E-commerce Profits May Become Harder To Make

THE E-COMMERCE company that retailers talk about most these days is neither Amazon, the American juggernaut, nor Alibaba, China’s biggest. It is Pinduoduo (PDD), a Chinese firm that started in 2015 as an online food supplier, but whose success has driven its market value above $200bn. Last year it was China’s fastest-growing internet stock, rising by 330%.

PDD attracts attention for two reasons. One is its business model. David Liu, vice-president of strategy, explains that it has ridden the rise of smartphone penetration in China to create an e-commerce experience in which people club together to buy products from robot vacuum-cleaners to bananas.

During the pandemic this has expanded into a fast-growing business across thousands of towns and villages, in which PDD’s users gather to bid for shipments of local farm produce at bargain prices. Some term this “community group-buy”. Mr Liu calls it “interactive commerce”. It is one of the hottest parts of the Chinese internet.

The second is the way PDD has shattered the myth of an impregnable fortress surrounding the titans of online shopping. Until a few years ago, China’s e-commerce market seemed a two-way contest between Alibaba and JD.com, a rival platform.

No longer. Elinor Leung of CLSA, a brokerage, expects PDD’s share of online retail in China to overtake that of JD in 2021. She expects the number of users to surpass Alibaba. And although PDD shells out huge subsidies to entice customers from poorer parts of China to its app, she thinks it may turn profitable this year.

Remarkably, it has done this less by displacing its bigger rivals than by tapping parts of the market they have been unable to reach. Although online sales of groceries have rocketed during the pandemic, less than a tenth of the 8.1trn yuan ($1.25trn) farm-produce market is bought and sold digitally.

“We are continuing to grow the pie,” says Mr Liu. That lesson applies elsewhere too. However sewn up a market looks, there is opportunity for upstarts because e-commerce is at an early stage of development.

The issue of competition in China has convulsed share prices because of the actions of antitrust authorities. In November 2020 the State Administration for Market Regulation published draft guidelines for platform companies aimed at maintaining orderly competition. In December enforcement of the 2008 antitrust law was strengthened, leading to new investigations and fines.

These have included scrutiny of mergers and acquisitions, community group-buy schemes, price-discounting and discrimination against competitors. Ms Leung wrote in January that the chance of a forced break-up of Chinese internet platforms is remote, because of its impact on industry, the economy and consumers. But she expects more regulation, especially over customer data.

Robin Zhu of Bernstein says the crackdown means tech platforms may have to restrain aggressive sales practices such as selling goods at huge discounts. That may reduce growth, but jobs and innovation plus their support for consumer spending argue in their favour. Alibaba seems the biggest target, but PDD has also drawn fire.

Alibaba is flying “closest to the sun”, Mr Zhu suggests, partly because of heat on its sister company, Ant Group. But he says up to a fifth of China’s retail sales flow through its doors. Chinese regulators stress their support for the platform economy, he notes, so a crackdown is unlikely to be devastating.

The rampant competition in China’s retail market suggests no platform, however large, can expect fully to dominate it. Alongside PDD, Alibaba, JD and Meituan, a food-delivery firm, all target China’s lower-tier cities with community group-buy and other schemes. Alibaba’s Taobao Live platform has led the growth of live-streaming and video, in which influencers sell branded goods at huge discounts.

But the explosive live-streaming market has attracted vigorous competitors, such as Douyin, sister to TikTok, a global social-media app. WeChat, part of a super-app owned by Alibaba’s rival Tencent, allows brands to sell on its site, and gives customers instant access to digital payments.

Everyone is jostling for a share of online advertising. This is especially true in live-streaming, where it is easy to measure the bang for an advertiser’s buck through real-time data, says Michael Jais of Launchmetrics, a fashion-and-beauty analytics company.

In Europe and America, by contrast, the view is that the game has been won by Amazon. The gap between Amazon’s e-commerce market share in America and that of Walmart, the next in line, is far bigger than Alibaba’s lead over the number two in China.

