BABA-SWR reveals a new trump card

Author: Liu Baodan

Editor: Zhou Zhiyu

Unintentionally, 1688 has become the hope for BABA-SWR's future.

"The rise of affordable consumption, young people are starting to consume in reverse, flocking to 1688." 1688, which used to be a business that provided support within the BABA-SWR system and contributed a relatively small proportion to overall revenue, has become a trump card for BABA-SWR to counter Pinduoduo and JD.com's low-price strategies, and is given different expectations in the new era.

Recently, 1688 CEO Yu Yong has stated on multiple occasions that the three major strategic focuses of 1688 in the future are: putting users first, AI-driven, and strengthening the supply chain. He emphasized that 1688, in its second entrepreneurial phase, will integrate into the new world of industrial internet with a more open mindset.

Yu Yong's vision is to make 1688 a company that can rival consumer internet giants in the field of industrial internet. In his view, the scale of China's entire industrial internet should be much larger than that of the consumer internet, and 1688 will strengthen its investment and accelerate its business pace in the future.

This means that 1688, the oldest business of BABA-SWR, will enter the fast lane of development.

In the past, 1688 was only an online platform for matchmaking transactions, with a focus on B2B. In the future, 1688 will focus on both consumption and supply. It especially needs to strengthen its efforts in B-side supply chain business, consumer business, and cross-border trading services.

In terms of B-side business, 1688 wants to cooperate with three types of entities. First, companies with users and traffic. Second, companies that have deep involvement in vertical categories, have connected upstream and downstream, and have professional and technical expertise. Third, companies that have specialized capabilities in production services throughout the entire industry chain.

Zhuang Shuai, a retail e-commerce industry expert and founder of Bailian Consulting, believes that the industrial internet plays more of a service role and serves B2B enterprises. Although the profit margin is low, the orders are stable. Further integration of 1688 with Taotian can form a complete industrial chain, and independent development can also bring stable scale customer base and revenue.

Yu Yong believes that parallel replacement business and cross-border business are both good businesses in the next 3-5 years, which is also a dual opportunity for 1688.

In terms of cross-border business, the core of 1688 is to help companies go global. Yu Yong said, "Merchants put their goods into the supply chain, and we are responsible for selling them." The core is that merchants give 1688 the lowest price, while 1688 leaves a reasonable profit margin for merchants and helps them upgrade their industries.

In terms of consumers, 1688 chooses to be an online Costco, which is a membership store model. According to Yu Yong's plan, 1688's SKU will be much higher than Costco, and the prices will be 20-30% cheaper than Sam's Club and Costco, while the supply chain remains the same.

Behind the new strategic direction, there is an implicit insight into the trends of social consumption and the internet industry.

Yu Yong believes that the competition in the consumer internet is already a red ocean, and the blue ocean may lie in the industrial internet. Connecting the consumer side and the industrial side is a bigger opportunity.According to the "China Digital Economy Development Research Report (2023)", in 2022, China's digital economy reached a scale of 50.2 trillion yuan, with the scale of industrial digitization reaching 41 trillion yuan, accounting for 81.7% of the digital economy and 33.9% of GDP. Industrial Internet is an important driving force for the digital economy.

The field of industrial Internet has not yet formed consumer Internet giants like Taobao and Pinduoduo, but 1688, with its inherent B2B genes and supply chain capabilities, has the potential to become a giant.

According to official data, 1688 has an annual online GMV of nearly 1 trillion yuan, and offline private domain customization is 2 trillion yuan, with a total GMV of 3 trillion yuan. Yu Yong said, "We have just entered the game, and there are still Taobao, Tmall, Pinduoduo, and Douyin at this table. We rank fifth in terms of scale, but if we include offline matching transaction volume, we can rank third or fourth."

In Yu Yong's view, fundamentally, 1688 should not be compared with others in terms of e-commerce ranking. "The most important thing is that we should firmly rank first in the industrial belt."

Since the BABA-SWR's largest organizational transformation "One Split Six" last year, the importance of 1688 within the BABA-SWR system has been significantly enhanced.

In November last year, BABA-SWR Group CEO Wu Yongming comprehensively explained the strategic blueprint for the new development stage of BABA-SWR, and announced the first batch of strategic innovative businesses, with 1688 ranking first.

Wu Yongming stated that the innovative businesses will operate as independent subsidiaries, breaking the positioning restrictions within the group in the past, and facing the broadest market with more independent strategies. The group will continue to invest over a period of 3-5 years. This also means that 1688 will no longer have any constraints and can truly participate in competition.

However, although it has industrial advantages, 1688 will face considerable competitive pressure in the future.

The fierce competition in the consumer Internet has extended to the industrial chain, and 1688 faces fierce market competition in three areas, especially in cross-border e-commerce and consumer tracks, facing strong opponents such as Pinduoduo, Douyin, and Shein.

Zhuang Shuai believes that the B2B track is already crowded, and the competitive pressure faced by 1688 will continue to increase. For example, JD.com also has B2B business, and it is done by an independent platform.

Yu Yong also admitted that he is a beginner in the field of industrial Internet. "There are many companies with industrial Internet models in the US stock market. We have less practice in many aspects and our development is not as steady and in-depth as theirs."

As 1688 steps into the spotlight, this oldest yet solid business of BABA-SWR also shoulders the responsibility and becomes the vanguard in the fierce e-commerce battle and the battle of low prices. It carries the vision of BABA-SWR's transition from consumer Internet to the era of industrial digitization, representing BABA-SWR's search for the key to the next era.Returning to the center stage, 1688 is also seizing the opportunity and making a big move.