Microsoft open-sources a crucial algorithm behind its Bing Search services

Microsoft today announced that it has open-sourced a key piece of what makes its Bing search services able to quickly return search results to its users. By making this technology open, the company hopes that developers will be able to build similar experiences for their users in other domains where users search through vast data troves, including in retail, though in this age of abundant data, chances are developers will find plenty of other enterprise and consumer use cases, too.

The piece of software the company open-sourced today is a library Microsoft developed to make better use of all the data it collected and AI models it built for Bing .

“Only a few years ago, web search was simple. Users typed a few words and waded through pages of results,” the company notes in today’s announcement. “Today, those same users may instead snap a picture on a phone and drop it into a search box or use an intelligent assistant to ask a question without physically touching a device at all. They may also type a question and expect an actual reply, not a list of pages with likely answers.”

With the Space Partition Tree and Graph (SPTAG) algorithm that is at the core of the open-sourced Python library, Microsoft is able to search through billions of pieces of information in milliseconds.

Vector search itself isn’t a new idea, of course. What Microsoft has done, though, is apply this concept to working with deep learning models. First, the team takes a pre-trained model and encodes that data into vectors, where every vector represents a word or pixel. Using the new SPTAG library, it then generates a vector index. As queries come in, the deep learning model translates that text or image into a vector and the library finds the most related vectors in that index.

“With Bing search, the vectorizing effort has extended to over 150 billion pieces of data indexed by the search engine to bring improvement over traditional keyword matching,” Microsoft says. “These include single words, characters, web page snippets, full queries and other media. Once a user searches, Bing can scan the indexed vectors and deliver the best match.”

The library is now available under the MIT license and provides all of the tools to build and search these distributed vector indexes. You can find more details about how to get started with using this library — as well as application samples — here.

A photo of an egg has toppled reality star Kylie Jenner as Instagram’s most-liked post

Instagram has found something it likes more than a Kardashian-Jenner family baby, and it’s an egg.

This weekend, a photo of a plain egg became the most-liked photo on Instagram, the social app owned by Facebook with over one billion users that’s reflective of internet culture.

The photo, which you can see below in its full glory, currently has more than 23 million likes at the time of writing. That has seen it surpass a February 18 photo from Kylie Jenner — the sister of Kim Kardashian and a reality TV star in her own right — which announced the birth of her baby with rapper Travis Scott and has 18.2 million likes.

Unlike Jenner, who has 21 million Instagram followers, the egg account — “world_record_egg” — is a newcomer that seems to have been created in early January. Nothing is known of its ownership, although it now has 2.4 million followers which could — and I can’t believe I’m writing this… — make it an influencer account.

While much can be said about Jenner’s rise to fame, she’s a pretty successful entrepreneur. Her two-year-old ‘Kylie Cosmetics’ brand is estimated to gross over $600 million in annual revenue. While it is funny that a photo of an egg can take the record on Instagram there might be more to it. Jenner’s company trades on her brand, the egg could be a rejection or protest of today’s reality TV culture… which is best embodied by the Kardashians and, in particular, Kylie Jenner. That certainly seems the case looking at the splurge in new and egg-related comments on Jenner’s birth post from last year.

Maybe that’s wishful thinking and this is just another internet phenomenon that can’t be explained. It could simply be a joke that blew up, but don’t discount the potential that this is a stunt from a company launching a new product or wanting to make a splash.

Showing that she might have a sense of humor, 21-year-old Jenner acknowledged the new record in a video of her smashing an egg.

View this post on Instagram

Take that little egg

A post shared by Kylie (@kyliejenner) on

This is the second social media record set this year after Twitter got a new most-retweeted tweet — however, the roles were very much different.

Yusaku Maezawa, a Japanese billionaire who is paying Elon Musk’s SpaceX for a trip to the moon, saw a tweet that offered nearly $1 million in prize money for retweets surpass a true internet phenomenon, U.S. teen Carter Wilkerson. Back in April 2017, Wilkerson took to Twitter to plead for free chicken nuggets; his original tweet now has around 3.6 million retweets.