Though Bernstein’s Mark Shmulik reckons Amazon earns little profit on its core retail business, its fast-growing cloud and online-advertising arms generate huge margins that it can plough back into retail expansion.

It had $42bn of cash on its balance-sheet at the end of 2020. Marc-André Kamel of Bain, a consultancy, says Amazon may spend $100bn more on information technology over the next five years than each of the world’s top ten traditional retailers. It will also continue to invest heavily in logistics, putting more pressure on the likes of UPS and FedEx.

Like Alibaba in China, Amazon has drawn regulatory heat. In October 2020 a congressional committee in America said it was looking at overhauling antitrust laws to counter the power of the big tech platforms. It drew attention to the dominance that Amazon has over third-party sellers on its marketplace, and its practice of selling its own goods in competition with them.

In November the European Commission accused Amazon of violating competition laws by using non-public data from third-party sellers to benefit its own retail business.

Amazon says none of this is true. Although it stands tall online in America, by total sales Walmart is larger. Amazon dominates categories like books, but in groceries it is one of many. Trustbusters may have their eye on how it sells products on its website to compete with those sold by third parties, but this is little different from big retailers selling own-label products.

Amazon also has political capital. Brian Nowak of Morgan Stanley says the jobs it provides, its support for small and medium-sized firms, and its technological prowess may all work in its favour.

The recent decision by Jeff Bezos, Amazon’s founder, to hand the chief executive job to Andy Jassy will not end the regulatory fire. But if the pressure rises, it could spin out Amazon Web Services, the world’s biggest cloud-computing company. As in China, as long as the pie is growing, new challengers may emerge.

Some will come from big tech. Many online retailers pay Facebook and Google for their products to be found via search. Online advertising remains the strongest part of their businesses, but Facebook and Google are adding sales channels. Facebook has 160m small firms on its site. In 2020 it let them set up a single online store on its app and on Instagram, its sister platform. Last year Google scrapped commissions for retailers selling directly from its site.

Another source of competition will come from changes in online shopping. Smartphones may overtake personal computers in America and Europe for e-commerce. That will boost the popularity of “social commerce”, or commerce via social media and video. TikTok, a medium for promoting brand awareness, may let its most popular celebrities market products on its site, according to the Financial Times.

The battle will extend to logistics and payment services. In America Amazon delivers more of its own parcels than the US Postal Service. But rivals like Walmart are developing subscription services like Amazon Prime that offer free delivery and other perks.

Tax is another threat. In both East and West, tax authorities have their eye on the digital giants. In 2020 Amazon saw a big increase in its tax liability, yet the administration of Joe Biden is considering imposing higher taxes on America’s most profitable companies.

European governments are levying digital-services taxes on tech firms in an effort to force them to pay more where their consumers are located. Some have drawn attention to the low business rates that e-commerce platforms pay on out-of-town warehouses, compared with those of retailers on the high street. Even China plans to raise taxes on its biggest tech firms.

Ultimately, higher taxes, greater regulatory scrutiny and rising competition may make profits in e-commerce harder to come by. But even if they end up regulated like utilities, few will shed a tear. The e-commerce giants have had a fabulous run so far.

Source: E-commerce profits may become harder to make | The Economist


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Why Fears Of A ‘Government Crackdown’ On Bitcoin Are Overrated

A consistent thread about bitcoin has been that if it succeeds, it will inevitably invite government legislation and regulation to shut it down. This has been a backhanded critique of sorts advanced by investors like Ray Dalio who are “on bitcoin’s side”, but worry about its success attracting the attention of the state powers that be.

This isn’t an altogether surprising or irrational fear. We live centuries after the establishment of the nation-state as all-powerful welfare state, military, and taxation hub. It’s clear that state powers are often only reined in by “political” constraints (rather than physical or technical ones). Could governments shut down bitcoin if they wanted to?

