Alibaba no longer wants to learn from Pinduoduo

Optimizing "refund only" is just the beginning of e-commerce transformation.

Alibaba is determined to trade profit for growth.

On August 15th, Alibaba released its financial report for the first quarter of the 2025 fiscal year. In this quarter, Alibaba achieved a revenue of RMB 243.236 billion, a year-on-year increase of 4%; adjusted net profit was RMB 40.69 billion, a year-on-year decrease of 9.4%.

The decrease in net profit is mainly due to high investments in core businesses such as e-commerce and cloud computing. Alibaba explained that this is a result of increased investment in user experience (to improve consumer retention and purchase frequency) and technological infrastructure. Unlike most Chinese concept stocks that release profits by reducing costs and increasing efficiency, Alibaba has clearly returned to the path of "increased investment for growth", which will inevitably put pressure on the profit side.

Focusing on specific business segments, Alibaba Cloud performed the best this quarter, with a revenue of RMB 26.549 billion, a year-on-year increase of 6%, and a good profit, with adjusted EBITA of RMB 2.34 billion, a year-on-year increase of 155%; Alibaba International Digital Business Group's revenue was RMB 29.293 billion, a year-on-year increase of 32%, showing a slight slowdown compared to previous quarters; Cainiao Group's revenue was RMB 26.811 billion, a year-on-year increase of 16%; Local Services Group's revenue was RMB 16.229 billion, a year-on-year increase of 12%; and Digital Media and Entertainment Group's revenue was RMB 5.581 billion, a year-on-year increase of 4%.

In addition, Gaoxin Retail, Hema, Alibaba Health, and Lingxi Interactive's quarterly operating performance have all improved.

It is worth noting that Alibaba has also made significant investments overseas. Although international business continues to grow, this quarter's adjusted EBITA loss was RMB 3.7 billion, nearly 8 times higher than the same period last year. Alibaba explained that this is mainly due to increased investment in AliExpress and Trendyol's cross-border business; Cainiao's adjusted EBITA was RMB 0.618 billion, a 30% decrease year-on-year, mainly due to increased investment in cross-border fulfillment solutions, but compared to the previous quarter, it turned from loss to profit.

As the core pillar, Taotian Group became a relatively lagging business this quarter. The financial report shows that Taotian Group's revenue this quarter was RMB 113.373 billion, a year-on-year decrease of 1%, the only one among the seven major business segments to decline. Under the new management strategy of "returning to e-commerce and prioritizing users", Taotian has been competing fiercely with Pinduoduo since the end of last year: increasing investment in low prices, leaning towards user rights, and successively launching services such as pay-after-delivery, refund-only, and free return shipping for 88VIP members. These series of strong measures have brought impressive growth to Taotian, with GMV growing by high single digits year-on-year this quarter, order volume growing by double digits year-on-year, and the 88VIP membership reaching over 42 million.

It is evident that users are satisfied with Alibaba's strategy, but the response from the merchant side is not as positive: this quarter, Taotian's Customer Management Revenue (CMR) has significantly declined compared to the previous quarters, with only a slight year-on-year increase of 0.6%. It seems that the growth in orders and GMV has not yet translated to the CMR side.

During the earnings call, Alibaba executives emphasized that they expect to maintain a high level of capital expenditure in the coming quarters. In summary, Alibaba is still in the process of establishing a new order, focusing on defending the e-commerce market, expanding Alibaba Cloud and overseas business, with the overall direction being to increase investment to achieve strategic growth.

Thus, the challenging situation of "increased revenue without increased profit" will likely continue for several quarters for Alibaba. Alibaba Group CEO Eddie Wu stated that most of Alibaba's businesses will gradually achieve a balance between profit and loss within 1-2 years, and gradually begin to contribute to scalable profitability.

It is worth discussing that in November last year, after Pinduoduo's stock price surpassed Alibaba's for the first time, Alibaba decided to move closer to Pinduoduo, such as Taotian's low-price strategy and refund-only service. However, after trying it out for half a year, Taotian decided not to imitate Pinduoduo anymore: On August 9th, Taotian made a series of adjustments to the refund-only policy, strengthening the protection of merchant rights. After "618" this year, Taobao also seems to be intentionally withdrawing from price wars and regaining the initiative for development.

Why doesn't Alibaba want to learn from Pinduoduo anymore?

