Ep. 29: Alibaba Singles’ Day $30.8Bn Extravaganza – The Real Deal or Not?

Transcript

(Y: Ying-Ying Lu; R: Rui Ma;)

[00:00] R: Ying-Ying, this last weekend, 你剁手了吗？
Y: No. I did not, but given the amount that was spent on Alibaba’s properties this year for Single’s Day, or China’s “Black Friday,” and the biggest ecommerce shopping festival of the year, plenty of people did.
R: 剁手, for those of you who don’t know, literally means “to chop off one’s hands.” It is an internet meme referring to the fact that shopping online has become so popular in China in recent years that many people cannot stop themselves from clicking and buying, to the point where they feel like they must chop off their own hands to stop doing further damage. And 剁手党 basically refers to this entire group of out-of-control shopaholics and has a funny but also sort of derogatory connotation.

[00:49] Y: Yeah, it is also mostly directed at women, which is not cool, because at least on Taobao, the 剁手党 are pretty evenly split between men and women, at 47% vs 53%.
R: And on platforms such as JD.com which is known for good deals on consumer electronics, on last year’s Single’s Day, over ⅔ of the buyers were male.
Y: That doesn’t prevent popular media from vilifying women though and still spreading the perception that a man’s gotta watch his credit cards on Single’s Day, lest his wife or girlfriend 败家, or bankrupt the household.
R: I know! So Infuriating. But you must be confused by now, why are wives and girlfriends involved in a day named Single’s Day? Isn’t it for single people?
Y: In today’s episode, we are going to explore Single’s Day, how it got started, why it has such mindshare in the world of China internet, how it went this year, and why, despite all the hype, we don’t think it is a very accurate reflection of the state of the industry.

[03:53] R: OK, Ying-Ying, so Single’s Day is not an official holiday in China.
Y: No, I don’t think Confucius would have approved. Almost every actual holiday in China revolves around the family, whether dead or alive.
R: The legend goes that Single’s Day is something made up by single men from Nanjing University in the early 90s who decided that there were so many holidays celebrating couples that being single ought to be celebrated as well. They picked November 11th because well, 1 is the loneliest number right, and November 11 emphasizes that, 4 times.
Y: I agree! Singletons are invisible in culture. Especially today, where everything is so commercialized. It does make sense to target couples or families, who might be spending more on gifts for each other. Oddly enough though, November 11th also has special significance for couples, so lots of people choose to get married on this day too.

[04:55] R: But the primary association is still with Singles. Which is why it’s still more popularly known in the West as Single’s Day. The original impetus behind Alibaba’s 双十一 or Double 11 Shopping Festival was pretty simple. It was 2009, and the economy was still really crappy from the Great Financial Crisis.
Y: Daniel Zhang 张勇 had launched Single’s Day primarily due to one need — to promote Tmall. Tmall, if you’ll remember is Alibaba’s B2C platform. It launched in 2008 and was still just known as Taobao Merchants back then, to differentiate from the primarily C2C Taobao platform. The brands on Tmall were pretty small potatoes compared to the brands on there today. Daniel wanted a good excuse to increase exposure for Tmall, and he thought that a Chinese equivalent of “Black Friday” might do the trick.

[05:52] R: They picked November 11 because they thought it would be easy to remember. Four 1s. They didn’t even really realize it was Single’s Day. Anyway, Daniel reasoned it had to be in November because October has the National Holiday Golden Week, and December you have Christmas, which isn’t a major holiday in China but did already have some corresponding promotions. It seemed much easier to just create something from scratch. And the holiday calendar is a blank in China for November.
Y: But I guess they did find out it was known to some Chinese millennials as Single’s Day because the first tagline was, “have nothing to do on Single’s Day? Why not buy something to gift away?”
R: I don’t think that really stuck though because it is now really more of an excuse for single shopaholics to pamper themselves. But officially, the day is branded as the Double 11 Shopping Festival. We just think Single’s Day is much more memorable than Double 11 in English, but realistically, all Chinese media refer to it as Double 11. So now you know, it’s not for single people. It’s just a shopping holiday.

