Okay. Let me get to the final point here and I'll finish up with, okay. How does generative AI impact this? Okay, so I wrote up kind of the main use cases that I think Alibaba's Cloud is focused on for generative AI within e-commerce. I, I don't think it's exhaustive, but I, I think I, you know, I read some papers they had published and things like that and talked to them.
I think it's. Pretty decent. And there were three use cases that kind of, you know, caught my attention and I really think they, they hit search-based e-commerce pretty squarely, but, okay, let, let's start with engagement based first. So, one of the use cases is basically live streaming. AI is very, very good at, you know, creating videos, automating workflows, things like that.
Pretty much anybody is going to be able to live stream, like it's [00:40:00] nothing. Uh, TikTok is very good at this. When I was at the TikTok headquarters, you know, the, in their exhibition hall, they have basically a setup where you can just go sit behind a desk, there's a camera on, you start talking about anything, and up on the screen, a full live stream just happens.
Right. You know, banners are popping up, items for sale, buy this here, you're in the center. It's translating you what you're saying into another language. It's just seamless now. I mean, you'd basically just walk in front of a camera and it will handle everything else well in terms of engagement, interaction-based e-commerce.
Yeah, live streaming is pretty great. I mean, it is really pretty powerful. First, it's entertaining. Live streaming is absolutely entertaining. It's fun. Um, it also is inherently social. Everybody's chatting, you know, you got to have content moderators cause people stay really evil stuff in the comments. You got to have your content moderators.
Um, [00:41:00] it's, it's very trustworthy. It's very authentic. People trust live streamers. They like far more than most brands. And then if you've got people in the comments as well that maybe you trust, maybe it's a smaller social circle that's involved there. Maybe it's for a church or something. Yeah, the community aspect can start to play in.
Now, if it's just a bunch of people posting idiot stuff in the comments, probably not. But yeah, that that stuff can really matter and it really can encourage impulse shopping. Right. So, it, you know, it's a push model, but instead of scrolling video after video, you have a live streamer just pushing product after product, you know, every two to three minutes usually.
And so, you can get some impulse shopping. And basically, generative AI is one, making this more powerful. And two, it's democratizing it. Everybody's going to be able to do this, you can really do this right now. So yeah, interaction-based commerce. Yeah, that's a big, big tool that's going to hit this. [00:42:00] Um, if we switch over to search-based commerce, well, you can basically search a lot of different ways than you could of a year ago.
You can do image-based search. Now, one of the interesting things about search is it's rarely dependent on the keyword. You know, not only do you as a consumer have to kind of know the right keyword, you know, everyone's done this, you go on Amazon, you're looking for something, but you're not getting the keywords right and you keep getting not what you are looking for.
That's a problem. Uh, and on the flip side, when you're putting products up on these websites, you have to standardize the keywords. You know, every, basically every product has to be tagged with keywords. Well, that works fine in standardized products. But when you start to move into things like artisanal goods, like TikTok, shop merchants, well those are very non-standardized items.
It can be somebody selling corn from their, you know, backyard or something. So, as you [00:43:00] move more into this sort of live streamy short video, TikTok shop, like merchant behavior, things become a lot less standardized. And this whole keyword thing is a problem. Well, image-based search doesn't have a problem with that.
You know, unstructured data, like videos, taking photos, multimodal search where maybe you put in some words, but then you also put in a photo and then maybe you put in some sounds, things like that. Well, those search engines are really getting good at finding what you're looking for and you know, in very unstructured categories.
So, search is getting dramatically better. You know, image is the next step. And you know, Alibaba is doing a lot of that, but really you're talking about multimodal search, text, voice, uh, sounds, image, video, that's all going to feed into one. Which if you think about it, that's actually what you're doing when you're walking around the Walmart.
You're using [00:44:00] your eyes, you're reading things, maybe you've got some notes on a piece of paper. Maybe someone's making an announcement over the speaker. You know, here's a promotion, blah, blah. You're, you're taking in all sorts of information to help you in your search, but it's not just keywords. So that's pretty awesome.
And the third one, which is my favorite, is basically conversational search. This, this idea of like, look, let's just get rid of all the keywords entirely. Let's just have a conversation with the ai. Uh, this is sometimes called guided shopping. Uh, why is that compelling? Because it completely blows apart the idea of search parameters.
If you say, I'm looking for an iron, you have bounded the type of search results you're going to get very strictly. But if you're just talking to your ai, you know, my shirts are kind of, um, wrinkled, but when I try [00:45:00] and iron them, you know, I burn them sometimes or maybe I put it in my suitcase. But the time when I get to, you know, the new city and I take 'em out my suitcase, they're folded.
You're describing a problem and the answers you can get from that are, well, maybe you should get this iron. Here's some items you can get. Maybe you should use this spray as well as the item because it'll, it'll solve the problem you just talked about. Have you heard about these new carry-on bags where your, your shirts are folded sort of horizontally and they don't get wrinkled?
You open up the scope of the conversation of your problem far beyond. My keyword here is iron, uh, and merchants absolutely love this because it gives them the ability. To sell them things outside of we sell irons. cause you know, on the flip side of this, merchants are always trying to add more value. They want to solve more of your problem.
They can't do that if they're sort of handcuffed into one very specific search parameter. Conversational search blows open [00:46:00] the doors on all of this. You, it could, you know, that conversation could take you to lots of different things. Oh, I, yeah, I do like that bag. I wasn't thinking about that, but that makes sense.
