After the payment is connected, Alibaba's subsequent prospects for finding new traffic

With the news that Taobao will soon be connected to WeChat Pay, the interconnection between Internet giants has taken another important step. For Alibaba Group, this move is not only a response to policy needs, but also an important strategy for finding new traffic and enhancing user appeal.

Taobao will soon be connected to WeChat Pay, and the interconnection between major Internet companies will be further developed. Some people call this the beginning of deep interconnection between major companies. For Alibaba, apart from policy factors, one of the biggest demands of interconnection is to find new traffic. After the payment is connected, in theory, young and elderly people who are accustomed to using WeChat Pay will have a smoother path to go to Taobao for shopping, becoming an important source of new traffic for Alibaba.

New traffic is closely related to Alibaba’s main goal. Alibaba’s main goal at the current stage is to achieve a positive cycle of GMV and CMR (customer management revenue). Both GMV and CMR are based on Alibaba’s enhanced traffic capabilities and its ability to convert traffic into business for merchants (i.e. advertising product capabilities centered on matching people with goods).

Therefore, the key perspective from which we observe this interconnection is how Alibaba can obtain more new traffic based on payment interoperability; and how it can help merchants grow their business based on the new traffic, and ultimately achieve a positive cycle of GMV and CMR.

In this process, Alibaba's new traffic acquisition and operation capabilities, the advertising product capabilities to convert traffic into business, and the future openness of the WeChat ecosystem to Taobao are all key factors in determining the impact that interconnection can have on Alibaba.

Alibaba's basic traffic capacity is formed naturally during the supply scarcity stage due to the abundance of goods. The so-called new traffic refers to the situation when e-commerce enters the oversupply stage, goods become increasingly homogenized, and traffic platforms build their own closed loops to do e-commerce, which leads to the gradual weakening of shelf e-commerce's traffic black hole capacity. Trading platforms also need to embrace new content and new scenarios to form new traffic acquisition paths.

Alibaba's efforts in finding new traffic include: a series of content-oriented transformations within Taobao, huge investments in Taobao Live to introduce top influencers, celebrities and hot spots from outside the site, browsing short videos, Taobao hot searches and various trend lists, which are also manifestations; outside Taobao, it includes data cooperation between Taobao Alliance and off-site platforms such as Bilibili and Xiaohongshu, as well as the cooperation between Alimama and Tencent Advertising about a year ago, etc.

However, the content transformation of e-commerce platforms seems to have mediocre results. In terms of external traffic acquisition, taking traffic acquisition on WeChat as an example, overall, e-commerce platforms can find new traffic on WeChat in three ways.

1. Pure traffic trading. For example, the integration of Alimama and Tencent Advertising. This part of the cooperation has been progressing rapidly since last year. From the perspective of consumer experience, Taobao e-commerce ads have appeared more and more frequently in WeChat Moments, video accounts and other scenarios.
2. Pinduoduo-style social traffic operation. Before the interconnection, it was difficult for Alibaba to scale up this part, especially after the decline of the Taoke system.
3. In the form of open access, it is fully integrated into the WeChat ecosystem. This form of cooperation was difficult to achieve before Alibaba e-commerce had an absolute top share and large companies blocked each other.

After the interconnection was launched, Alibaba's 1688, Hema, and Ele.me were successively connected to WeChat mini-programs, but these three businesses are complementary to WeChat and Tencent's capabilities, and there has been no clear progress in the access of core e-commerce.

As the degree of cooperation deepens, the difficulty of traffic operation in the above three traffic acquisition methods also gradually increases. This also implies the following premise: based on the premise of data security and the change of WeChat's thinking on e-commerce, will Tencent's openness be further expanded? Alibaba has gone from wanting everything (especially building its own traffic pool) to gradually focusing on supply chain advantages and channel value, and strengthening its own efficiency in matching people and goods.

The pipelineization of trading platforms is a major trend - note that it is just a trend, not that trading platforms such as Alibaba, JD.com (and Meituan) must only become trading channels. As the consumer decision-making ecosystem formed by content platforms and social platforms based on content and KOLs and KOCs gradually matures, for many users, the seeding link of a considerable number of categories has actually been completed. When users make purchases, they just choose a more suitable trading platform to fulfill the contract.