How open source software took over the world

It was just 5 years ago that there was an ample dose of skepticism from investors about the viability of open source as a business model. The common thesis was that Redhat was a snowflake and that no other open source company would be significant in the software universe.

Fast forward to today and we’ve witnessed the growing excitement in the space: Redhat is being acquired by IBM for $32 billion (3x times its market cap from 2014); Mulesoft was acquired after going public for $6.5 billion; MongoDB is now worth north of $4 billion; Elastic’s IPO now values the company at $6 billion; and, through the merger of Cloudera and Hortonworks, a new company with a market cap north of $4 billion will emerge. In addition, there’s a growing cohort of impressive OSS companies working their way through the growth stages of their evolution: Confluent, HashiCorp, DataBricks, Kong, Cockroach Labs and many others. Given the relative multiples that Wall Street and private investors are assigning to these open source companies, it seems pretty clear that something special is happening.

So, why did this movement that once represented the bleeding edge of software become the hot place to be? There are a number of fundamental changes that have advanced open source businesses and their prospects in the market.

David Paul Morris/Bloomberg via Getty Images

From Open Source to Open Core to SaaS

The original open source projects were not really businesses, they were revolutions against the unfair profits that closed-source software companies were reaping. Microsoft, Oracle, SAP and others were extracting monopoly-like “rents” for software, which the top developers of the time didn’t believe was world class. So, beginning with the most broadly used components of software – operating systems and databases – progressive developers collaborated, often asynchronously, to author great pieces of software. Everyone could not only see the software in the open, but through a loosely-knit governance model, they added, improved and enhanced it.

The software was originally created by and for developers, which meant that at first it wasn’t the most user-friendly. But it was performant, robust and flexible. These merits gradually percolated across the software world and, over a decade, Linux became the second most popular OS for servers (next to Windows); MySQL mirrored that feat by eating away at Oracle’s dominance.

The first entrepreneurial ventures attempted to capitalize on this adoption by offering “enterprise-grade” support subscriptions for these software distributions. Redhat emerged the winner in the Linux race and MySQL (thecompany) for databases. These businesses had some obvious limitations – it was harder to monetize software with just support services, but the market size for OS’s and databases was so large that, in spite of more challenged business models, sizeable companies could be built.

The successful adoption of Linux and MySQL laid the foundation for the second generation of Open Source companies – the poster children of this generation were Cloudera and Hortonworks. These open source projects and businesses were fundamentally different from the first generation on two dimensions. First, the software was principally developed within an existing company and not by a broad, unaffiliated community (in the case of Hadoop, the software took shape within Yahoo!) . Second, these businesses were based on the model that only parts of software in the project were licensed for free, so they could charge customers for use of some of the software under a commercial license. The commercial aspects were specifically built for enterprise production use and thus easier to monetize. These companies, therefore, had the ability to capture more revenue even if the market for their product didn’t have quite as much appeal as operating systems and databases.

However, there were downsides to this second generation model of open source business. The first was that no company singularly held ‘moral authority’ over the software – and therefore the contenders competed for profits by offering increasing parts of their software for free. Second, these companies often balkanized the evolution of the software in an attempt to differentiate themselves. To make matters more difficult, these businesses were not built with a cloud service in mind. Therefore, cloud providers were able to use the open source software to create SaaS businesses of the same software base. Amazon’s EMR is a great example of this.

The latest evolution came when entrepreneurial developers grasped the business model challenges existent in the first two generations – Gen 1 and Gen 2 – of open source companies, and evolved the projects with two important elements. The first is that the open source software is now developed largely within the confines of businesses. Often, more than 90% of the lines of code in these projects are written by the employees of the company that commercialized the software. Second, these businesses offer their own software as a cloud service from very early on. In a sense, these are Open Core / Cloud service hybrid businesses with multiple pathways to monetize their product. By offering the products as SaaS, these businesses can interweave open source software with commercial software so customers no longer have to worry about which license they should be taking. Companies like Elastic, Mongo, and Confluent with services like Elastic Cloud, Confluent Cloud, and MongoDB Atlas are examples of this Gen 3.  The implications of this evolution are that open source software companies now have the opportunity to become the dominant business model for software infrastructure.

