U.S.-listed Pinduoduo (PDD) may not be a big name outside of China. But withinthe world’s second-largest economy, the e-commerce firm is growing faster thanmajor rivals Alibaba and JD.com and gaining sharequickly.

Behind that success has been its “social shopping” model thatencourages users to share links to items they purchase with friends andparticipate in group buying. 

How does PDD work?

A large part of PDD’s appeal is the group buying function. Whena user selects an item on Pinduoduo, they can choose to participate in groupbuying. The more people that join in, the lower the price of the item goes.

This encourages buyers to share links to the item they arebuying with friends and family or over social media. 

Each item has a minimum number of buyers required to completethe purchase. If that number is not met within 24 hours, then the group buy iscancelled and those who have already committed money will be refunded.

There is an option to just buy the item directly but the priceof that product is higher than that of buying it in a group. 

PDD has also focused on making personal recommendations withinits app. 

Business model

Currently, 100% of PDD’s revenue comes from what it calls“online marketplace services.” This is broadly made up of commission PDD takesfrom sales on its platform as well as advertising it runs. 

While Alibaba and JD.com make most of their money frome-commerce, they both have other emerging businesses such as cloud computing.So PDD’s income stream is narrower.

But its revenue is growing faster in percentage terms. In thefourth quarter, 2020, PDD’s revenue hit 10.79 billion yuan ($1.55 billion), anincrease of 91%. In the fourth quarter, Alibaba’s revenue was up 38% from lastyear but it raked in 161.45 billion yuan or $23.19 billion, nearly 15 times asmuch as PDD.

Both Alibaba and JD.com made a net income in the fourth quarterof 2019 while PDD recorded a loss.