Many people who have just entered the Internet may be surprised that JD.COM is still in a state of net loss, and the net loss has increased by 5 1% compared with last year. Does this mean that the management level in JD.COM is very poor?
Some media even commented that JD.COM didn't know whether he was digging a gold mine or a grave, and said with emotion that "standing high may not go far, but he can really fall hard". It seems that Liu is not only the richest man who can enter the top 10 in China in some rankings, but also the boss of a company that has sustained huge losses, and is often regarded as a "stupid" unlucky guy by many people.
See JD. I think Liu is an unlucky boy, who is estimated to lack the knowledge of corporate finance and finance, and also lacks the knowledge of internet corporate logic. JD.COM went public in the United States after several rounds of huge financing. I believe that those investors and those who buy JD.COM shares in the stock market are not fools, but financiers who are good at calculation. The reason why they dare to play with JD.COM Mall, which is losing more and more money, and give a valuation of $30-40 billion is because they are optimistic about the day when JD.COM will make a lot of money.
1, behind the loss
The reaction of the capital market gives the answer. After the release of this financial report, the stock price soared by 1 1.3%, indicating that Wall Street is very satisfied with the operation of JD.COM, a fortune 500 company.
The number of tens of billions may not be obvious to many people, but it may be clearer if it is averaged every day. The GMV of 86.8 billion per quarter means that the daily commodity sales in JD.COM is as high as 960 million, and 4.4 million orders are added every day, which is quite a big number!
At present, the average amount per order is 2 17 yuan. If each order earns more money from 2 yuan, which is equivalent to the average price increase of 1%, JD.COM can make a direct profit, but why not? Why is Wall Street so enthusiastic about JD.COM even though it is unprofitable?
First of all, JD.COM has gross profit.
For the single products they sell, they are basically sold above the purchase price, so there will be gross profit, but the company's operating costs, logistics construction costs, marketing costs and so on. Will eventually become a state of loss.
Followed by JD. COM's losses are deliberately controlled within a certain range.
Compared with JD. Judging from the assets and valuation of COM, the loss is only a very small part. JD.COM has always kept its losses within a reasonable and acceptable range, which will not have any adverse impact on the business operation.
Most importantly, the low profit rate has promoted the rapid growth of JD.COM.
In view of this, explain in detail why such a development strategy should be formulated.
In economics, there is a chart about prices and users. When the price goes up, the number of users who buy will decrease, and when the price goes down, the number of users who buy will increase. Therefore, in economics, we often look for the point of profit maximization, at which the company's total profit can be maximized.
But what JD.COM pursues is not the balance point of profit maximization on this curve, but the maximization of user growth under the condition of controllable loss cost.
Generally speaking, it is to attract more users to buy goods from JD.COM at lower prices.
In e-commerce products, especially on mass market platforms, price will be an important factor affecting users' decision-making. The cheaper the price, the more users will participate in shopping in JD.COM.
2. Benefits brought by low profit to users
There are many benefits for JD.COM to accumulate more users and sales. COM:
A. Greater sales will greatly reduce the average distribution cost of goods.
It can be understood that the cost of 1 unit sending 10 is far less than that of 5-unit sending 10. For third-and fourth-tier cities and even rural areas, this cost reduction is more significant. You can imagine how high the cost will be if there is only one order a week in a town and the courier makes a special trip to deliver the courier.
B) Higher sales volume makes JD.COM's purchasing cost lower and the checkout cycle longer.
JD。 The traffic of COM has increased, and it has become an important channel for many businesses to sell their products. Therefore, JD.COM has a great say in the price negotiation, further consolidating its advantages. The purchase price of some goods in JD.COM is not only lower than that of offline stores, but also lower than that of Taobao stores, which makes them more competitive.
Many goods in JD.COM are sold out before they are settled with the merchants. A long checkout cycle can greatly improve the working cash of the group's reserves, which is also a very important competitiveness.
C. More sales have improved the company's valuation.
The huge traffic and users' buying habits have become a good competitive barrier in JD.COM, which has raised the company's valuation and enabled JD.COM to sell the same shares when financing, which can further promote the establishment of a better moat.
From this perspective, JD. COM's development strategy is very correct, realizing the rapid expansion of users through controllable low cost, rather than being busy realizing profits.