[07:01] Y: But back to why they picked this date though. Daniel reasoned that November was also a good time to sell people stuff because it’s when deep autumn is transitioning into winter and people need to buy lots of seasonal goods. Things like heavier coats and blankets and slippers.
R: Well, it clearly worked, because even in the very experimental first year, in which only 27 brands participated, sales reached 50MM RMB, that’s about 7mm USD.
Y: Which, if you go by the record set last weekend of $30.8Bn USD, would have taken just 20 seconds to reach.
R: Yeah, as many have noted, in the ten years since Alibaba launched Single’s Day, its single day GMV, or Gross Merchandise Value, has grown over 4,000 times.

[07:52] Y: On that metric, it is considered wildly successful. And the success of Single’s Day definitely helped Daniel secure the CEO position at Alibaba. He may well be forever known as the mastermind that dreamt up a holiday that makes the shoppers in the US seem anemic in their spending. After all, last year’s four-day haul for US shopping, Black Friday, the weekend, plus Cyber Monday all added together was just $14Bn or so, whereas Single’s Day on Alibaba alone generated $25Bn, which is almost double the entire amount for all retail online shopping combined, for the US.
R: And if you choose a more comparable single-day shopping event, Amazon’s Prime Day, for example, that was estimated to be $4Bn this year, less than 1/7 of what Single’s Day 2018 generated for Alibaba.

[08:51] Y: So, all good right? Are you convinced yet that Single’s Day is totally amazing and a prime example of China’s economic success and Alibaba’s dominance in ecommerce? I mean, there is nothing that comes remotely close.
R: But actually, we don’t agree with that. While the headline number is easy to report, and indeed, it is mindblowingly large, it doesn’t tell the full story.
Y: Yeah, first of all, many of our friends agree, for example Tim Culpan at Bloomberg, who wrote a scathing opinion piece that called Single’s Day the “Single Most Meaningless Shopping Event.”
R: Yeah, ouch. What he meant by that though was the GMV metric is well known as an unreliable indicator of actual revenue. GNV is merely the volume of transactions that passed through the platform, not how much money Alibaba, or actually any of the other ecommerce platforms made, especially for this so-called holiday, that requires so much promotion and discounts, it gets even murkier than during normal periods on how to measure revenue. There are lots of special deals that are run to entice merchants, not just shoppers.

[10:07] Y: You call them special deals, I call them forced cooperations. It’s been long reported, although of course never officially confirmed, that Alibaba has been guilty of forcing merchants to be exclusive with them for Single’s Day promotions. It’s usually JD that complains, but this year, Colin Huang of Pinduoduo made these accusations in his Wechat moments too.
R: These things are hard to prove, and as a merchant, there is really no reason to get involved and publicly denounce any of these big 3 platforms. You wanna sell on them after all. But yeah, the point is GMV is not only not correlated with revenue, but can be somewhat engineered.

[10:54] Y: Also, I know lots of you might have seen the headlines that boasted how Alibaba hit $10Bn in sales in just the first hour. And you’re probably wondering, how did that happen? Is everyone just sitting on their laptops or phones waiting to place orders kind of like Burning Man?
R: Kind of. First of all, this is the tenth year of the festival, so you’d literally have to be living under a rock to not know about it. Second, they drummed up extra celebrations for it beforehand.
Y: That’s right. There’s an excellent Business Insider article about the four-hour gala that took place in Shanghai in the hours before the event. It was streamed online and hundreds of millions of people watched it in anticipation.
R: They had the usual popstars and boybands from China, but also international celebrities like Mariah Carey, and Miranda Kerr, who was there to promote her new-ish beauty store on Tmall. So it was a really big celebration.