This is probably a lot harder than one might think. Bitcoin is somewhat resilient to government crackdowns because of its origin, and the way the network is built. While states, if focused enough, could probably inflict some damage to bitcoin if it was a central state objective across the board, there are many factors for why a “government crackdown” on bitcoin is overrated for destroying the network.

1- It requires large-scale coordination among many different multilateral bodies and states

Since bitcoin is internationalized, it would require consent and coordination among almost every nation-state in order to effectively crack down on bitcoin. While the major world powers (such as the United States and China) have a bloc-like effect, and whereas there has been more coordination (often US-led) on issues such as climate change and corporate tax rates, when you look at issues as diverse as COVID-19 and the tit-for-tats of “strategic rivals” and Olympic boycotts — it is still difficult to see countries focusing on bitcoin in unison.

Large-scale coordination would be required to shut down the network in any meaningful way: otherwise, people could transact and support the bitcoin network in other nations or even in space. A slow nation-by-nation ban can affect the network: at an extreme, an unlikely state-led ban in the United States might choke off bitcoin from American-led financial systems and markets with near-total global reach. Yet, so long as bitcoin was trans-actable across other states, a “global ban” could not be accomplished nor a “government crackdown”.

2- There is no central node that states can really pressure

One of the most unique points about bitcoin is that there is no central leader figure to pin down. Satoshi’s disappearance, and Hal Finney’s untimely death, have led to a situation where there isn’t a “company CEO” or some other central leader to go after. While there are pressure points nation-states can use to pursue their objectives (for example, physical concentration of miners, key technical contributors still constrained by borders), there isn’t a central one, but rather a set of diffused ones.

We saw this when the Chinese state banned bitcoin mining in its territory: did that spell the end of bitcoin? No: miners simply shifted their equipment elsewhere, and within a few months, hash rate was as high if not higher than what it was before.

States are not used to dealing with organizations like this: they are used to dealing with multinational corporations to a certain extent, but there are usually a set of central pressure points and leadership that a state can lean on to get that corporation to adhere to certain rules and regulations. That, due to bitcoin’s unique creation story, is very unlikely to happen with any attacks on the bitcoin network.

3- Code is speech

In the United States, code is regarded as “protected” speech — software source code which powers bitcoin is protected by the First Amendment. In order to attack the distribution of code that powers bitcoin, countries like the United States would have to fundamentally change themselves and subvert long-held covenants of limited powers and the rule of law. This is not impossible (bitcoin, over a decades and even centuries long time horizon is a bet that (some) technical constraints are better than purely political ones for maintaining rule of law) but would be very out of character, and probably politically untenable.

4- States can be induced by bitcoin for commercial and other reasons

The Internet may never have been encrypted at all — export controls were initially placed on encryption, and commercial uses were seen skeptically. However, states partially relented when the commercial possibility of the Internet became clear. Now encryption powers communications as well as online banking and e-commerce sales.

This is not something states like: the Five Eyes and allied countries want to subvert end-to-end encryption and authoritarian states like the Chinese state either have backdoors or other mechanisms to promote social control. Yet it shows that, when faced with something that might threaten national security, the need for states to show GDP outcomes and to deliver wealth to their peoples might override their preferences in other areas.

As more and more countries adapt bitcoin in some fashion, this pressure will become larger until perhaps one day, we might see a bitcoin-friendly bloc of nations emerge similar to the Cairns Group for agriculture. Some will find that their domestic power-generation is more efficiently parsed through open-source bitcoin rather than supporting the fractional reserves of other countries. The more states are turned over to supporting the bitcoin network, the harder it will be for other states to attack it.

5- Bitcoin’s threat model has long included state-level powers

The way bitcoin is implemented makes it (more) prohibitive for any centralized collection of computers to disrupt the system. With more than 170,000 PH/s of hash rate securing the system (as of the date of writing) from a coordinated 51% attack (where an attacker could take over the system and propogate invalid spends in order to down the system for legitimate users, or to benefit monetarily from it), a projected security budget of around $45-60mn a day, and enough stakeholders .

