The new decade of second-hand e-commerce

In the new decade of the second-hand e-commerce industry, the competition between the C2C and C2B2C models remains fierce. How platforms such as Xianyu, Zhuan Zhuan and Ai Huishou will explore the path to monetization has become the focus of industry attention.

“The battle between C2C and C2B2C models continues.”

Not long ago, on its tenth birthday, Xianyu announced its latest positioning - a lifestyle platform that carries the hobbies and interests of young people. On the basis of community and second-hand trading functions, Xianyu has launched "Xianyu Resume" and many new products, which has transcended the positioning of a second-hand e-commerce platform.

It is blazing a new trail and has more similarities with Xiaohongshu or Dewu, which also have the dual attributes of "community + transaction".

The 2023 China Second-hand E-commerce Market Data Report released by the E-commerce Research Center shows that the transaction volume of second-hand e-commerce in 2023 will reach 548.65 billion yuan, a year-on-year increase of 14.25%, and the user scale will be 580 million, a year-on-year increase of 25.26%. At a time when the growth rate of first-hand e-commerce platforms such as JD.com and Douyin has slowed down, second-hand e-commerce platforms still maintain vigorous growth.

In March this year, Xianyu announced that its daily average GMV exceeded 1 billion. According to the statistics of the E-commerce Research Center, Xianyu's GMV accounted for 72.9%, occupying an absolute leading position.

At the same time, the huge traffic of 500 million registered users, 162 million monthly active users, and the extremely high proportion of young users, over 43% of which are those born after 1995 and over 22% are those born after 2000, also make the future of Xianyu full of imagination.

However, as a representative of the C2C second-hand e-commerce model, Xianyu has not found a good monetization and profit model in the past decade. This is also a question that it urgently needs to answer in the next decade.

On the other hand, Zhuan Zhuan and Ai Huishou, which represent the C2B2C model, have been profitable for seven or eight consecutive quarters based on commissions, service fees, advertising and other income. The C2B2C profit model is clear, but it also has its own problems - limited room for imagination.

Wanwu Xinsheng Group, the parent company of Aihuishou, has seen its market value shrink to less than 15% of its initial public offering three years after its listing. Zhuanzhuan was rumored to be preparing to go public in the United States in 2021, but has yet to do so.

This leaves the competition between the C2C and C2B2C models still somewhat suspenseful.

How did these two models emerge and evolve over the past decade? Will they decide who will win or merge in the next decade? This article will try to find an answer by reviewing the growth paths of Xianyu, Zhuanzhuan, and Aihuishou, which represent the two models, over the past decade. You are also welcome to add the author’s WeChat LW_PLUS for further communication.

1. Origin and choices determine destiny

The biggest problem with second-hand e-commerce is that it is a low-frequency business. This means that acquiring traffic is a crucial part of development, otherwise it will be easily forgotten by users. This is especially true in China where Xianyu, Zhuanzhuan and Aihuishou are the three leading platforms competing with each other.

Therefore, for second-hand e-commerce platforms, the primary issue is how to acquire and retain users at a lower cost.

Aihuishou, the earliest of the three platforms, has solved this problem by seizing precise scenarios. Chen Xuefeng, the founder of Aihuishou, once said that for second-hand e-commerce platforms, "general traffic efficiency is very low, and trading in old for new is the most efficient way. It is very important to control the sales scenarios of new devices."

Following this concept, Aihuishou has cooperated with e-commerce platforms such as JD.com, as well as mainstream manufacturers such as Xiaomi and Huawei, to seize the old-for-new scene; and offline, it has relied on physical stores as tentacles to anchor the supply and customer base. This approach cannot create a huge volume in the short term, but it is a more cost-controlled and sustainable means of acquiring customers.

Among them, the cooperation with JD.com is a key leap for Aihuishou to solve the traffic problem.

After reaching a cooperation with JD.com in 2014, the number of packages received by Aihuishou's operation center began to double every day. In 2019, Paipai, a B2C platform under JD.com Group, merged with Aihuishou, further deepening the bond between the two parties.