In order to maintain its market share, Taotian must abandon its previous concerns about pipelineization, and more actively and proactively utilize its supply chain advantages to enter the second and third stages of traffic acquisition, and form deeper cooperation with more new traffic fields to gain incremental business.

In fact, the roles played by various platforms in the total business of merchants are relatively fixed at present. For example, Tmall and JD.com are stable sales platforms with relatively high gross profits, Pinduoduo is a clearance channel for many brand merchants, and Douyin and Kuaishou rely on their explosive traffic characteristics and high-speed growth trends to make small profits but quick turnover. Of course, it is still necessary to emphasize that the gross profit margin is only for merchants. For consumers, after more than a year of low-price competition, the prices of various platforms are almost the same.

Under this premise, the market share and consumer mentality of each platform are relatively fixed. As long as a stable supply of traffic can be maintained, good products, tools and channels can be used to obtain traffic, and a relatively stable conversion ROI can be formed, where the traffic comes from is not the primary concern of merchants.

Merchants are more concerned about the advertising product capabilities of Taobao e-commerce, which is a test for Alimama. Previously, many merchants experienced that the Taobao traffic pool was relatively fixed, the products were complex, and it was not very friendly to new and small merchants.

Taobao e-commerce has been making drastic changes to its advertising products over the past year. Last year, Alimama integrated its three advertising products, Direct Express, Gravity Cube and Wanxiangtai, into a unified entrance, Wanxiangtai Unbounded Edition, where merchants can coordinate budgets and integrate all Taobao resources through one account and one backend. However, this is just a unified entrance, and the product capabilities have not changed.

In April this year, Alimama launched a new advertising tool, "Full Site Promotion", backed by Alibaba's AI capabilities. At the last quarter's earnings conference, the management emphasized that the advertising product "Full Site Promotion", which will be fully rolled out in the second half of the year, will significantly drive the growth of commercial revenue in the next six months to a year.

Compared with the borderless version of Wanxiangtai, there are three key changes in the full-site promotion.

1. The entire site traffic is connected, including search, homepage, post-purchase information flow, NewDetail and other Taobao search and promotion traffic.
2. This is good news for small and medium-sized businesses with relatively basic traffic capabilities and product richness. Businesses only need to select products, set budgets, and set product "full site ROI" goals in three steps, and leave the specific delivery strategy to the platform. The coverage of full site promotion also includes the acquisition of off-site traffic.
3. More refined, the promotion granularity can be refined to a single product.

Alimama is inviting merchants to transition from the borderless version of Wanxiangtai to full-site promotion. The popularization progress of full-site promotion will directly affect the efficiency of Taotian’s matching of people and goods, as well as the positive cycle progress of GMV and CMR.

However, many large merchants who are particularly important to Alimama are still waiting and watching. Previously, large merchants had a larger scale of operations on Taobao and invested more in the operation team. In other words, the business accumulation of large merchants in the previous stage was achieved by using various complex operation tools and methods within Tmall. Now, the operation threshold has been lowered, which is a great benefit for merchants to reduce costs and increase efficiency. However, the results of a new advertising product are also uncertain, so large merchants mostly try to promote the entire site on a small scale when promoting new products. To convince large merchants to switch advertising products on a larger scale, Alimama needs to be more persuasive.

However, the platform must still obtain as much traffic as possible on the front end, whether it is self-built or connected with external parties. Back to the cooperation between Taotian and WeChat, in addition to opening up payment, how much traffic Taotian can obtain on WeChat is a key link in looking forward to the follow-up of this interconnection.

WeChat believes in an open mindset for e-commerce, and video account e-commerce and mini-programs are all on open platforms. From the perspective of WeChat, it will not exclude Taobao from accessing the platform as a product alone. Just like JD.com and Pinduoduo have already accessed the platform to varying degrees, JD.com directly presents the product in the dialog box as a mini-program, which is the smoothest; Pinduoduo presents the product page as a product. Although the presentation of Taobao products on WeChat is not yet perfect, the Taobao product ads that appear in the WeChat advertising flow provide a positive signal. In the future, it may be possible to purchase a single Taobao product directly on WeChat.

However, in the short term, because WeChat is developing its own closed-loop e-commerce and guiding more merchants to settle in WeChat stores, the specific degree of connection and combination between Taobao and WeChat in the open interface in the future, such as whether Taobao mini-programs will appear in WeChat, remains to be further observed.