(From investors, code contributors, analytics firms, miners and businesses — and now governments — that accept bitcoin) who have placed their financial livelihoods on monitoring the chain such that bitcoin could be secure beyond its fundamental dynamics — bitcoin is large enough to warrant significant resources for any attack, resources that wouldn’t be available for just any nation-state, and which would have to be continually deployed in a way that would make it hard to obscure who the attacker was.

We live in a heady time where “magic Internet money” has suddenly become the concern of Clausewitz readers around the world. As bitcoin grows more prominent, the possibility that it attracts state powers to disrupt or fully coopt it grows — yet those who play some part in the network, either from investing, transacting or supporting its infrastructure, can rest assured that the system has some inherent properties that make it more resilient than you might expect to even the strongest of attacks.

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I was one of the first writers in 2014 to write about the intersection of cryptocurrencies in remittance payments and drug policy with VentureBeat and TechCrunch.

Source: Why Fears Of A ‘Government Crackdown’ On Bitcoin Are Overrated


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Alibaba Stock Keeps Falling, Sending Jack Ma’s Net Worth Down $30 Billion In A Year

Shares of tech giant Alibaba continued to fall on Friday, adding to the stock’s massive selloff after the company said earlier this week that it expects weaker revenue growth amid China’s slowing economy and Beijing’s ongoing regulatory crackdown.

Key Facts

The tech and e-commerce giant reported disappointing quarterly earnings late on Wednesday and slashed its revenue forecasts for the year ahead.

Alibaba shares plunged over 11% on Thursday following the report—one of the stock’s largest single-day declines on record—and is down more than 2% so far on Friday.

The stock’s downward trajectory has shaved billions off of the net worth of Alibaba founder and chairman, Jack Ma, who was once China’s richest person.

Ma’s fortune fell by another $350 million on Friday, bringing his net worth to $38.6 billion, according to Forbes’ estimates.

The billionaire’s wealth is down dramatically from its peak: Ma was worth as much as $66.6 billion when Alibaba’s stock price hit a record high of around $317 per share on October 27, 2020.

It has been a difficult year for the Chinese billionaire, who is also the cofounder of fintech giant Ant Group: Ma has largely kept a low public profile since Beijing’s regulatory crackdown heated up last year.

Key Background:

Since last year, the Chinese government has ramped up its regulatory scrutiny of major tech giants in the country—including Alibaba and its peers Tencent, Baidu and TikTok owner ByteDance, accusing them of anticompetitive practices and gathering large amounts of private user data. Billionaire Jack Ma briefly disappeared from public view after Chinese regulators shut down his fintech company Ant Group’s planned $35 billion IPO in November 2020.

Government regulators then fined Alibaba $2.8 billion in April 2021—the highest-ever antitrust penalty imposed in China—for acting like a monopoly. Shares of Alibaba are down nearly 40% so far this year.

What To Watch For:

In its earnings release, the tech giant warned of a “regulatory environment that [could] affect Alibaba’s business operations” as well as “privacy and data protection regulations and concerns.”

Crucial Quote:

Chinese president Xi Jinping “has not backed down” when it comes to the regulatory crackdown, John Freeman, vice president of equity research at CFRA, recently told Yahoo Finance. “There’s actually a delisting risk” when it comes to Alibaba shares, he warns.

Further Reading:

Alibaba Founder Jack Ma Reportedly Resurfaces In Hong Kong (Forbes)

Here’s Why Investors Should Take Another Look At China, According To This Asset Manager (Forbes)

Here’s What Investors Are Most Worried About—Including Meme Stocks And China Real Estate—According To Fed Report (Forbes)

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I am a New York-based reporter covering billionaires and their wealth for Forbes. Previously, I worked on the breaking news team at Forbes covering money and markets.