Qiqi (pseudonym), a senior industry insider, told Leifeng.com that "Currently, most of Aihuishou's traffic comes from JD.com, including more than half of its offline store leads." It can be said that half of Aihuishou's life is in the hands of JD.com.

Like Aihuishou, Xianyu also took over the traffic diversion from e-commerce platforms Taobao and Tmall in the early days. But the difference between it and Aihuishou is that it built a dam - the community, to activate and retain users.

When Xianyu was officially launched in 2014, with only the legacy resources of Taobao's second-hand channel and a few promotional cooperations with Taobao Mobile, the task given to its founder Chen Weiye (nickname: Chu Duan) was to achieve 1 million daily active users in one year. Chen Weiye thought about it and felt that only by promoting user communication could the daily active users be increased, and the underlying logic was to build a good community.

A few months later, Xianyu launched the Fishpond section, which became the most basic idle transaction circulation unit of Xianyu: communities were established based on geographic location and theme, and users communicated in the community and then sold their idle second-hand items during the communication process. Relying on this innovation, Xianyu quickly achieved the goal of one million daily active users.

Since then, the community attribute has continued to be the spiritual core of the platform. Today, many small circles around interests have been formed on Xianyu, such as the vinyl record circle and the game cartridge circle, and countless high-quality content has been born.

Many people create content not for selling goods, but simply for the purpose of "showing off the products". This good communication atmosphere makes the Xianyu community no longer just a passive reservoir for Taobao and Tmall traffic, but has the ability to actively generate its own traffic.

Xianyu has thus become the second-hand e-commerce platform with the most traffic. Currently, the number of registered users has exceeded 500 million, and the number of monthly active users has exceeded 162 million. In the past two years, the annual compound growth rate of Xianyu users has been close to 30%, and it is still in a high-speed growth channel. According to Xianyu President Ding Jian (nickname: Ji Shan), Xianyu's goal this year is to exceed 200 million monthly active users.

At present, Xianyu is still strengthening its attributes as an interest community. In the new homepage that is currently undergoing grayscale testing, the various slots and entrances at the top have given way to recommended information flows, guiding users to deepen content consumption. The entire homepage has become more crowd-oriented and personalized, and the tabs on the homepage will also be differently laid out for different groups of people, such as students or ACG fans.

The second tab at the bottom of the homepage has changed from "Fun" to "Same City", which will cover local long-tail services such as food, drink, entertainment, and life.

This can be seen as an advancement of "interest fish pond" and "local fish pond" in the era of recommended information flow.

Compared to Aihuishou and Xianyu, which both have big backers, Zhuanzhuan's fate is much more difficult. Zhuanzhuan was originally derived from the second-hand channels of 58.com and Ganji.com, and took over the traffic of both. However, 58.com had already begun to decline at that time, and there was not much support for Zhuanzhuan. As a fallen aristocrat, Zhuanzhuan could only find its own way out.

In 2018, Zhuan Zhuan seized the opportunity of the full-scale explosion of WeChat mini-programs and successively launched more than a dozen mini-programs such as Zhuan Zhuan Second-hand Transactions, Zhuan Zhuan Happy Delivery, and Zhuan Zhuan Official Idle Club. It obtained support from Tencent in the early stage, thus reversing its downward trend and becoming another pole that could compete with Xianyu in terms of scale at that time.

However, as the WeChat ecosystem matures, the support that the platform can provide to Zhuan Zhuan has gradually decreased. Today, Zhuan Zhuan is more self-reliant in terms of traffic. On the one hand, it cooperates with Internet celebrities to produce content and advertises on new media such as Douyin. On the other hand, it combines online and offline, and acquires customers through offline touchpoints such as offline stores and door-to-door recycling.

The three different traffic sources and structures have created different backgrounds for the three platforms and also determined that they will move towards different business models.

2. Should we go broad and light, or go deep and heavy?

Xianyu’s foundation is transaction + community, and its underlying logic is to increase daily activity by promoting user communication, build trust through interaction, and find new transaction opportunities.

Transactions are the natural driving force behind users' activeness on the platform. Behind every transaction, a natural exchange will be formed. On Xianyu, having fun, making money, saving money and making friends are often the same process.