3. Do different things at different stages.
JD.COM is still in the stage where users are still growing rapidly. If it corresponds to the product life cycle, where is JD.COM at present?
At present, JD.COM is still in the growth stage. Recently, it is expanding to the fourth-and fifth-tier cities and rural areas, and users and transactions are still in a period of rapid expansion.
As mentioned in the previous article, the main goal of the seed stage is to verify the business model, the growth stage is to rapidly increase users, and the maturity stage is the most important period for realizing.
Of course, what needs to be explained here is that the realization we are talking about here means that enterprises start charging with the goal of achieving profitability. In other words, it doesn't mean that the enterprise begins to realize.
For example, you have to collect money by taking the Didi special car, but for a long time, Didi Company did not make money or even post money. It can't be said that Didi taxi asking for money has begun to come true, because there is no profit at this stage. When Didi began to charge the driver a higher commission, it can be considered that Didi began to realize it.
What if it is realized in advance before maturity?
A. realizing in the growth period will slow down the growth of users and be easily surpassed by competitors.
B. realizing in the seed stage and overdrawing the accumulated user value is tantamount to killing the goose that lays the golden egg.
To sum up, the period that should be realized most should be the maturity of the product. This is the best time to realize cash, and it must be realized, otherwise the golden age of cash will be gone.
So from this point of view, we can understand that Weibo will take Alibaba's investment and start adding various possible new functions to the product interface, even though some of them really affect the user experience, because if they are not realized at this stage, there will be no chance.
The understanding of cash-out timing can also be understood by the concept of "user value account". Creating the value of products, increasing users and staying active are all acts of increasing user value, which is equivalent to saving money in this user value account, and when we want to cash out, it is equivalent to withdrawing money from this account.
The maximum amount we can withdraw depends on how much money we have deposited in this account before. For an account that is still growing exponentially, withdrawing money prematurely will definitely reduce the principal, thus reducing the future appreciation and affecting the future realization.
Moreover, the money in this account is more like fish raised in a fish pond. What was put in at first was actually fry. If you catch the fish when it is still very young or growing, it is definitely not the best time. When everyone has grown into a prime of life, if we don't catch it in time, it will be difficult to realize it when we are old and sick (equivalent to the loss of users). The content of manufacturing e-commerce WeChat is good and worthy of attention.
In the high-speed growth period of products, don't rush to realize cash, accumulate a large number of users through free or low-profit methods, establish competitive barriers, and maximize commercial value after entering maturity.
Do the right thing at the right stage.
4. Conclusion
Actually, JD COM strategy has always been a common phenomenon in the development of Internet enterprises. If an enterprise can have clear development goals and sufficient cash flow in a certain period in the future, it is not only true but also necessary to "burn money" in exchange for time to compete for the market. Otherwise, development may be preempted by opponents, or even miss the time window.
Because from the perspective of market structure, the Internet is different from the traditional catering business. Restaurants are basically a completely competitive market. As long as they have characteristics, good location and competitive prices, it is never too late to open a restaurant. However, due to the network effect and locking effect, once a certain market of the Internet is relatively mature, it will often form a natural monopoly or oligopoly market. Leaders have great advantages, and they are reluctant to spend or have no money when they should spend money. If he misses the opportunity, the cost of re-entering may be unimaginable. For example, we all know that search engines and WeChat are very profitable now, but after Baidu and Tencent, how many companies can play similar products again?
Of course, not all burning money is right. At least have a more accurate prediction analysis of the market and competition pattern, and have a more accurate calculation of the cash or continuous financing that you can master. If you are poisoned by too many entrepreneurial myths and think that someone can invest in entrepreneurship and spend money, it is too easy to become a "martyr".
I think, for many entrepreneurs, the probability of becoming the next Liu should be less than one in a million.
Liu: Actually, e-commerce has already started to make money!
On the eve of "Double Eleven", Liu said in an exclusive interview with CCTV that some e-commerce companies have already made money, but they have invested in these years and have no income. JD.COM has lost money in the past few years, but this is essentially different from the subsidies in the market and the companies with vicious losses. JD.COM believes that all future investments and inputs will definitely bring more value to shareholders and consumers.