Source: Alibaba Stock Keeps Falling, Sending Jack Ma’s Net Worth Down $30 Billion In A Year


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Hundreds Of Billions Lost As Major Cryptocurrencies Including Bitcoin, Ethereum, Solana, Cardano Tumble In Crypto Crash

Hundreds of billions has been wiped from the cryptocurrency market Tuesday amid a market-wide crash that has seen the prices of major cryptocurrencies—including bitcoin, ethereum, cardano and solana—plummet and fall sharply from near record highs this week.

The price of bitcoin plummeted to around $60,500 Tuesday morning, down 8% from 24 hours before, according to CoinGecko.

Most major tokens—including ethereum, XRP, cardano, solana and dogecoin—experienced similarly steep drops over the last 24 hours, falling between 7% and 10%.

Of the four most valuable cryptocurrencies by market capitalization—excluding the biggest, bitcoin, and tether, a stablecoin pegged to USD—ether fell 9.6% to around $4,300, Binance’s BNB 8.9% to $590, solana 7.5% to $225 and cardano 9% to $1.90.

XRP, polkadot, dogecoin and shiba inu coin—the next largest cryptocurrencies by market cap, excluding another stablecoin, USD Coin—fell 9.3%, 12.4%, 8.8% and 6%, respectively.

The losses come as part of a wider rout in the cryptocurrency market, which is now worth some $2.76 trillion, according to CoinGecko, down 8.6% from the day before.

The crash comes less than a week after bitcoin hit a new record high, jumping just above $69,000. This came as part of a wider rally following a market crash earlier this year, a response to an intensifying regulatory crackdown in China and growing concerns over bitcoin’s environmental impact.

The crash wiped many of the gains made throughout the pandemic, when the volatile market thrived due to numerous factors including an influx of retail investors, more options to trade digital currencies and the popularity of meme stocks and tokens driven by online forums on sites like Reddit and celebrity endorsement.

It’s not clear why the cryptocurrency market is crashing, though there are several factors that could contribute. Chinese authorities renewed efforts to crackdown on cryptocurrency mining Tuesday, slamming the energy consumption and carbon footprint of the process. China’s earlier crackdown on mining saw cryptocurrency miners flee the country en masse, many of whom landed in the U.S. Another possible reason could be responses to President Joe Biden’s infrastructure bill, which includes provisions for potentially regulating and taxing cryptocurrency.

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I am a London-based reporter for Forbes covering breaking news. Previously, I have worked as a reporter for a specialist legal publication covering big data

Source: Hundreds Of Billions Lost As Major Cryptocurrencies—Including Bitcoin, Ethereum, Solana, Cardano—Tumble In Crypto Crash


More Contents:

Bitcoin Hits First Record High In More Than Six Months After Historic Fund Debut (Forbes)

Elon Musk Shows How Crypto May Start Ruining Stock Traders’ Weekends (Bloomberg)

U.S. Claims Top Spot For Bitcoin Mining As Miners Flee China Crackdown — Here Are The World’s Biggest Mining Hubs (Forbes)

Costelloe, Kevin (November 29, 2017). “Bitcoin ‘Ought to

“Central banker takes stab at bitcoin ‘bubble

Silcoff, Sean (February 13, 2018). “OMERS-affiliated Ethereum Capital offering pinched, but not pulled, following choppy markets and cryptocrash”. The Globe and Mail. The Woodbridge Company.

China Leaps Ahead in Effort to Rein In Algorithms

Beijing is building a system to ensure that the automated processes of Internet platforms are fair, transparent and in line with the ideology of the Communist Party

Regulators called for the algorithms to be fair and transparent, following the ideology of the Communist Party of China.

The campaign puts China one step ahead in policing tech forums, as governments around the world grapple with how to respond to automated technologies that reshape business, social interactions and politics.