We can imagine a scenario where two vinyl record enthusiasts make a transaction on Xianyu. During the communication process, they discover that each other has good musical taste. They may become good friends and often share each other's collections and experiences in the community.

At present, there are 83 million active interest users on Xianyu, 150 million online interest products, and 45% of transactions on the platform are related to interests. Interest transactions are often the easiest to generate friendships. For interest consumption represented by games, pets, models and animation, each order will generate about 40 sentences of chat.

Therefore, it is natural for Xianyu to move towards a C2C-based transaction model. In this model, the platform only needs to formulate rules and conventions, allowing buyers and sellers to communicate freely under the rules and conventions, without having to interfere too much in the transaction process, and can be done very lightly.

At the same time, because it is a matchmaking model, the platform needs to gather enough supply and demand to improve the success rate of supply and demand matching. This determines that Xianyu must adopt a full-category model.

Nowadays, Xianyu not only has a wide variety of physical goods, but also a new type of goods has emerged - skill services, such as helping you with photo editing, programming, dog walking, running errands, etc. Moreover, the transaction of such services has increased rapidly. This year's daily transaction volume has exceeded 10 million, and the order scale has doubled compared with last year.

Compared with Xianyu, which focuses on the broad market but not the light market, Zhuanzhuan and Aihuishou lack the ability to generate traffic internally and need to spend money to buy traffic continuously. Therefore, the platform must pursue higher conversion efficiency to cover the traffic cost.

In second-hand transactions, the most critical factor affecting the transaction is trust. For example, for a second-hand mobile phone that has been used, no matter how the seller describes its condition, it is difficult for the buyer to fully believe and accept it. This hesitation will inevitably lead to the loss of a large number of transaction opportunities.

At the same time, due to the "lemon market" effect, when information is asymmetric between the two parties, human nature based on self-interest will inevitably lead to the result that bad money drives out good money.

Zhuan Zhuan and Ai Huishou had to step in personally and act as middlemen to provide recycling, quality inspection and resale services. At this time, the transaction objects of buyers and sellers changed from elusive individuals to more trustworthy platforms.

In order to solve the problem of trust cost and improve transaction efficiency, Zhuan Zhuan and Ai Huishou had to personally act as intermediaries to provide recycling, quality inspection and resale services. At this time, the transaction objects of buyers and sellers changed from elusive individuals to more trustworthy platforms. In order to solve the problem of trust cost and improve transaction efficiency;

For a platform to be competent in playing the role of “guarantor for solving information asymmetry problems”, it is required to have extremely strong operational capabilities and a deep understanding of the entire industry.

Chen Xuefeng, the founder of Aihuishou, once explained the logic behind it:

Although both second-hand goods and new product sales are centered around commodity transactions, their operating logic is completely different. In the process of new product sales, the platform is more responsible for the circulation link, the quality of the goods is guaranteed by the manufacturer, and users also have stable expectations before purchasing. Therefore, platform capabilities, supply chain capabilities, and warehousing and distribution capabilities can basically be continuously reused in this relatively standardized scenario.

However, the platform needs to consider more complex factors in the operation of second-hand goods. For example, the operation methods of second-hand mobile phones and second-hand luxury goods are completely different, and the quality inspection standards of a luxury bag and a second-hand mobile phone are also very different. In this context, it is almost impossible for a single platform to cross different categories.

This determines that Zhuan Zhuan and Ai Huishou can only adopt a deep and heavy C2B2C model (although Zhuan Zhuan is positioned as a full-category second-hand e-commerce platform, it mainly focuses on a few categories such as mobile phones and books).

If we look at it more specifically, the models of Aihuishou and Zhuanzhuan are somewhat different.

Aihuishou's earliest sources of goods came from APP users and users attracted by offline stores. These supply channels were insufficient in terms of quantity, quality and stability, so Aihuishou turned to cooperating with e-commerce platforms. Aihuishou's cooperation with e-commerce platforms can be roughly divided into two stages: simple recycling of old machines and old-for-new activities.

The cooperation between Aihuishou and e-commerce platforms is essentially buying user leads from e-commerce platforms, and there is a third-party platform between it and the users. The cooperation with e-commerce platforms ensures Aihuishou’s control over the supply, but also weakens its connection with C-end users.

