On March 17 this year, Pinduoduo marked a major milestone. It surpassed Alibaba, China’s largest e-commerce site, in terms of annual active users for the first time in its history.
The same day, the man who has been instrumental in how it got there, the firm’s founder Colin Huang, stepped down from the company’s board.
Few would have predicted the rise of his firm in a crowded tech sector, much less Huang’s early departure from the limelight. But the same traits that have propelled Pinduoduo to becoming one of China’s top shopping platforms and brought great success and wealth to its founder have also created new crises that might lead to his departure.
In the shadow of giants
Huang was born in 1980, the only son of two factory workers in Hangzhou.
Parallels with his more famous business rival, Jack Ma, are hard to miss. Like the English teacher-turned founder of Alibaba, Huang came from humble beginnings. But unlike Ma, who struggled in his studies, Huang was a prodigy. At the age of 12, his talent at mathematics earned him a place in the prestigious Hangzhou Foreign Languages School, where he shared a classroom with the children of China’s political and social elite.
The tech world soon beckoned. After studying computer science at Zhejiang University, one of China’s top universities, Huang left China in 2002 to pursue a master’s at the University of Wisconsin.
In the U.S., his talent was spotted by William Ding, the founder of Chinese tech giant Netease, after getting acquainted on an online forum. Ding would introduce him to Duan Yongping, one of China’s most well-known tech investors.
This kickstarted a friendship that would transform Huang’s life. Duan, long dubbed the “Warren Buffett of China,” is the founder of BKK Electronics, and a household name in China, being a major producer of consumer electronics like VCRs and blu-ray players. It would later become one of the world’s major smartphone producers, spawning brands like Oppo, Oneplus, and Vivo.
It was Duan who convinced Huang to join Google after graduating in 2004, despite having received attractive job offers from Microsoft, Oracle, and IBM. Huang turned them down in favor of what was then a minor startup in Silicon Valley.
The advice proved to be prophetic. The same year, Google would go public on the Nasdaq stock exchange. It was the beginning of a meteoric rise that would make the firm the world’s largest search engine provider and its share value surge.
These weren’t the only things to see a meteoric rise. Huang’s initial stock options he was given upon joining the firm grew to millions of dollars. As he continued rising through the ranks, he returned to China in 2006, having been tasked by Google to lead the launch of its Chinese search engine.
But the venture failed to take off. Google struggled to establish itself against entrenched search provider Baidu Inc. and would eventually withdraw from the Chinese market in 2010. For Huang, friction with his American bosses soon proved too much to bear. A Bloomberg report in 2017 pointed to his frustration with having to fly to California for founders Larry Page and Sergey Brin to sign off on minor changes, like the color or size of the Chinese characters shown in search results.
Duan was also pushing Huang to forge his own path. In 2006, he invited Huang as a guest when he sat down for a USD 620,000 dinner with the actual Oracle of Omaha, an early indication of the doors he would open for Huang’s career.
Huang resigned three years into his job. He set up three business ventures in succession, including e-commerce site Ouku.com that sold consumer electronics in 2007. But while his companies thrived, all of them lived under the shadow of the tech giants that are now dominating the Chinese market, including e-commerce giants like Ma’s Alibaba and JD.com, and social media giant Tencent. By 2010, Huang had sold off Ouku after it failed to gain traction against the thousands of Chinese sites vying for the growing wallets of China’s middle class.
His growing frustration at being unable to beat the market dominance of e-commerce giants culminated in a crisis of faith in 2013. Huang withdrew into his home for close to a year, mulling his next move, briefly entertaining an idea to return to the U.S. and open a hedge fund.
Soon, he started seriously thinking about his next business. In his past businesses, he noticed that e-commerce firms like Alibaba struggled to create an online social community, despite achieving great success in selling goods online. Conversely, Tencent, despite being a social media and gaming conglomerate, had failed to leverage its mass user base to sell products.
In 2015, Huang founded Pinduoduo with the vision of filling this gap that both companies could not fill. Tired of being a copycat, Huang was experimenting with a new vision of the shopping experience that was no less than revolutionary.
“Shopping is a game”
Using Pinduoduo is unlike any other app or online shopping experience. Users buying items from the online store are often lured by cheap discounts, only to be told that they can only enjoy massive discounts if they are able to convince others to purchase the item in bulk.
The shop is unashamedly dependent on Tencent’s WeChat platform, a ubiquitous online chatting app used by the majority of people in the country. But it also provides an easy launchpad for buyers to coordinate mass purchases and convince friends and family to get in on the purchasing act.
Designing its platform like a game was no accident. Huang has previously spoken about his puzzlement over gaming developers’ focus on male customers. For women, shopping itself was a game, he believed, and such attitudes were an opportunity waiting to be tapped.
Translating this idea into technical success required more legwork. Duan was, again, a key benefactor. He was a leading investor in an initial USD 8 million angel funding round for Pinduoduo in 2015.
Flush with cash, Pinduoduo went shopping for talent. It paid new employees 30% more than they would earn at Alibaba, and 60% more than the pay offered by another Chinese e-commerce giant, JD.com.
Its hiring policy deliberately sought out new graduates that were hungry for success, rather than experienced talent recruited by the likes of Alibaba, with single employees without additional family burdens being especially popular.