Earlier this year, the European Union proposed restricting certain uses of artificial intelligence to reduce potential harm. In the US, lawmakers are investigating Facebook’s influence Inc. NS

Algorithm-driven content on users, after Businesshala reported that the company’s Instagram app has a negative impact on children’s mental health.

China has targeted algorithms more aggressively under the close watch of its domestic tech sector. Draft guidelines released this summer would require algorithms to protect the rights of workers and consumers, and restrict the use of algorithms to manipulate user accounts, online traffic or search results.

“We don’t necessarily see China as a regulatory innovator, but in this case they are,” said Rogier Creamers, an assistant professor at Leiden University in the Netherlands, which focuses on Chinese technical policy.

Under a three-year plan released last week, Chinese regulators outlined steps to monitor algorithms, including a registration process and the establishment of a technical team to evaluate the mechanisms and risks of an algorithm.

The latest campaign builds on a broad regulatory push in China’s tech sector that has prompted investigations into some of the country’s biggest companies, including e-commerce giant Alibaba Group Holding. Ltd.

The push is partly directed at business practices that regulators deem harmful so workers or consumers.

Companies such as Meituan and Didi have faced heat over the working conditions of drivers, as well as calls for creating algorithms that schedule workers’ tasks and pay more transparently. Officials have also warned tech companies this year against exploiting personal data and using algorithms to charge discriminatory prices from customers.

China’s Cyberspace Administration, Alibaba and Didi did not respond to requests for comment. China is currently celebrating its National Day holiday.

Meituan declined to comment. The company previously published an explanation of its delivery algorithm and said it is making changes to give delivery drivers more flexibility.

Experts said it would be a challenge for regulators to tighten controls on algorithms without hindering development or innovation in one of China’s most successful sectors. Internet companies rely on complex mathematical instructions for tasks ranging from analysis of social-media behavior to mapping optimal distribution routes.

While algorithms have contributed to technological advancement and societal development, the CAC said in last week’s announcement, they have also brought “challenges to ideological security, a fair and equal society, and the protection of the legal rights of Internet users.”

Beijing-based partner at law firm Bird & Bird, James Gong, said tighter regulatory oversight of algorithms is likely to impact China’s internet industry.

Mr. Gong said of the country’s Internet companies, “Almost all of them use algorithms and automated decision-making and profiling to ensure that their marketing is more accurate and to improve business efficiency and increase profits.” Is.”

A senior manager at ByteDance Ltd said the requirement to register the algorithm would only add a step, restricting the learning of user behavior and recommendation services, as well as requiring disclosure of proprietary technology that could hurt the company’s business. .

ByteDance, which owns social-media sensation TikTok and its Chinese sister app Douyin, is known for its powerful algorithms that drive user recommendations and content.

“The regulatory environment is clear, and we need to start thinking about how to adjust accordingly,” the ByteDance manager said. He said that since most of the new regulation is still under debate, it is difficult to say what the immediate commercial impact will be.

ByteDance did not respond to a request for comment.

Sam Sachs, senior fellow at Yale Law School’s Paul Tsai China Center, said China’s approach could appeal to other countries that want a thriving digital economy while maintaining a firm grip on political and social discourse. However, she said there is still a lot of uncertainty over the details and enforcement of these new rules.

“I think they understand that this is an impossible task that they have set for themselves,” Ms Sachs said. “I would also say that three years can be ambitious.”

The CAC guidelines also state that algorithms used by Chinese companies must uphold core socialist values ​​and promote “positive energy” in content provided to users.

China is taking more control of online content and communities. In recent months, it has severely restricted online-videogame time for players under the age of 18, banned pop-idol rankings and criticized online male personalities for being too sacrilegious. are visible.

“It’s almost taking online censorship up a notch,” Ms Sachs said. “It is saying that you have an obligation to ensure that any content that is algorithmically driven that you feed into the online space is to shape socialist values.”

By: Stephanie Yang, Reporter, The Wall Street Journal

Source: China Leaps Ahead in Effort to Rein In Algorithms


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