Therefore, Aihuishou’s C2B2C model actually focuses more on the first half. It is essentially a supply chain platform and has not made much achievements in sales directly to C-end users.

Zhuan Zhuan is just the opposite. It may not have as much control over the source of goods as Ai Huishou, but its connection with C-end users is closer.

3. The Monetization Competition between C2C and C2B2C Models

In the C2B2C model of Zhuan Zhuan and Ai Huishou, the platform provides value-added services such as quality inspection, and the profit model is relatively certain. Currently, both companies have achieved operating profitability.

According to the first quarter performance report of 2024 released by Wanwu Xinsheng Group, the parent company of Aihuishou, Wanwu Xinsheng Group's total revenue in the quarter was 3.65 billion yuan, a year-on-year increase of 27.1%. The non-GAAP operating profit in the quarter was 80.22 million yuan, which is the seventh consecutive quarter that Aihuishou has achieved operating profit.

Zhuanzhuan is not yet listed and has no publicly disclosed financial information. However, according to insiders, the company has been profitable for 24 consecutive months and its profitability is "better than Aihuishou".

The profit model of the C2B2C model is very clear, but as mentioned earlier, under this heavy model, it is almost impossible for a single platform to span different categories.

Moreover, the entire chain of "recycling-quality inspection-resale" on the platform is not cheap, which requires a large margin of profit between the recycling and resale of goods. This has led to the platform often being questioned for "malicious price reduction" and "yin-yang test reports".

These all restrict the development ceiling of Aihuishou and Zhuanzhuan.

Xianyu, which mainly adopts the C2C model, has a huge advantage in traffic and covers all categories, and has huge monetization potential, but its profit model still needs further exploration.

In foreign countries, C2C second-hand e-commerce platforms can easily make profits by charging high transaction commissions of 10-15%, but this model is difficult to replicate in China. This is mainly because domestic users have not yet developed the habit of paying. A typical example is that the membership fee model of domestic long video websites has been launched for many years, but it has not been particularly successful so far.

Not long ago, at a small media communication meeting for the tenth anniversary of Xianyu, Xianyu President Ding Jian talked about his thoughts on Xianyu's monetization model. He said that Xianyu is unlikely to charge high commissions from users, but does not rule out charging a small amount of platform technical service fees. He believes that as the industry grows and the difficulty of operation increases, the platform's second-hand transactions cannot remain completely free for a long time.

This strategy was quickly implemented. Recently, Xianyu announced that it would charge a basic software service fee of 0.6% (up to 60 yuan per transaction) to all sellers starting from September 1. At the same time, only for sellers who have generated more than 10 orders and a cumulative transaction amount of more than 10,000 yuan in the same natural month, a software service fee of 1% of the actual transaction amount of each order after that will be charged. At present, charging software service fees is also a market practice, and Xianyu is the last one among these platforms to charge.

In addition to charging platform technical service fees, Ding Jian said that Xianyu will also explore ways to monetize traffic and accelerate the construction of advertising product capabilities. This means that Xianyu will introduce more B-end merchants in the future. In fact, B-end merchants have long existed on Xianyu, but in the past they used to disguise themselves as C-end sellers.

Ding Jian introduced that Xianyu has gone through a process from governance to operation in terms of its attitude towards small B merchants. The first stage was to eliminate small B merchants with poor performance quality, and now is the second stage, which is to operate the remaining merchants.

The first step of the operation is to let small B merchants reveal their identities. On this basis, Xianyu will rate the merchants to help consumers better screen out reliable small Bs.

He believes that the operating threshold of today's e-commerce platforms has become very high, and some sellers will definitely be squeezed out. Xianyu will then take over most of the merchants overflowing from other platforms.

This means that Xianyu is no longer limited to second-hand goods, but will also have many new products. However, the new products on the Xianyu platform will be different from those on other platforms, focusing on products with low inventory such as near-expiry products and slightly defective products.