The Role of the Community

While the products of these Gen 3 companies are definitely more tightly controlled by the host companies, the open source community still plays a pivotal role in the creation and development of the open source projects. For one, the community still discovers the most innovative and relevant projects. They star the projects on Github, download the software in order to try it, and evangelize what they perceive to be the better project so that others can benefit from great software. Much like how a good blog post or a tweet spreads virally, great open source software leverages network effects. It is the community that is the source of promotion for that virality.

The community also ends up effectively being the “product manager” for these projects. It asks for enhancements and improvements; it points out the shortcomings of the software. The feature requests are not in a product requirements document, but on Github, comments threads and Hacker News. And, if an open source project diligently responds to the community, it will shape itself to the features and capabilities that developers want.

The community also acts as the QA department for open source software. It will identify bugs and shortcomings in the software; test 0.x versions diligently; and give the companies feedback on what is working or what is not.  The community will also reward great software with positive feedback, which will encourage broader use.

What has changed though, is that the community is not as involved as it used to be in the actual coding of the software projects. While that is a drawback relative to Gen 1 and Gen 2 companies, it is also one of the inevitable realities of the evolving business model.

Linus Torvalds was the designer of the open-source operating system Linux.

Rise of the Developer

It is also important to realize the increasing importance of the developer for these open source projects. The traditional go-to-market model of closed source software targeted IT as the purchasing center of software. While IT still plays a role, the real customers of open source are the developers who often discover the software, and then download and integrate it into the prototype versions of the projects that they are working on. Once “infected”by open source software, these projects work their way through the development cycles of organizations from design, to prototyping, to development, to integration and testing, to staging, and finally to production. By the time the open source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions.

In other words, open source software permeates itself through the true experts, and makes the selection process much more grassroots than it has ever been historically. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold.

Virtues of the Open Source Business Model

The resulting business model of an open source company looks quite different than a traditional software business. First of all, the revenue line is different. Side-by-side, a closed source software company will generally be able to charge more per unit than an open source company. Even today, customers do have some level of resistance to paying a high price per unit for software that is theoretically “free.” But, even though open source software is lower cost per unit, it makes up the total market size by leveraging the elasticity in the market. When something is cheaper, more people buy it. That’s why open source companies have such massive and rapid adoption when they achieve product-market fit.

Another great advantage of open source companies is their far more efficient and viral go-to-market motion. The first and most obvious benefit is that a user is already a “customer” before she even pays for it. Because so much of the initial adoption of open source software comes from developers organically downloading and using the software, the companies themselves can often bypass both the marketing pitch and the proof-of-concept stage of the sales cycle. The sales pitch is more along the lines of, “you already use 500 instances of our software in your environment, wouldn’t you like to upgrade to the enterprise edition and get these additional features?”  This translates to much shorter sales cycles, the need for far fewer sales engineers per account executive, and much quicker payback periods of the cost of selling. In fact, in an ideal situation, open source companies can operate with favorable Account Executives to Systems Engineer ratios and can go from sales qualified lead (SQL) to closed sales within one quarter.

This virality allows for open source software businesses to be far more efficient than traditional software businesses from a cash consumption basis. Some of the best open source companies have been able to grow their business at triple-digit growth rates well into their life while  maintaining moderate of burn rates of cash. This is hard to imagine in a traditional software company. Needless to say, less cash consumption equals less dilution for the founders.

Photo courtesy of Getty Images

Open Source to Freemium

One last aspect of the changing open source business that is worth elaborating on is the gradual movement from true open source to community-assisted freemium. As mentioned above, the early open source projects leveraged the community as key contributors to the software base. In addition, even for slight elements of commercially-licensed software, there was significant pushback from the community. These days the community and the customer base are much more knowledgeable about the open source business model, and there is an appreciation for the fact that open source companies deserve to have a “paywall” so that they can continue to build and innovate.

