This article was first published in the April 2016 issue of WIRED magazine. Be the first to read WIRED's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online. For more stories from WIRED's China issue, click here.
Charlwin Mao ("Does that sound like Chairman Mao?") has his own Little Red Book with tens of millions of followers. But this one is a Shanghai-based shopping app that, in just two years, has attracted 15 million consumers and $200m in annual merchandise sales. And already it's raised $120m at a $1bn valuation from investors such as TenCent, ZhenFund, GGV Capital and GSR. That's how fast businesses scale in the newly mobile-connected China.
Little Red Book - XiaoHongShu in Chinese - was launched in January 2014 as an app for people to review merchandise bought overseas. "I saw that Chinese people travelling abroad spent a lot on shopping, so we made an app to help them share their shopping experiences," says Mao, 31, a mechanical engineering student at Shanghai Jiao Tong University who then spent time at Bain Capital and Stanford. "Soon we noticed that some people kept coming back to the app - 17 per cent were opening it six or seven times a day. We realised it was being used by people in China without travel plans. They were buying products from overseas and ordering directly, often with the help of relatives living or studying abroad."
By July 2014, it became clear that customers wanted to buy directly - so Mao's team started doing the sourcing, benefitting from an e-commerce free-trade zone where they built a warehouse. "Dealing directly helps solve the trust issue - our consumers don't need to worry about authenticity or returns, which are at about one per cent. We currently sell cosmetics, mostly from Asia, and nutrition from Australia, and we're looking at fashion, mostly European."
The company behind the app, the Xingyin Information Technology Company, employs 280 people, around half of whom are in commerce, all based in China. And they get the benefit of 200,000 bloggers who post their findings on the site for other users to peruse. "Effectively, we have 50,000 people sourcing from around the world for us," Mao says. "One meaning of 'red' is popular. Based on the products people 'like', we can spot trends and get the popular SKUs [stock-keeping units] faster than the other commerce sites. We're an incubator of word-of-mouth marketing. The people who buy things here are vocal opinion leaders." Eighty per cent of users are under 30 years old and 90 per cent are women, he says. "We've had 15 million downloads, with five million monthly users."
Little Red Book's success is in part due to what Mao learned in Silicon Valley. "One of my classmate's boyfriends founded Instagram, which had 13 staff when Facebook acquired it. It taught me that hiring more people doesn't help - it's about focus, iterating on the core product."
Unlike western social products such as Pinterest and Instagram, Little Red Book has made commerce central to its design. "In China, they get to monetisation much faster than the west," Mao says. "You need to get your hands dirty, as retail is always one click away. We don't ask ourselves if we're a social or a commerce company - we ask 'What does the customer want?'"
So what lessons does he see that European commerce sites can learn from Little Red Book's success? "Chinese companies are more willing to get their hands dirty, even if it's tedious or unpleasant. If the customer wants it, you do it. If the best way to deliver experience is to have direct sourcing, do that. If you have to work with government, do that - we built a government relations team with 20 employees. These are things western companies tend to stay away from. In China, to build a successful business you don't have a choice."
Plus, China knows how to work hard. "Nine-nine-six is our style" - that is, working 9am to 9pm six days a week. "We've worked six days ever since starting the company. Yesterday, I was working with our marketing team, and I asked why our social marketing manager wasn't there at 11pm on a Saturday. Well, we have a big promotion in 35 days..."
This article was originally published by WIRED UK