For example, a merchant who mainly deals in remote control car toys once told Leifeng.com that once a remote control car is used on the road, no matter how well it is cleaned, there will always be slight signs of use on the tires and chassis. Therefore, after receiving returns from users, merchants are often unable to resell the products and can only recycle internal circuit boards and other parts to reduce losses.

If these defective products from returns are repackaged and sold on Xianyu at a lower price, users can get a bargain and merchants can save a lot of trouble.

The characteristic of the pallet of near-expiry goods and slightly defective goods is that it is not efficient and does not require concentrated promotion, which is very suitable for platforms such as Xianyu. However, correspondingly, the organization of this type of pallet is more difficult and requires the platform to do a lot of work.

An industry insider told Leifeng.com that there is a significant difference between China's second-hand e-commerce and overseas, that is, China's industrial product manufacturing capabilities are too strong, and new products are very cheap, which leads to users' demand for second-hand goods not being as strong as overseas. Only a few relatively high-net-worth products are traded actively on second-hand platforms.

For Xianyu, if it only focuses on second-hand transactions, then its scale must have an upper limit. The introduction of new products to enrich the supply has improved the efficiency of the platform's traffic utilization. At the same time, the selection of unconventional goods such as expired products and slightly defective products has ensured that it will not cause too much impact on the platform's idle and bargain-hunting mentality. At the same time, the introduction of B-side merchants has also opened up the imagination space for Xianyu's traffic monetization.

But what cannot be avoided is that there is a natural conflict between the B2C and C2C models. If Xianyu wants to monetize through advertising, it must balance the relationship between commercial traffic and free traffic.

Ding Jian said that Xianyu's operation of small B merchants has a major premise, which is to ensure the fairness of traffic for C-end users. For this reason, Xianyu would rather sacrifice some efficiency. Moreover, traffic monetization is a relatively long-term plan, and Xianyu will not rush.

In addition, Xianyu will also accelerate its investment in value-added services and try to realize its value through a C2B2C-like model. Ding Jian emphasized that Xianyu does not necessarily provide value-added services in person, but will use reasonable mechanisms to allow ecological partners to participate.

There are different opinions on this attempt. A senior industry insider told Leifeng.com that C2B2C and C2C are two completely different paths and it is difficult to find a middle ground.

Every category in the second-hand market is very complex, involving many quality, standard and experience issues, which require continuous research and development, and cannot be done by handing it over to a third party. Can C2B2C be done well with an open cooperation model? Welcome to add the author's WeChat LW_PLUS to discuss.

4. From online to offline

In addition to trying various monetization methods online, Xianyu has also set its sights on offline.

At present, Xianyu has opened two offline circulation stores, located in Hangzhou and Shanghai respectively, and the number of offline stores continues to increase.

Online second-hand transactions often lack trust, and offline physical stores can solve this problem to a certain extent, so major platforms have tried offline. According to rough statistics, Aihuishou currently has about 1,200 offline stores, and Zhuanzhuan has more than 600 offline stores.

Among them, Aihuishou opened its first offline store at the end of 2013. Since then, it has expanded rapidly and opened stores in more than 270 cities. Today, Aihuishou's offline store revenue accounts for more than 50%.

Zhuan Zhuan started to develop offline stores relatively late, only beginning to open stores in 2020, but it has developed very rapidly through franchising.

If the stores of Aihuishou and Zhuanzhuan are more aimed at solving trust issues in transactions, then Xianyu's offline stores focus more on user convenience.

Ding Jian explained that the reason why Xianyu explored offline stores was because it found that many users had a large amount of good supply, but because users thought online transactions were too troublesome, or the residual value of the goods was too low and they could not be sold for much money, this part of the supply had not increased in the past.

After Xianyu has an offline store, users only need to pack the goods and send them to the store. The store will sort, price, and then put them on the shelves for sale. This part of the supply will not only be sold in offline stores, but also be simultaneously transferred to online stores, increasing the chances of a deal.

Due to different business models, the offline stores of different platforms have different forms and functions. Among them, Aihuishou’s stores are mainly wall-mounted stores, mainly engaged in recycling, with weak sales functions. Zhuanzhuan integrates collection and sales, with relatively larger stores, and the GMV and profitability of a single store are better.