Taotian's "Counterflow"

In recent years, Alibaba has been in a passive position. Pinduoduo, with its high efficiency, low-price strategy, and emphasis on sellers, has been steadily encroaching on Alibaba's e-commerce market share. Until the end of November last year, Alibaba's market value was surpassed by Pinduoduo for the first time, which was a huge blow to everyone at Alibaba.

Jack Ma shared a long article internally, believing that the most core change for Alibaba in the past year is not to chase KPIs, but to understand themselves and return to the track of customer value; Joseph Tsai, Chairman of the Alibaba Group Board of Directors, has also reviewed similar issues in an interview before: "Alibaba has fallen behind because we have forgotten who the real customers are... to some extent, we have reaped what we have sown." "Eddie Wu has repeatedly emphasized Alibaba's latest two strategic focuses, 'customer first, AI-driven'.

Alibaba is now at a crucial moment that requires counterattacks.

"At the end of last year, Taotian listed 'low prices' as one of its core strategies, launching a five-star pricing power system where merchants can attract traffic by lowering prices, similar to Pinduoduo's recommendation logic." In addition, Taote's main business territory has also shifted to Taobao, retaining various data labels such as sales volume and reviews for products, with the addition of low-priced items, the Taobao app homepage now features multiple entrances for 'billion-dollar subsidies' and 'flash sales'; in terms of user rights, starting from the end of December last year, Taobao has successively implemented a series of policies, including 'no refunds', free shipping to Xinjiang, pay after use, and 88VIP unlimited returns with shipping fees covered.

In order to improve user experience, this year during '618', Taotian even canceled pre-sales.

However, blindly favoring users and pursuing 'absolute low prices' did not bring significant improvement to Taotian's performance - although online GMV, order volume, and 88VIP membership numbers have increased, revenue for this quarter has declined year-on-year, and CMR has plummeted significantly.

The 'no refunds' internal competition sparked between platforms has also given rise to 'wool party', with many normally operating merchants expressing grievances.

"Obviously, Pinduoduo's approach is not suitable for Alibaba." The two have fundamentally different genes, with Pinduoduo's team having previous experience in gaming and starting with agricultural products, introducing a no-refund policy targeting the short shelf life of agricultural products. On the other hand, its inception was during the mature period of e-commerce, aiming to compete in a certain blank space; whereas Alibaba, from the beginning, has been oriented towards the perspective of merchants, 'making business easy for everyone', and now turning solely towards buyers will inevitably face challenges.

After '618' this year, Alibaba, perhaps realizing the issue, began to weaken its low-price strategy.

According to 36Kr, after the end of '618', Taotian Group held a closed-door meeting for merchants, clarifying several strategic adjustments to be implemented in the second half of the year. The most important change is that the search weight system based on 'five-star pricing power' introduced last year will be weakened, reverting to distribution based on GMV, which can effectively reduce the pressure of low-price competition on merchants.

In terms of specific business indicators, this year Taobao's assessment focus has shifted to GMV (transaction amount) and AAC (average consumption amount), no longer pursuing high DAC (order volume) brought by low prices.

"The 'no refunds' policy that blindly protects sellers' rights has also been corrected: On August 9th, Taobao's optimized strategy for 'no refunds' officially took effect. It is reported that Taobao will enhance the autonomy of merchants in after-sales service based on the new version of user experience scoring, reduce or eliminate interventions for high-quality stores, and upgrade the abnormal behavior identification model for 'no refunds' received after goods have been delivered, rejecting 'no refunds' requests with abnormal behavior.

In other words, in order to gain greater autonomy, merchants must continuously improve their ability to serve consumers. This is not a complete shift from buyer-oriented to seller-oriented, but rather a move to a neutral position, balancing the interests of sellers and buyers." As top e-commerce platforms like JD.com are collectively shifting their focus to low-price strategies and implementing a strict refund policy, Alibaba's move seems to be going against the tide. In fact, Alibaba has taken the first step in combating e-commerce "internal competition", a path that is bound to be difficult but is crucial for breaking free from the "internal competition trap" and regaining control over development.

During the performance conference call, when asked about "how to further narrow the gap between CMR and GMV," Alibaba's senior management stated that it will take some time to drive new product and merchant monetization. "For Taobao and Tmall, the current priority is to focus on improving user purchasing experience to increase user purchase frequency and GMV. Once the market share stabilizes, starting from this quarter, we will accelerate measures to enhance monetization and commercialization."