[11:58] Y: I think the reporter’s reaction was priceless. She was totally overwhelmed. She was like, this is Cirque du Soleil mixed up with Macy’s Thanksgiving Parade, mixed up with who knows what else. It was probably just a normal large-scale Chinese gala, but for a foreigner, it seemed over-the-top and crazy, especially since Jack Ma himself did a bunch of stunts, for example putting on makeup to promote the beauty vertical, which is historically one of Tmall’s most popular segments.
R: Meanwhile though, as you’re watching the celebrations, you could start pre-loading your shopping cart with discounts that can only be transacted on past midnight. Which is why within the first ten minutes, Alibaba had over $4Bn in sales, more than Amazon Prime Day. And the traffic graphs show it too. The peak number of users for Single’s Day happens usually just after midnight, again in the morning from 9-11 AM, and also in the last hour of the day.

[13:01] Y:And even though most of the headlines are focused on Alibaba, since they did after all invent the holiday out of thin air, other ecommerce platforms have been participating for a long time as well.
R: Yeah pretty much every major ecommerce platform participates in Single’s Day, because why not, it’s so easy to bandwagon. But you can never talk about revenues of this scale in China without talking about faked numbers. Not always by the platforms themselves, but sometimes also by the merchants. Now Ying-Ying and I are not investigative journalists with resources to figure out the truth, but what we can tell you is that yeah, there are lots of people online complaining of phantom orders, like their account was hacked or something, or special deals that they paid for and thought they should be receiving, but were contacted by customer service and requested to return them.

[14:03] Y:I guess because that deal didn’t actually exist, but the merchant wanted the number of orders to show up on their merchandise to build up credibility? I mean it’s better than some of the other tricks, which just include straight up fake purchases and paid reviews.
R: That complaint about phantom orders, by the way, is mostly lodged against JD, not Alibaba, because of the different ways in which these platforms work. So Alibaba’s Tmall is literally like a mall, where the merchants individually take care of their businesses, but using Alibaba’s software of course and paying a fee for that, whether it be for advertising expenses or whatever else. JD’s primary business is that it owns the inventory and sells it to consumers directly, so they can just fake all the numbers all at once. In fact, one researcher claimed that much of JD’s own 618 shopping festival numbers were systematically faked, and actually only 44% of orders placed were actually transacted and delivered.

[15:08] Y:Yeah, did you notice that? There is a difference between orders placed and orders transacted. I think that’s where you have to be careful too, because the ecommerce platforms are tricky about how they report this, but somehow it all seems to end up as GMV in English. One is 下单额, which is the volume of orders placed, and the other is 成交额, which is the volume of orders transacted. So placed orders can be a lot higher than transacted orders because along the way, you can cancel your order before payment.
R: That’s because when you press “place order,” it usually asks you how you want to pay, upon which you select a method of payment and then pay, before your order is actually gonna be considered transacted.

[15:57] Y: Right, the ecommerce platforms like to fiddle with this one detail. But bright-eyed analysts usually catch them, and they say, hey, these are not apples-to-apples comparisons, if we are comparing for example JD’s order volume to Alibaba’s transaction volume. This seems to be an almost annual controversy.
R: Well, not only that, but GMV numbers, whether they be orders or transactions, don’t include returns. Another reason why it’s poorly correlated with actual realized revenue. In fact, you cannot return anything on November 11 itself. And people complained that on Monday, the day after the festival, the servers broke down trying to process returns. Taobao’s server error pages for users trying to return their purchases actually became a trending search item. It’s kind of ironic because the servers didn’t crash during the day of, so why are they crashing now?

[17:00] Y: That supposedly has never happened before. Now, neither of us are 剁手党 or shopaholics so we don’t have any personal experience, but there’s plenty of folks on social media complaining that they bought so much stuff there’s no way they can even finish using it all before Single’s Day 2019.
R: In fact, state-owned media Xinhua reported that nearly 76% of male consumers regretted buying so much, and 71% of women as well. 83% of those said they intend to consume more rationally in the future. Given this came from state media, it’s possible that the government thinks the rampant consumption is out of control and they wanted to release these stats to reinforce their point — stop buying irresponsibly! Don’t be a 剁手党！

[17:55] Y: Not just state media, plenty of other articles warn against 囤货, or stockpiling. Also, they noted, a lot of the so-called deals only appear cheap because the merchants have been steadily raising prices for several weeks prior so as to give you as the shopper the impression of a discount, but actually it’s just a regularly priced item, or maybe even marked up from normal.
R: Regrets and markups aside, though, the return frenzy, some folks speculate, could also be caused by merchants who used bots to put in fake orders so that their items could show up as best sellers for Single’s Day. Again, we are not forensic data scientists here so we have no idea if that’s true or not, but maybe Hurui, the folks behind the Mafengwo fake review scandal we covered a few weeks ago, can do some investigative work. That’s Episode 27 for those of you just tuning in.

