Community O2O Model Thrives In China: Who Will Become the Next Alibaba?

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Editor’s note:

In today’s China, community O2O is gradually maturing in the country and forming a market that would possibly outgrow Alibaba’s e-commerce platform Taobao, with an estimated market value of trillions of RMB. Community O2O is apparently drawing attention from millions of ordinary consumers and stakeholders in China. It fits the Silicon Valley’s profile of O2O commerce and also the Internet+ strategy laid out by Li Keqiang,premier of the State Council of China, in the government report.

At present, O2O commerce is penetrating every corner of Chinese communities:

In the morning, housekeepers from Ayibang knock on the appointed family’s door to make breakfast, clean the house and take the kids to school. The clients then will book a taxi via taxi-hailing app, Didi Taxi, to get to their workplace.

At noon, housewives probably feel reluctant to prepare lunch all by themselves, so they just order meals on Baidu Takeout. Laundry services are also available on Edaixi, housewives are then free from the trouble of washing clothes and curtains as well. Domestic appliances that need fixing can also get repairing services via easy-to-fix services provided by Color Life Services Group, a platform that can send professional technicians to fix appliances for its clients.

At dusk, fresh and cheap fruits from Farmlink will arrive at the front door, and chefs from Idachu will make a fancy dinner for the whole family.

At night, kids will have piano classes with teachers found in 58daojia. Girls can get their nails done by making appointments with nail specialists on Helijia. Couples can book movie tickets beforehand on Meituan Maoyan, and leave home for the movies without having to wait behind the long queues at the cinema.

This is the lifestyle community O2O is bringing to China. Community O2O has great potential to beat Taobao and become the largest market that’s worth trillions of RMB in China.

1. B2F (Business to Family) is what community O2O really is.

Community O2O model is extremely well received in China. It fits the Silicon Valley’s profile of O2O commerce and also the Internet+ strategy laid out by Li Keqiang,premier of the State Council of China, in the government report.

O2O stands for offline-to-online and online-to-offline retailing strategy. With balance, it integrates the Internet and bricks-and-mortar stores through a combination of the online and the offline - mobile Internet, cloud computing, big data, and Internet of things are all part of the O2O system. Lei Jun, founder of Xiaomi, considers O2O as a new form of economy while Yu Yang, president and CEO of Analysis International,even stated that Internet + strategy is almost like an integrated version of America’s National Information Infrastructure plan.

According to McKinsey’s iConsumer China 2015 survey, there’s a growing appetite for O2O services in China nowadays. The findings showed that Chinese digital consumers, already among the most advanced in the world, are embracing and demanding more innovative online shopping experiences. McKinsey’s research also showed that 71% of iConsumers in China are currently using O2O services, among which 97% of them will continue to use such services or even use them more frequently in the following 6 months. As for those who haven’t tried O2O services out before, 1/3 commented that they would have a try in the following 6 months.

Traditional e-commerce giants such as Taobao and JD are based on B2C model. They connect businesses and consumers through Internet technology and transform retail businesses. After 15 years of development, B2C business model has helped Taobao and JD build a market that’s worth trillions of RMB. Traditional industries are also making their transition from pure manufacturers to service-providers, from offline to online, and from entity economy to finance. Enterprises are looking for business explosion opportunities in this Internet era so as to keep growing and expanding.

O2O is regarded as the newest trend that will change the e-commerce structure in China, and consumers’ enthusiasm towards O2O is also burning like never before. Wang Xing, CEO of Meituan, also thinks that although the service industry doesn't have inventories like retailing businesses do, its operation period is relatively short but complex. In this case, Internet technology will no doubt provide a complete makeover to the service industry, even more thorough than what e-commerce has achieved in the retailing business sector.

Community O2O, which is designed to provide local services, is actually based on B2F (Business to Family) model. By utilizing the merits brought by mobile Internet, B2F is infiltrating or even changing family life. It shows great vitality in terms of gathering information, commodity transaction, providing services, and social interaction. It’s obvious that community O2O, or B2F business, will be the next essential battleground for Internet giants in China.