In fact, from a customer perspective the two value propositions of open source software are that you a) read the code; b) treat it as freemium. The notion of freemium is that you can basically use it for free until it’s deployed in production or in some degree of scale. Companies like Elastic and Cockroach Labs have gone as far as actually open sourcing all their software but applying a commercial license to parts of the software base. The rationale being that real enterprise customers would pay whether the software is open or closed, and they are more incentivized to use commercial software if they can actually read the code. Indeed, there is a risk that someone could read the code, modify it slightly, and fork the distribution. But in developed economies – where much of the rents exist anyway, it’s unlikely that enterprise companies will elect the copycat as a supplier.

A key enabler to this movement has been the more modern software licenses that companies have either originally embraced or migrated to over time. Mongo’s new license, as well as those of Elastic and Cockroach are good examples of these. Unlike the Apache incubated license – which was often the starting point for open source projects a decade ago, these licenses are far more business-friendly and most model open source businesses are adopting them.

The Future

When we originally penned this article on open source four years ago, we aspirationally hoped that we would see the birth of iconic open source companies. At a time where there was only one model – Redhat – we believed that there would be many more. Today, we see a healthy cohort of open source businesses, which is quite exciting. I believe we are just scratching the surface of the kind of iconic companies that we will see emerge from the open source gene pool. From one perspective, these companies valued in the billions are a testament to the power of the model. What is clear is that open source is no longer a fringe approach to software. When top companies around the world are polled, few of them intend to have their core software systems be anything but open source. And if the Fortune 5000 migrate their spend on closed source software to open source, we will see the emergence of a whole new landscape of software companies, with the leaders of this new cohort valued in the tens of billions of dollars.

Clearly, that day is not tomorrow. These open source companies will need to grow and mature and develop their products and organization in the coming decade. But the trend is undeniable and here at Index we’re honored to have been here for the early days of this journey.

LemonBox brings US vitamins and health products to consumers in China

China is rising in many ways — the economy, consumer spending and technology — but still many of its population looks overseas, and particularly to the West, for cues on lifestyle and health. That’s a theme that’s being seized by LemonBox, a China-U.S. startup that lets Chinese consumers buy U.S. health products at affordable prices.

Indeed, the recent scare around Chinese vaccinations, which saw faulty inoculations given to babies and toddlers in a number of provinces, has only fueled demand for overseas health products which LemonBox founder Derek Weng discovered himself when his father was diagnosed as having high blood sugar levels. Weng, then working in the U.S. for Walmart, was able to look up and buy the right medicine pills for his father and bring them back to China himself. He realized, however, that others are not so fortunate.

After polling friends and family, he set up an experimental WeChat app in 2016 that dispensed health information such as articles and information. Within a year, it had racked up 30,000 subscribers and given him the confidence to jump into the business fully.

Today, LemonBox allows Chinese consumers to buy its own-branded daily vitamin packs from the U.S.. Further down the line, the goal is to expand into more specific verticals, including mother and baby, beauty and daily supplements, according to Weng, who believes that the timing is good.

“For the first time in China, people are taking a major interest in health and are working out, while society is becoming more developed,” he told TechCrunch in an interview. “We estimate that Chinese consumers are investing 30 percent of their income in health.”

The LemonBox daily pack of vitamins.

Since its full launch three weeks ago, LemonBox has pulled in 700 customers with 40 percent purchasing a three-month bundle package and the remainder a monthly order, Weng said. Typical basket size is around 300 RMB, or nearly $45.

To get the business off the ground, Weng needed expert support and his co-founder Hang Xu — who is also LemonBox’s “Chief Nutrition Scientist” — has spent 10 years in the field of nutrition science. Xu holds a Ph.D. from Texas A&M University, is a U.S.-registered dietitian and has published over 10 research papers. The startup’s third co-founder, Eddy Meng (CMO), is a graduate of Chinese app store startup Wandoujia which sold to Alibaba two years ago.

Right now, LemonBox has offices in the U.S. and China and it is squarely focused on e-commerce but Weng said the company is looking to introduce other kinds of health services. That could include consultations with dietary experts and specific offerings for patients leaving a hospital or in other long-term care situations, as well as potentially own-label products.