[18:52] Y: Either way, you guys see the problem here. GMV could be orders, or could be transactions, and it doesn’t take into account returns, and can be gamed, not to mention Tim did a nice graph here showing that it has a pretty small correlation with actual revenue. So all of these things make us agree with him that it’s not that great of a metric. So Investors, you guys and girls, need to read the fine print on this.
R: But GMV remains the focal point and even at nearly $31Bn, there are a lot of naysayers pooh-poohed at Alibaba’s mere 27% year-on-year growth this year. That’s because Single’s day revenue growth used to be much higher than that, like well over 50%. But obviously, as the number gets larger, it becomes harder and harder to show the same percentage in growth.

[19:51] Y: I don’t personally see this as a big problem, but I agree with some of our friends who have written that one day, Alibaba’s probably going to stop publishing these numbers just like Apple has stopped publishing iPhone unit sales because well, where’s the drama in reporting a 10%, or God forbid, only a 5% growth rate?
R: OK, though, that’s enough GMV bashing. In other respects, I do think Single’s Day is still a marvel of Chinese Tech. After all, a billion packages got shipped, with the help of robots of course, and JD, backed by Tencent, was able to use its miniprogram inside of Wechat to good effect, with over 237mm users and an order volume of over 36x that of 2017.
Y: Order volume again, JD loves that metric, don’t they. They also disclosed that the AI customer service chatbot they have, got a lot more usage this year, with 90% of customer questions able to be resolved without any human intervention.

[21:03] R: So I think what we are trying to say is that it’s not just the GMV that we should be looking at for Single’s Day, as much as it is the sheer technical scale that is required to pull off a sale of this size. Logistics, customer service … presale gala … even just server reliability. It’s a big undertaking.
Y: Right, and it’s also a year where we saw Alibaba really get into integrating all of its group companies into the festival. Users didn’t just have to purchase products, they could also purchase services, for example videos on Youku, games on UC, movie tickets, digital music, travel packages and so much more!
R: And internationally too, through its majority-owned ecommerce subsidiary Lazada, which covers Southeast Asia.

[21:57] (R): So … let’s summarize for all the Techbuzzers out there, shall we, what did we learn, Yingying?
Y: Well, we learned that in terms of ecommerce sales, there is just no doubt that Singles Day is the largest single-day shopping event in the world. It started ten years ago online as a way to promote Tmall, but now is pretty much joined in by all the ecommerce platforms, and also now a lot of offline retail as well, which was actually highlighted this year by Alibaba CEO as one of their most important growth metrics.
R: But still, almost $29Bn was from online, so this is still a primarily online thing. Anyway, we also learned that GMV, or Gross Merchandise Value, the headline number that is usually reported, is not a good indicator of actual revenue, and it can in fact, like anything else in China, be gamed. GMV can be misleading, or at least, it’s fair to say that doesn’t show the whole picture.

[23:05] Y: So the $30.8Bn of GMV for this year on Single’s Day for Alibaba, $23Bn for JD, plus billions more from Pinduoduo, VIPShop, NetEase, and more … should probably come with some asterisks and footnotes. But it is still an achievement, especially when you consider the massive marketing campaigns, the logistics and infrastructure that had to go into making it happen. In fact that should probably be the bigger headline. Don’t you think so Rui?
R: Probably. But you know what else I learned? I learned that Alibaba throws a really good party. So Alibaba, if you’re listening, we’re happy to podcast live from Single’s Day 2019 next year! Send us an invite!
TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Bonnie Zhang, Shaw Wan and Kaiser Kuo. Our intern is Wang Menglu.