Xianyu’s offline store adopts a consignment model, providing two-way buying and selling services, and is more like a community store. This model has no good precedents at home or abroad. Whether it can work depends more on local supply and whether a good community atmosphere can be formed.

Ding Jian also admitted that community stores may not be the ultimate offline solution for Xianyu. In the future, Xianyu may also try different forms such as campus stores and logistics stores, for example, letting Cainiao Post Station take on the function of recycling for Xianyu.

It is not easy for second-hand trading platforms to enter the offline market. As a typical asset-heavy model, offline stores face soaring costs in rent, manpower, logistics, platform maintenance, etc., which are all tests for the platforms. In today's fierce competition in the e-commerce red ocean, how to control costs and improve efficiency while increasing touchpoints is a major problem facing second-hand trading platforms.

The founder of Aihuishou once disclosed that the one-time hardware investment for a simple store is 70,000 yuan, and the monthly operating cost is 30,000 yuan. Without considering rent increases and market promotion, the hardware investment for 700 stores will require at least 49 million yuan, and the operating cost will be at least 250 million yuan a year.

At present, Aihuishou's offline stores are divided into three types: self-operated stores, standardized franchise stores and non-standardized franchise stores (stores within stores). The so-called standardized franchise stores refer to stores with the same facade and decoration as directly-operated stores. Consumers cannot tell the difference between them and self-operated stores. It is just that the store lease and investment are operated by social funds.

Non-standardized franchise stores are some stores that operate second-hand goods recycling by themselves. They only share the testing and sales network of Wanwu Xinsheng. At the front of the store, consumers cannot feel much of Aihuishou’s brand image. Self-operated stores and standardized franchise stores are basically concentrated in first- and second-tier cities, while non-standardized franchise stores are distributed in third- and fourth-tier cities.

Last year, Aihuishou made a wave of adjustments to its offline stores and closed many non-standard franchise stores. The outside world speculated that this was because it had not found a good profit model.

Ding Jian believes that from a longer-term perspective, offline stores do not necessarily have to be run by pure platforms, but can be opened and franchised to attract people who are willing to operate. It is reported that Xianyu's current two offline stores are in cooperation with third parties. For more inside information, please add the author's WeChat LW_PLUS for discussion.

At present, Xianyu's first store in Hangzhou has achieved break-even. However, it is a relatively complicated matter to open a store, run the model, and then replicate it on a large scale. Xianyu's recycling store still has a long way to go to replicate on a large scale in the future.

In addition to testing the waters offline, for the second-hand industry, as e-commerce platforms are going global one after another, expanding overseas markets is also a direction worth trying. After all, China has the most advanced e-commerce model, and entering the overseas market is tantamount to a dimensionality reduction attack.

However, compared with new product e-commerce, the overseas expansion of second-hand e-commerce platforms is much more complicated. First of all, as mentioned at the beginning of the article, second-hand e-commerce is a low-frequency business. Without the traffic diversion of platforms such as Taobao and JD.com overseas, the traffic costs of Xianyu and Aihuishou will be very exaggerated.

For Xianyu, which mainly operates on the C2C model, Facebook Marketplace has already assumed its role to a large extent. Many users conduct second-hand transactions on it, and it is not easy for Xianyu to replace it.

For Aihuishou and Zhuanzhuan, which mainly use the C2B2C model and focus on mobile phones, the recycling of second-hand mobile phones overseas is significantly different from that in China. For example, in the United States, mobile phone recycling must be done through operators, which has a higher threshold. In addition, the fulfillment costs overseas are much higher than in China, so this heavy model lacks cost advantages.

In short, Xianyu and other online shopping platforms still have a lot of room to try, but they also face their own challenges. Entering the second decade of second-hand e-commerce, Xianyu needs to turn its talent into strength, while Aihuishou and Zhuanzhuan need to open up greater room for imagination.

The second half of the war in the second-hand e-commerce industry has just begun. This is a slow business that deserves more of our expectations and patience.

Author | Liu Wei Editor | Lin Juemin
This article is written by the author of Operation Party [Leifeng.com], WeChat public account: [Leifeng.com], original/authorized to be published on Operation Party, and any reproduction without permission is prohibited.

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