“We look at Stitch Fix for inspiration,” Weng said. “Right now, it leverages data to develop its own in-house private label products that improve on margin and the accuracy of recommendations. This kind of data and further services will be the next stage for us.”

LemonBox raised a seed round in March, which included participation from Y Combinator, and as part of Y Combinator’s current program, it’ll present to prospective investors at the program’s demo day. Already, though, Weng said there’s been interest from investors which the company is thinking over.

Interestingly, it was forth time lucky entering YC for Weng, who had before applied with previous startups unsuccessfully. This time it was entirely circumstantial. He applied to be in the audience for Y Combinator’s ‘Startup School’ event that took place in Beijing in May.

Unbeknownst to him, YC picked out a handful of attendees whose companies were of interest, and, after an interview that Weng didn’t realize was an audition, LemonBox was selected and fast-tracked into the organization’s latest program. In addition, YC joined the startup’s seed funding round which had initially closed in March.

That anecdotal evidence says much of YC’s effort to grab a larger slice of China’s startup ecosystem.

The organization has aggressively recruited companies from under-represented regions such as India, Southeast Asia and Africa, but China remains a tough spot. According to YC’s own data, fewer than 10 Chinese companies have passed through its corridors. That’s low considering that the organization counts over 1,400 graduates.

With events like the one in May, which helped snare LemonBox, and a new China-centric role for partner Eric Migicovsky, who founded Pebble, YC is trying harder than ever.

The incredible rise of Pinduoduo, China’s newest force in e-commerce

Editor’s note: This post originally appeared on TechNode, an editorial partner of TechCrunch based in China.

From Alibaba to JD, China is not short of e-commerce powerhouses. Although the country’s e-commerce market is highly consolidated, it’s not impossible for startup teams to crack this market as long as they are solving the right problems for the right group of customers.

Chinese social e-commerce platform Pinduoduo just proved this. The Shanghai-based company just went public raising $1.6 billion through a U.S. IPO this week, which stands out as one of the largest deals of the year. Excitement is quickly intensifying surround the company, which claims 195 million monthly users and has managed to become successful within China’s highly competitive e-commerce market inside just three years.

What is Pinduoduo and what has it done right?

Like Alibaba’s Taobao and rival JD.com, Pinduoduo is an e-commerce platform that offers a wide range of products from daily groceries to home appliances. Pinduoduo’s twist lies in its integration of social components into the traditional online shopping process, which the company describes as the “team purchase” model.

By sharing Pinduoduo’s product information on social networks such as WeChat and QQ, users can invite their contacts to form a shopping team to get a lower price for their purchase. The mechanism keeps the users motivated and better hooked for a more interactive and dynamic shopping experience. Coupled with other incentives such as cash, coupon, lottery and free products, Pinduoduo manages to acquire users at a very low cost. Combined with the extra satisfaction of scoring a good deal with your friends as a team, Pinduoduo soon became a viral sensation in China.

Extremely low prices are another compelling attraction of Pinduoduo. The discount is usually up to 90 percent, including everything from RMB 10 ($1.50) bed sheets to RMB 1,000 ($150) PCs. But the bestsellers are daily items at unbelievable low prices. More than 6.4 million units of tissue paper were sold at RMB 12.9 ($1.90) for 10 boxes and 4.8 million umbrellas were purchased at RMB 10.3 ($1.51) apiece.

The company’s bulk-selling model easily creates huge orders for the sellers and leaves them more room to cut prices. At the same time, Pinduoduo’s app is designed to facilitate this, an expert explained to local media: “Alibaba Taobao’s interface is search-based and centered on multiple product displays, while Pinduoduo’s is more similar to a news feed and thus gives more exposure to a single product and easy to create “爆款” [baokuan, meaning viral items]. Taobao has more products listed, but Pinduoduo put its focus on fewer bestsellers that attract more buyers.”