2. Transition from online entry to offline entry

The rapid development of Internet technology has brought us a world that only existed in our dreams one year ago. It’s really happening.

Community O2O model has three major features:

One thing is that the wide spread of mobile devices are blurring the frontiers between online and offline, integrating both into different industries and making it extremely easy for users to use O2O services: from making reservations to purchase, everything can be done via a cellphone, even children and elderlies who don’t really know how to operate a computer can use a smart phone pretty well. This is the important merit brought by mobile Internet.

Secondly, LBS (location based service) based closed-loop operation greatly boosts user experiences. Users’ demands can mostly get quick responses from service providers near their communities thanks to this technology. After completing the services, the loop will be closed. This is the core feature of local services.

Thirdly, just like how e-commerce businesses in China rely on Taobao, information gathering can’t be achieved without Baidu’s search engine. The backbone of community O2O is pretty obvious - offline property management services - which could be the potential entry point for offline services in the future. It is fair to say that a community platform is based on offline property management services.

Closed-loop services, fast transaction, high transforming rate, and the merging of online and offline are the core features that e-commerce companies were craving for back in the PC era. In today’s mobile Internet era, there is a new trend: more and more local services are becoming available on community O2O platforms.

“O2O business will eventually replace traditional e-commerce business. Companies that fail to build their own O2O business will not last long in the market,” said Jack Ma, founder and incumbent chairman of Alibaba group.

The industry leaders have their own thinking and are quite right in many aspects. But there’s one thing I want to single out: service entry is a user concept, not a product concept. The key to becoming a service entry is not about how frequent your product is being used, but determined by users’ habits and their awareness of the product.

For instance, when users want to browse through portals, Sina will be the entry point. And for those who want to contact their friends online, the entry point will be QQ. If users feel like reading tabloid news below the search bar, Baidu becomes the entry point. For those who need to find restaurants for dinner right away, every offline service is the potential entry point.

3. Online to offline VS Offline to online

Internet giants such as BAT (Baidu, Alibaba and Tencent) share the similar structure that goes from online to offline and from complexity to simplicity, which is exactly the Internet O2O model. However, community O2O requires a quite opposite approach.

Taobao’s online to offline business model in a way reflects the company’s innovative thinking. As for community O2O model, an alternative is needed.

Take those big communities in Beijing and Shanghai as examples, the total population of one community is almost the same as a small city in the US or Europe. These communities are just like small cities, and they surely run like cities. They can provide equivalent services and management, and possess great market potentials that are hard to come by. Demands for basic necessities, entertainments, health and financial services are growing rather fast among these communities. We are literally unleashing small but lucrative and untouched markets that can offer immeasurable long-term commercial values here.

Such new community O2O products are hard to find in the Silicon Valley, let alone finding examples to copy from. They will very likely become a revolutionary commercial form in China - the Internet + local services. The core of community O2O is not B2C, but B2F. It’s not really about online to offline, but offline to online, namely the reversed O2O model. Property management services will be the entry point for users, and communities will become business ecosystems that might nurture future industry heavyweights and market opportunities.

In June 2014, Color Life Services Group, a local services operator that had already served over 2 million families, became listed in Hong Kong. It soon became the largest property service company in China. Currently, Color Life Services Group is experimenting to transit from a traditional property management company to a company that can provide local and family services empowered by Internet technology. Judging from the current performance of the capital market, it is obvious that both the investment community and Internet industry are giving high credits to Color Life Services Group.

Great investments have been flocking to community O2O in China. Statistics show that the community O2O industry has received over 30 billion RMB of investments last year.

4. The prevalent 3C model of community O2O

Like sharks swarming to their prey, industry giants are responding instinctively to the rapidly growing market. To win the competition, they unleash the ultimate weapon of using subsidies to effectively help secure market share.

