Taotian's "interconnection" business philosophy: 150 million new users, 2 trillion incremental GMV

In the prelude to Double 11, Taobao and Tmall opened up the WeChat payment channel. This move is still ongoing and has brought 150 million new users and 2 trillion incremental GMV. In this article, let's take a look at the business logic and potential value behind this "wall-breaking" movement, and how it will reshape the e-commerce competition landscape.

"This year will be the Tmall Double Eleven with the largest number of purchasing users in history." The senior executives of Taotian User Platform Division are full of confidence about this year's Double Eleven.

Part of his confidence comes from the "two-way rush" of Taobao and WeChat. After being fully integrated into WeChat, Taobao's monthly active user base has jumped to a new high of 944 million.

The benefits of the interconnection between the two giant apps are evident. Moreover, judging from the agency report, the benefits of opening the door to do business on Taotian are still to come.

CICC and JPMorgan Chase both estimated that the number of new users of Taotian would reach 200 million. JPMorgan Chase is even more optimistic and predicts that the increase will reach as high as 30%, that is, 300 million new users.

Everyone is talking about the trend, but there are still different opinions in the market on how the interoperability strategy will affect Taotian and how certain it is.

In response to this issue, this article conducts a detailed analysis from the perspectives of crowd portrait composition, conversion difficulty, monetization efficiency, etc., and calculates how much incremental value Taobao can gain after the integration. The conclusions are as follows:

• After interconnection, Taotian has added 152 million new users
• The incremental GMV scale is 576.3-1088.3 billion yuan, and can reach 2 trillion yuan under optimistic expectations
• The new revenue is about 35.2-66.4 billion yuan

01 After interconnection and interoperability, who will bring incremental value?

After “tearing down the walls”, users who were previously exclusively used by WeChat have become potential new users of Taobao, while WeChat users who already use Taobao may increase their consumption frequency. Both groups of people will bring a certain amount of GMV growth.

As for WeChat exclusive users, according to QM data, the population size is 246 million, mainly including high-frequency online shopping users who "often shop but have never used the Taobao system", and low-frequency users who seldom shop online. Their contributions to GMV are not the same.

We classify those who use shopping apps more than 20 times per month (equivalent to twice in three days) as high-frequency online shopping users, and those who use shopping apps less than 20 times per month (including those who do not shop online) as low-frequency users. From this statistics, we can see that there are 115 million new high-frequency online shopping users and 131 million low-frequency online shopping users.

According to QM data, there are 816 million WeChat users who already use Taobao. After the "shielding wall" is broken, they will release more consumption potential.

We calculate the incremental value that different user groups can bring according to the idea of ​​"GMV = number of users × total consumption amount of a single user = number of users × consumption frequency × single consumption amount".

02 Group 1: 115 million new high-frequency online shopping users, which can generate up to 385 billion yuan in GMV

By analyzing the shopping behaviors of high-frequency online shoppers who are exclusive to WeChat, we find that these users have either been discouraged by operational issues such as the lack of support for WeChat payment and the inability to open Taobao passwords, or their shopping needs can be met by various group buying groups and specific apps without the need for Taobao.

After interconnection, users who are discouraged by the inconvenient operation will most likely turn to Taobao, but this is not necessarily the case for groups that are loyal to group buying groups and other channels.

Since the scale of the former is difficult to estimate, while the latter is easier to count, here we estimate how many high-frequency online shopping users can switch to Taobao by finding out the number of "die-hard fans" of fixed channels.

Number of penetrable users:

Currently, the private domain penetration rate of the e-commerce industry is about 30%, and WeChat has a rich variety of e-commerce formats such as shelves, group buying groups, short videos and live broadcasts, and its maturity is close to the overall market ecology. We roughly estimate that the proportion of its private domain users is equivalent to the industry level, and conclude that there are approximately 34.5 million "die-hard fans" in fixed channels.

After excluding these users from the 115 million people, the number of high-frequency online shopping users that can be penetrated by Taobao is about 80 million.

Consumption frequency:

Taobao's e-commerce ecosystem is more mature than WeChat's, and users' shopping habits have been cultivated further. Roughly assuming that Taobao's average per capita consumption frequency can be used as a reference for WeChat's high-frequency users, it is concluded that these users make an average of 80 online purchases per year.

However, after “demolishing the wall”, they will not completely abandon their original shopping channels, that is, only part of these 80 online shopping trips may be conducted on Taobao, and as time goes by, their shopping behavior will gradually converge with the normal state of the market.

Based on this, according to the calculation that Taobao's transaction volume accounts for 45% of the overall e-commerce market, we can know that 36 shopping trips of WeChat's exclusive high-frequency users will be shared with Taobao every year.

Amount of consumption:

Based on the average annual consumption of active buyers on Pinduoduo, JD.com and Taotian, it can be estimated that the amount spent by these users on each shopping spree is approximately 75.2 yuan.

According to this calculation, the newly added high-frequency online shopping e-commerce users can bring 216.6 billion yuan of GMV increment to Taobao. (GMV increment = 80 million users × 36 purchases × 75.2 yuan per purchase = 216.576 billion yuan)

This is the result of the calculation under the neutral assumption. In fact, high-frequency users are also divided into online shopping "veterans" who can quickly switch consumption positions, and "slow-beat" users who need to spend time to cultivate usage habits. Different penetration situations will affect GMV contributions.

*If a sensitivity test is conducted on the distribution ratio of 80 consumptions, the final GMV increase will be between 96.3 billion yuan and 385 billion yuan.