Pinduoduo (l) and Taobao (r) interfaces

Pinduoduo’s C2B model allows it to ship directly from the manufacturers eliminates layers of distributors, not only reduces the price tag for buyers but also raises the profit of manufacturers. This approach is particularly effective for the sales of perishable agricultural and fresh products, where the speed for matching supply and demand is critical.

Lesser-known brands were chosen over famous brands to erase any premium that comes from branding. Additionally, the costs for advertising and marketing are also lowered through user sharing to social media. The approach is both cost-saving and effective. Through social sharing, users are sending the product information precisely to friends and groups that may have similar income and consumption preferences. Viral marketing is a more clever way to build the identity of all the lesser-known brands on its platform. Financially, the platform could even out part of discounts with less marketing budgets.

Price and social features are not only the only path to Pinduoduo’s meteoric rise, and spotting the right user profile is the last piece to the puzzle.

Operation director of Chinese mobile e-commerce platform Chuchujie, Yang Lin shot to the core of the problem in an interview with local media: “Taobao has over 500 million users while WeChat has over 1 billion, the gigantic missing group between two of China’s giant apps is distributed in third- or lower-tier cities, mostly senior citizens. This group, which only recently came online and depends on the ubiquitous WeChat as the chief source of information, is the target users of Pinduoduo.”

Data from research institute Jiguang shows that users from third- and lower-tier cities account for around 65 percent of Pinduoduo’s total user base, while JD’s users in first plus second-tier cities and the rest of China were half-and-half.  Additionally, females account for 70 percent of Pinduoduo’s user base. They are responsible for family purchases and more price sensitive. This guarantees more active sharing and purchases.

User demographics and average order value of JD, Taobao, and PDD (Image credit: GGV)

Consumption upgrade, a trend in which affluent Chinese customers are increasingly willing to pay for quality, has dominated China’s e-commerce industry in the past few years. Taobao and JD’s globalization initiatives to bring overseas quality products, the boom of cross-border e-commerce sites like Red and NetEase Yanxuan and Kaola are all based on the consumption-upgrading backdrop.

But the growth of Pinduoduo has sparked an argument focusing on whether the platform represents consumption downgrading. Maybe consumption upgrading or degrading isn’t the key problem. It is just one more piece of evidence for how big and segmented the Chinese market can be. Rising income may give part of Chinese urban citizens the freedom to vote for quality, but RMB 1 difference in price tag may be enough of an incentive for their countryside counterparts, who have been more neglected by e-commerce so far.

Cost performance is still the most important factor to consider for consumers. A higher price tag does not necessarily represent the better quality or vice versa. The huge potential in this often-overlooked market is luring more competitors. Taobao launched Taobao Tejia, a dedicated app for China’s low-end users.

Pinduoduo didn’t invent the social e-commerce model. Groupon pioneered the group-buying concept years ago. But it is succeeding thanks to a new ecosystem consisting of super app WeChat, mobile payment infrastructure, and mobile-first users.

Pinduoduo’s history and major milestones

Founded in September 2015, Pinduoduo is the fourth startup of Colin Huang, an ex-Googler who once worked on early search algorithms for e-commerce. His previous startups include consumer electronics e-commerce site Ouku.com, Leqi, e-commerce platform marketing agent service and a WeChat-based role-playing game company.

With experiences in both e-commerce and gaming, Huang founded Pinduoduo with a vision to combine the secret success recipe of both Alibaba and Tencent, the two Chinese internet giants known for their e-commerce and gaming /social dominance respectively. “They don’t really understand how the other makes money,” Huang said to Bloomberg.

Huang seems to be right about how the two industries can work together. Pinduoduo’s annual GMV (gross merchandise volume) surpassed RMB100 billion ($14.7 billion) in 2017, that’s around two years since its inception. To hit the same milestone, Taobao took five years, VIP.com took eight years and JD ten years. Pinduoduo now claims more than 343.6 million active buyers with an annual GMV of RMB 262.1 billion, or $38.5 billion.

A huge turning point occurred in the third quarter of 2017 when the weekly active rate, penetration rate, and open rate of the Pinduoduo app all surpassed those of JD. Compared to the previous year, it reaches up to 1,000 percent year on year growth according to data from Jiguang.