Eddie Wu predicts that in the coming quarters, the growth rate of Taobao Group's CMR will gradually match the growth rate of GMV.

E-commerce is no longer stagnant

Not only Alibaba, but other e-commerce platforms are also no longer blindly competing within the "comfort zone" of Pinduoduo's low prices, even Pinduoduo itself is adjusting its strategy.

"Pinduoduo's rapid rise due to 'strict refunds' captured consumers' hearts, but it also magnified the conflicts between buyers and sellers."

In July this year, according to the "Legal Daily," over 400 worn skirts were collectively returned, causing the store to lose nearly 8000 yuan, leading to a surge in return rates, a decline in store rankings, and a reduction in the weight of traffic distribution. Sellers are also no longer willing to give in blindly. According to media reports, because of a 9.9 yuan short-sleeved shirt that was refunded, a seller chased the buyer from Yiwu to Weihai, spanning over 1000 kilometers to find the buyer.

With Taobao and JD.com successively launching "strict refunds," the controversy surrounding this service is growing. "Strict refunds" is a microcosm of extreme internal competition: under the "low-price internal competition," merchants either have to reduce product quality to minimize losses or sell at a loss.

He Yudi, a post-00s second-generation factory owner, cited an example to "China Entrepreneur" magazine: while operating a fishing tackle company in Dongyang, Zhejiang, mainly as an OEM for brands, he discovered during the operation of his e-commerce store that there was fishing line selling for 5.9 yuan with free shipping on a certain e-commerce platform. This price was impossible to make a profit from. How were his peers making money?

"Later I heard that many peers were selling at a loss to increase sales volume, earning advertising fees by including free game trial promotion cards in the packages to offset losses," He Yudi explained He Yudi also revealed that after various e-commerce platforms successively introduced the "refund only" service, the return rate of the entire fishing line industry increased to 20%, leading to soaring costs.

In terms of policies, regulatory actions will also begin against behaviors such as "refund only." Starting from September 1st, the "Interim Provisions on Prohibiting Unfair Competition in the Internet" announced by the State Administration for Market Regulation will officially come into effect. The new regulations mention that platform operators shall not unreasonably restrict or attach unreasonable conditions to transactions by operators on the platform through service agreements, transaction rules, etc.

After Taobao corrected the "refund only" practice, Pinduoduo also took corresponding actions. According to the latest rules announced by Pinduoduo, starting from August 7th, Pinduoduo officially launched new rules and announced after collecting opinions from merchants: for orders that have been shipped, if consumers only request a refund, merchants will have 36 hours of autonomy to handle the request.

Pinduoduo stated that merchants have the right to reasonably reject refund requests, and Pinduoduo will no longer intervene. If the merchant does not handle the request within 36 hours, the system will automatically complete the refund process to protect consumer rights. In this case, if the merchant rejects the consumer's refund request and the consumer seeks Pinduoduo's intervention, a fair trial will be conducted based on the actual situation.

By breaking the cycle of "internal competition," e-commerce can quickly return to a healthy business state and a reasonable commercial ecosystem, which may signal the start of the next e-commerce cycle.

Without relying on low-price competition for existing market share, how will e-commerce platforms continue to develop?

Ma Shuzhong, Dean of the China Digital Trade Research Institute at Zhejiang University, believes that there are six trends in the future development of e-commerce:

First, the integration of domestic e-commerce and cross-border e-commerce, blurring boundaries more and more; second, the boundaries between wholesale e-commerce and retail e-commerce are also becoming increasingly blurred; third, e-commerce will not only focus on low prices, but will still emphasize "fast, good, and cost-effective"; fourth, the younger generation will continue to drive "replacement consumption"; fifth, AI will accelerate the development of digital industrial chains and supply chains; sixth, the era of e-commerce "earning while lying down" is gone forever.

In his view, the entire Chinese manufacturing industry will be digitized in the future, followed by structuring, layering, and classification based on user needs, presented in an AI manner. For e-commerce platforms, merchants, and buyers, future e-commerce consumption will definitely be supported by a digital supply chain. "Merchants need at least a net profit margin of 10 points, which is the foundation for the digital transformation and upgrading of China's manufacturing industry." Ma Shuzhong emphasized.

Optimizing "refund only" is just the beginning of e-commerce transformation.

Author: Deng Shuanglin, Source: China Entrepreneur Magazine, Original Title: "Alibaba Doesn't Want to Learn from Pinduoduo Anymore"