Additional notes:

1. Private domain penetration rate of e-commerce industry (30%) Source: iResearch Consulting data shows that when most users shop online, 15%-45% of their spending is in private channels; according to data from the National Bureau of Statistics and China Internet Network Information Center, the scale of private domain e-commerce accounts for 37% of overall online shopping; the median value of 30% is taken together.

2. Taobao user consumption frequency (80 times) Source: According to official disclosure, the annual purchase frequency of a single Taobao user in 2023 was approximately 80 times.

03 Group 2: 131 million new low-frequency online shopping users can create 339 billion yuan in GMV

When breaking down the low-frequency online shopping user behaviors that are exclusive to WeChat, we found that they can be roughly divided into two categories: "those who can be penetrated by content e-commerce" and "those who are more accustomed to offline shopping." The former, influenced by short videos and live streaming, are more likely to become the sponsors of Taobao.

Number of penetrable users:

Similar to the above deduction logic, based on the maturity of the e-commerce ecosystem within WeChat, we use the basic situation of the market (domestic live e-commerce user penetration rate of 54.7%) to estimate that approximately 72 million of this group of users can be newly penetrated by content e-commerce.

Amount of consumption:

Since the low-frequency online shopping users in WeChat are basically those living outside the Fifth Ring Road and the elderly, and most of the old men and women who don’t like online shopping live outside the Fifth Ring Road, the consumption capacity of this group of users can be roughly regarded as representatives of users in the sinking market.

At present, the per capita disposable expenditure of rural residents is about 55.8% of that of urban residents. If we take the annual consumption amount of 8,436 yuan of a single Taotian user as a reference (Taotian is a national-level APP and is centered on users in high-tier cities), then after Taotian penetrates the sinking market users, the annual consumption amount that each person can contribute is roughly 4,780 yuan.

According to this calculation, the newly added low-frequency online shopping users will contribute about 339 billion yuan of GMV to Taobao every year. (GMV increase = 72 million people × annual consumption of 4,780 yuan = 338.96 billion yuan)

Additional explanation: After a longer time period, we believe that the 72 million people who may be affected by content e-commerce can gradually penetrate into Taobao, so we will not conduct sensitivity testing on low-frequency online shoppers.

04 Group 3: 816 million old Taobao users, who can generate up to 364.3 billion yuan in GMV

Among WeChat users who already use Taobao, high-frequency users have long developed the muscle memory of opening the Orange software for online shopping. The consumption frequency has not changed much after interconnection. Those who are easily stimulated by interconnection are the medium and low-frequency users who were previously hindered by the "wall".

Number of penetrable users:

The Internet Society of China defines Taobao users who place 30-60 orders per year as medium-frequency users, and those who place less than 30 orders per year as low-frequency users. According to this calculation, among the 816 million old users overlapping with Taobao and WeChat, there are 343 million medium-frequency users and 163 million low-frequency users.

Consumption frequency:

Taking the middle value of the average annual number of orders to represent their consumption frequency, it was found that medium and low frequency users consume 48 and 18 times per year respectively.

According to the sales funnel model, 40% of online shopping users will be lost in the grass-planting stage (mainly affecting medium-frequency users), and 60% will be lost in the payment stage (mainly affecting low-frequency users). After interconnection, the loss situation will improve.

Assuming that 15% of the 40% of users who lost during the grass-planting stage were due to unsuccessful sharing by friends, the average annual consumption times of medium-frequency users can be increased by 7.2 times after interconnection.

Assuming that 30% of the 60% of users who lose money during the payment process are due to mismatched payment methods, the average annual consumption frequency of users can increase by 5.4 times after interconnection.

Amount of consumption:

Assuming that the overall category/brand preference will not change much after the interconnection, the average per capita consumption amount of old users on Taotian can still remain at the current level, that is, 100 yuan per order.

In this way, by calculating the GMV increments of medium and low-frequency users respectively, it can be concluded that the total new consumption of old users on Taobao can reach 252.7 billion yuan.

*If a sensitivity test is conducted on the specific churn rates in the seeding and payment links, the final GMV increase will be between 141 billion and 364.3 billion yuan.

05 Conclusion

According to the above data, after "bringing Weixin into Taobao", the number of new online shopping users that Taobao can penetrate in the future will be 152 million (80 million high-frequency + 72 million low-frequency), and the incremental GMV contributed by new users and existing old users in the medium and long term will be 808.3 billion yuan.

At present, Taobao's take rate is about 6.1%. Based on the limited impact of interconnection on product categories and merchant categories, assuming that the take rate remains unchanged, the mid- to long-term revenue increase is estimated to be 49.3 billion yuan. (Revenue = GMV × take rate) * If the above sensitivity tests are added together, the final GMV increase will be between 576.3 billion yuan and 1088.3 billion yuan, and the revenue increase will be between 35.2 billion yuan and 66.4 billion yuan.

In addition to the above three types of users, there are 183 million non-e-commerce netizens in the entire market. With the gradual penetration of social and content, they will also gradually recognize comprehensive e-commerce like WeChat low-frequency online shopping users. Calculations show that this group of potential users will have a GMV market of 0.75-1.76 trillion to be tapped in the next ten years.

That is to say, under long-term optimistic circumstances, the incremental GMV space of Taobao after interconnection with WeChat can reach 1.5-2.5 trillion.

Text | Zhou Xiao, Tan Jiuyun, Zhang Ranran Editor | Fu Xiaoling, Cao Binling Data support | Insight Data Research Institute