Image credit: GGV Capital

Steep growth trajectory lured financial backings. In 2015, Huang launched Pinhaohuo, a social commerce platform for fruits, with the team from his second startup Leqi. His gaming startup incubated Pinduoduo.

Four months after Pinduoduo received undisclosed A round from IDG and Lightspeed China in March 2016, the company secured over $110 million in Series B financing four months later from Baoyan Partners, New Horizon Capital, Tencent, and others. In April 2018, Pinduoduo completed a new round of financing raising $3 billion at a valuation of nearly $15 billion. Given Pinduoduo’s WeChat-based ecosystem, Tencent joined the round as a returning investor.

Given the history between Pinduoduo and Pinhaohuo, then of the two largest players in the social e-commerce sector, the two companies merged to form one dominator.

Another counterfeit heaven in China?

“If you close your eyes and visualize the next stage for Pinduoduo, it would be a combination of ‘Costco’ and ‘Disneyland’, driven by a distributed network of intelligence agents,” Huang wrote in the IPO prospectus. Huang’s comparison was thus interpreted as a combination of “value for money” and entertainment, but many are questioning whether or to what degree Pinduoduo can live up to the founder’s expectation.

Although Pinduoduo claims to have several channels to lower product prices, increasing product quality and counterfeit complaints still raise concerns for a possible low-cost and low-quality association. The percentage of complains on Pinduoduo is 17.87 percent, and the user satisfaction rating is only 1 star, according to the 2017 National User Satisfaction Survey of Major E-commerce Platforms released by the China E-Commerce Research Center. Complaints mainly target at the problems of poor quality, slow delivery, misleading ads, etc.

In addition to mounting domestic complaints, the Chinese shopping app was hit by a trademark infringement lawsuit in the US, shortly after filing for a US IPO. Alongside Alibaba and JD’s efforts to remove fake goods on their platforms, fake goods are flooding to emerging e-commerce platforms like Pinduoduo and Weishang, according to Alibaba.

As Pinduoduo gets into life as a public company, the firm is following the e-commerce giants in cleaning up the platform. According to the company’s annual consumer rights protection report for 2017, it has taken down 10.7 million problematic listings, blocked 40 million suspicious external links, representing 95 percent of the fake good sellers from the platform. The company set up an RMB 150 million ($22 million) fund to deal with after-sales disputes.

But tightening regulation is causing more friction between Pinduoduo and its merchants on the platform. In June, fourteen store owners who sell products on Pinduoduo protested under the company’s office building claiming that Pinduoduo conducted improper product-quality checks which damaged the owners’ rights. Company founder Huang insisted Pinduoduo’s decision and punishment of the owners is just and fair.

Many also questioned the validity of entertaining features in Pinduoduo’s value proposition. “We have observed that a few users find shopping on Pinduoduo to be very entertaining, which is attributable to its extremely low pricing and interaction among Weixin users,” according to research institute 86 Research.

IPO and beyond

Pinduoduo went public on NASDAQ market on July 26 and raised more than $1.6 billion with a valuation of $60 billion. However, shareholders should still be concerned about the company’s fundamentals

Financially, the company is still in the red. Pinduoduo suffered a net loss of RMB 292 million ($43 million) and RMB 525.1 million ($77 million) in 2016 and 2017, respectively. Its net losses reached RMB 201 million ($30 million) in the first quarter of this year. The net loss is expected to be widened, mainly attributable to investments in branding and ads. Over 88.4 percent of Pinduoduo’s RMB 1.2 billion ($180 million) Q1 revenue was spent on marketing. This could be translated as a sign of difficult traffic acquisition.

The most typical Pinduoduo users are price sensitive women that reside in low tier cities. Merchants are selling at a low price to appeal to this group. But how to maintain these users and its growth momentum is a big challenge for Pinduoduo now given rising product quality complaints.

“The retention rate is a big challenge of Pinduoduo, implying potential GMV slow down. Pinduoduo will have difficulty in upgrading to a marketplace of premium products because of its user demographics and brand image,” according to 86 Research.