In terms of applications and models, there are three prevalent genres in community O2O: Content, Community, and Commerce, i.e. 3C.

Companies are transforming from content-focused to service-focused. For example, 58TONGCHENG has transformed to 58DAOJIA. 58DAOJIA took a great step forward by jumping out of the semi closed-loop and information-based framework created by 58TONGCHENG. It no longer dedicates itself to connecting people with information, but aims to connect people with services and other people instead, which eventually makes achieves closed-loop come trueoperation. Yao Jingbo stated that this connection is more profound, providing 58DAOJIA with more potentials to grow than 58TONGCHENG.

Community-based local services are thriving right now. Thanks to the already matured local services in the US, Nextdoor was able to fill the gap between neighbors through online social networking. EventuallyAs a result, people now are able to socialize with their neighbors offline through its services.

Many Chinese alternatives to Nextdoor (such as DingDong) keep going on about concepts like “social networking”, “O2O” and “connection in daily life”, and which ultimately helped them eventually received an unprecedented popularity in the capital market. However, it remains unknown who would prevail among all after this fad fades away. The community ecosystem in China is very different from that of the US, just simply copying an overseas product will certainly devastate the product in the long run. In my humble opinion, it’s products that were copied from overseas are very unlikely to have a promising future.

Using commerce as the entry point to expand, which I have mentioned in the beginning of this article, is the exact O2O model that’s most likely to succeed. Besides Baidu, Tencent and Alibaba, other traditional industry giants are also marching forward and making great investments to achieve their plans. In 2014, the express industry giant S.F. Express officially launched Heike, making the first attempt to seek innovations and explore other industries. Many traditional companies which that are preoccupied by the Internet thinking are making similar attempts.

Another prevalent 3C genre is to include content, commerce and community all in one that brings forth an ecosystem-like connector. Color Life Service Group is the very example. It’s close to its users and can gain their trust easily. It also connects different family service providers and apps with the users, eventually creating a successful platform for both service providers and users.

There is no clear sign whether this will turn out as a bloody winner-gets-all battle or a win-win resolution.

Just like what Jack Ma said before: “if you are going to the right direction, you don't have to worry about how long it will take you to reaich there.”

5. Who will become the next Alibaba?Who will be the leading force in community O2O?

Community O2O is a revolutionary and new business model that connects families with business services.

If one particular enterprise can become the connector (like what Ma Huateng prescribed for WeChat), it would possess an O2O market that’s worth trillions of RMB. At present, it seems that taking control of the offline property management team will be the best move.

Property management service is key to Chinese communities, and it’s a key factor that companies should take into consideration. The connection with property management services can attract and keep more users, for the fact that users spend more of their time within their communities than in the office or during business trips.

Secondly, different from the virtual qualities of traditional Internet companies, offline based local services have more special applications and interactions than those online. For Internet finance, which happens to reply heavily on trust and physical property, offline resources are likely the more important advantages. Some might ask whether finance communities like LendingClub and Wells Fargo would appear in China. Well, for me, tangible offline entries are more convenient, they would definitely be the main targets for future competition among Internet finance companies.

Thirdly, offline service platforms are more open than online platforms, the business ecosystem is also healthier. For instance, Color Life Services Group’s parent company, FANTASIA, only takes up 3% of the services that are provided in its communities. Once an open business ecosystem that integrates content, community and commerce is successfully built, the platform could probably outperform Alibaba’s Alipay-based ecosystem when it comes to attracting upstream and downstream firms and gathering big data for tangible households. It’s more substantial, healthier, and more valuable.

A lot of industry giants have been eyeing on community O2O for a long time, such as the leading figure in real estate industry, Vanke. It first brought forward the operating model of “simple asset” back in 2014, claiming to enter the field of community O2O soon.

The war has just begun.

(Chinese Version)

(The article is published and edited with authorization from the author @Wang Guanxiong, please note source and hyperlink when reproduce.)

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