Hey, would you like some so and so along with your bag and your iron and your spray and all of that? So conversational search gets you into this whole idea of. You know, shopping companions that help you. Maybe the shopping companions are provided by the merchant, maybe the shopping companions provided by the e-commerce site.
Maybe I've got my own shopping companion and I'm taking them to go out and I'm just talking with my per, you know, my joke on this is, you know, these AI agents sometimes, or just AI tools. It's a lot of how really rich people live. Like the few billionaires I've engaged with all have a person that they deal with for everything in their life.
They have one person who does their shopping, let's say for the home. They have one person that plans their vacations. They have their accountant; they have their lawyer. [00:47:00] Uh, back when I worked for the Prince in Saudi Arabia, principal lead, you know, there was one guy in his sort of entourage. They often use the word entourage or court royal court.
Who was kind of referred to, not by him, but by us as the jester, and his job was just to tell jokes and stuff, and he was hanging out. He was always telling jokes, you know, this is kind of like that. AI tools can kind of do the same for the rest of us. We could have 5, 6, 10 of these that we always deal with.
I got my lawyer, ai, I got my accountant ai, I got my trip. Idea planner person. I got my take care of my home. Ai, I've got my Let's do fun stuff on the weekend, ai, and I'm always just going to them having conversation and they're throwing out ideas. You know, it starts to look a lot like that. So conversational search opens up a lot of interesting ideas.
Now, of course, if you're coming at this from a strategy perspective, this also looks a lot like a very powerful control point. And whoever owns these [00:48:00] control points is going to have tremendous power. Um, that to maybe is, is going to be to the detriment to a lot of merchants and brands. So, you know, I've heard this referred to as the race to become your best friend.
Like these AI tools, sometimes agents, they're all in a desperate race to be your best friend before you get a different best friend. cause that's who you're going to turn to maybe. Anyways, this is all a big fun topic, but you can see that it's going to hit search focused e-commerce, you know, dead center and Alibaba's doing a lot in this area.
It's really pretty cool. I'm trying to dig into this one. Anyway, so those are kind of the, um, the three use cases I thought were compelling. I'll write them in the show notes, but this is all, these are all things that are being deployed. They're not theoretical use cases. They're being built and deployed right now.
So pretty cool. Anyways, that is it for me. For the content for today, the three concepts, interaction and engagement-based e-commerce, search focused E-commerce, and then maybe this idea of AI [00:49:00] focused e-commerce, which maybe AI is just going to transform the previous two, or maybe we're going to see an entirely new type of e-commerce emerge.
Maybe those are the concepts for today. I hope that's helpful. As for me, it's been kind of a big week, I suppose, like a whole lot happened this week. Um, my girlfriend's mother has moved in. She's coming here for the month, so that just happened in the last couple of days, which is normal for a lot of people.
Uh, kind of a new thing for me. So, I'm, you know, I have, I have long been a very solo creature and I've kind of smashed that with a sledgehammer in the last year and a half. Uh, which was, it was desperately needed. So yeah, now I'm juggling, uh, people staying and moving in and making up the guest room and all that, which is pretty great, actually.
Totally new to me. Uh, but yeah, so that's interesting. So that'll be a sort of a fun month. Uh, what else? Uh, I was on, uh, [00:50:00] CGTN, the Chinese, uh, TV news program, uh, a couple days ago, which is actually quite fun. I think actually Chinese State TV is, is quite good. You know, the, the common criticism, let's say 10 years ago was, oh, that's state tv.
That's state controlled tv. And uh, now people in the West who are, you know, watching Standard Fox News, CNN, whatever, they've kind of come to the realization, oh, ours is kind of controlled too. We just didn't know it. And it's like, yeah, it’s kind of is. I actually like the, I think China State TV is pretty good in terms of just.
Straightforward discussions of issues. It's not really political. Well, at least not in the business world where I am. Maybe other areas are. So anyways, the funny part of that was I. I, I was on this, you know, panel, which mainly means you're a little box on the TV with a couple other people, and we were talking about sort of low altitude economy, so drones, robo taxis, things that, you know, [00:51:00] you can fly from downtown to the airport and eight minutes in a little autonomous robotaxis that, you know, shoots through the air.
That's kind of a cool use case in terms of viewership. It's the economics are not great. Um, agriculture is a much better use case and things like that. And we was talking about that. It was fun. Fun. And it must have been 10 minutes after I sort of closed that down. I got a, I got a photo from a friend in Brazil.
Literally it was a photo of me on the TV in Brazil. He's like, we were just sitting here and you popped up on the tv. And yeah, the, the reach is pretty impressive. These, uh, these. China TV goes out all over the world and, and literally that happens almost every time. Like someone sends me a loan note, hey, I'm here in Italy and I saw you on the TV today.
Like, it usually doesn't happen within like five minutes. But that was kind of, it is pretty impressive actually. Their reach and uh, distribution. So anyways, I thought that was kind of a funny thing. Yeah, it's been a big, uh, big week and we're planning trips, um, probably to [00:52:00] Japan heading there soon, which is going to be great.
Back into China of course. And, uh, yeah, probably some days in the beach. Yeah, kind of a big week. Um, I don't really have any recommendations. I saw Superman pretty good. Six out 10, seven outta 10. You know, if your expectations aren't high, it's a pretty enjoyable couple hours. If you're a big Superman fan and your expectations high, you're probably may be going to be a little disappointed, but I thought that was a pretty good, uh, couple hours.
So yeah, Superman. That's about it for me this week. Anyways, I hope you're doing well, and I will talk to you next week. Bye-bye.