Employees working overtime are a norm in the firm. A popular joke in the company adds a twist to its slogan: “The more you strive, the more you save.” For Pinduoduo workers, the more you strive, the more you earn.
But Pinduoduo successfully positioned itself as a rebel against the monopolization of the e-commerce space by the likes of Alibaba and JD.com. Most of its early products were agricultural goods like fruit and vegetables, a nod to many minor farmers and suppliers who shunned the exorbitant costs of using platforms like Alibaba’s Tmall, which charges suppliers a 6% premium on any item sold.
Its customer base also reflected this vision, with many being residents of China’s second- and third-tier cities, whose purchasing power pales in comparison to the middle class of economic powerhouses like Beijing and Shanghai. Long neglected by China’s e-commerce giants, the millions of urban workers seeking to save on living costs soon embraced Pinduoduo as an indispensable go-to service for essential daily products.
By 2016, Pinduoduo’s monthly gross merchandise value exceeded RMB 1 billion (USD 152 million) Two years later, it went public on the Nasdaq stock exchange. Its stock value jumped 10x its original listing price by February this year, while Tencent has become one of the firm’s largest stakeholders, owning nearly a fifth of Pinduoduo’s shares.
The reckoning
Near the eve of 2021, a 23-year-old Pinduoduo employee in Shanghai collapsed and died as she was walking home from work with her colleagues. It was 1:30 a.m.
It was the beginning of a scandal that would quickly embroil Pinduoduo and raise questions about Huang’s leadership.
Matters worsened as Chinese authorities began an investigation into working conditions at the firm, with the female employee suspected to have been overworked. A video made by a former Pinduoduo employee, Wang Taixu, alleged that the firm was forcing employees to work over 300 hours a month, and accused the firm of firing him because he shared a video of an ambulance that came to collect another of his colleagues who had collapsed at work. The video soon went viral on Weibo, China’s equivalent of Twitter, and attracted over 2.2 million likes.
Pinduoduo refuted the claims, saying that Wang was sacked for making “extreme remarks” on social media in the past that violated internal company conduct guidelines, while the employee Wang was photographed suffering from an intestinal inflammation unrelated to work. But in early January, the suicide of an engineer who had worked at the company for six months further fanned the flames of criticism on Weibo.
The issue of overworking is not new for Chinese tech firms. Alibaba’s Jack Ma and JD.com’s founder Richard Liu in the past both showed their support for overworking which is deemed as a necessity in a competitive sector. Criticism of such work practices has also followed.
But Pinduoduo has billed itself as a challenger to the big players who played by different rules and served the common man. A report by Tencent’s Deep Web tech news site quoted Huang’s promise that employees will only have to work 5-day weeks once the firm became the second-largest firm in the e-commerce sector. The policy was never introduced despite Pinduoduo reaching its target.
As it has surpassed other Chinese e-commerce giants, Pinduoduo has begun to face bigger questions that major players are commonly subject to.
The issue of counterfeiting has become another lightning rod for criticism. While the proliferation of fake goods on China’s e-commerce sites is widespread, Pinduoduo’s business model, in which the firm avoided acquiring goods in favor of being a middleman between the consumer, has made it more challenging for it to clamp down on counterfeits compared to its e-commerce competitors.
Huang has spoken of the uphill struggle to control the problem in the past. “They (merchants) even sent people to threaten our employees in the middle of the night,” he told Bloomberg in 2017, with employees being attacked and followed home.
But the company’s commitment to combating the issue remains questioned. Pinduoduo was blacklisted by the U.S. trade representative’s office in 2018 as a marketplace that repeatedly engaged in counterfeiting, joining the likes of Alibaba’s Taobao.
Pinduoduo argues that it has been “proactive” in countering such practices, pointing to stringent fines that penalize merchants who sell fake goods at 10x the value of the sold items and initiatives like its Brand Care Program, which provides participating companies with anti-counterfeiting tools and programs.
But a 2020 review by the U.S. found that efforts to combat counterfeiting continue to fall short. “Even companies enrolled in the Brand Care Program continue to see high levels of counterfeits of their brands being sold on the platform, “said the review, observing that Pinduoduo’s takedown system was sometimes unresponsive and slow to remove identified fake goods.
Huang is now China’s seventh-richest man, while Pinduoduo has become, by some measures, China’s top e-commerce site. But he stepped down as CEO in July last year and is departing from the company board at just 41.
In a letter to shareholders, Huang acknowledged that despite Pinduoduo being a young firm with a long runway for growth, it was “the right time to explore what’s next if we want the same quality and pace of growth in 10 years,” stating that he was seeking to explore new methods in life sciences and agriculture.
But there was also a recognition of the “bumpy” journey the firm has been through to get the public to embrace its vision of putting its consumers’ interests and societal values first.
The question for Pinduoduo remains whether it gets used to its new role as a top player in the e-commerce industry and meet the additional business and social pressures it has brought, without losing the revolutionary zeal of its former leader. Investors remain unconvinced, with the firm’s stock having plunged by over 30% since Huang’s departure in March.
Pinduoduo’s rise has reflected the vibrant energy of tech entrepreneurship in modern China, but also its darkest practices. Now that it has reached the top, the firm is rapidly discovering an unavoidable reality: Holding the lead is much harder than claiming it.
This article was adapted from an article written by Yi Gong Zi, which was originally published in 36Kr, KrASIA’s parent company.