With platforms like Taobao, JD.com, and Pinduoduo shaping the contours of e-commerce in China, and the likes of Kuaishou and Douyin carving their own niches in online retail, it’s easy to overlook the tiny gray text that reads “powered by Youzan” at the bottom of many Chinese e-shops’ pages.
Yet this is in line with founder and CEO Zhu Ning’s vision for his company: to serve millions of merchants quietly and privately, as a pioneer in the e-commerce SaaS industry.
Youzan may not have a loud presence on our screens, but its imprint is everywhere when we browse for our next purchase. It is behind shopfront designs and product layouts, livestream sessions on Kuaishou, sales vouchers for various platforms, and neighborhood group-buying services on WeChat. Figuring out the number of online businesses Youzan serves is a bit like counting the stars.
Youzan makes it possible for anyone, even those who lack a technical background, to open a customized online store—for a fee. It is the service behind countless KOLs, small business owners that took their operations online, and mega brands with flashy flagship stores.
“Use our service if you want to do business,” reads Youzan’s website. “We make it easier to do business.” The message is simple, direct.
The first generation of WeChat e-commerce
Taobao’s WeChat mini program recently went live. This union connected two gardens that are normally walled off from each other, and observers recalled that Youzan was the crucial thread and needle that had sewn the two together in the past.
Youzan’s story started in 2012. At the time, people could still post links to products listed on Taobao to their WeChat feeds. Merchants often used their WeChat accounts to promote their wares.
Sitting in the office of Alipay, Taobao’s exclusive payment portal, product designer Zhu Ning realized there was a sharper way for sellers to present their product lineup.
Soon after, Youzan’s predecessor Kou Dai Tong was born as a customer management and marketing tool for businesses to interact with buyers on WeChat and Weibo. Promotion posts usually included a link to direct customers to Taobao stores.
With the emergence of WeChat Pay in 2014, Taobao’s owner Alibaba felt a threat brewing in Tencent and blocked all connections between the two apps. Youzan—rebranded from Kou Dai Tong—quickly shifted its business to help people build e-shops on WeChat.
In the next few years, as Zhu Ning’s company served more merchants, he came to feel their pain: as China’s online marketplaces became more mature, it was getting harder for new or lesser-known shops to gain traction, and small and medium brands found it difficult to pull in traffic on Taobao’s crowded space.
In the meantime, “online shop rent,” which referred to the various costs borne by merchants to maintain and promote their businesses, was ticking higher.
“The underlying logic of e-commerce platforms like Alibaba and JD.com is to do two things: one is to obtain as much traffic as they can, and the other is to allocate traffic to merchants on the platform,” Zhu told local news media TMT Post in a 2018 interview. “Based on this logic, users always belong to the platform, not to the merchant. But Youzan is a merchant service company […] and we want to help merchants to gain their own consumers.”
Right now, Youzan offers 36 e-commerce solutions to SMEs, KOLs, and offline shops from more than 150 industries and sectors, encompassing the entire spectrum of consumer-facing online businesses.
Its major product, Youzan Weimall, provides a one-stop e-shop design and launch solution that includes step-by-step guides, layout templates, analytics tools, promotion channels, and other features for aspiring merchants. Furthermore, Weimall offers modules to quickly embed popular e-commerce features such as livestreaming, e-vouchers, as well as neighborhood group-buying.
China’s Shopify?
Because of their similarities, many have called Youzan China’s Shopify. In fact, Youzan itself has owned the label.
“The largest transaction SaaS in the world like ours is Shopify, with a market cap of USD 13 billion. But they can only handle a few thousand transactions per second. We’ve already surpassed tens of thousands,” founder and CEO Zhu Ning wrote in an internal letter he sent to the whole company in March 2018.
“In the next phase, we will definitely surpass them not only in terms of product technology, but also in terms of revenue and GMV,” the letter read. That was a lofty goal.
By 2019, Youzan secured a 6.3% market share in China’s fragmented commerce SaaS market—the biggest in the world—yet the price was some USD 76.7 million in losses in the same year. Meanwhile, both Shopify and Weimob, Youzan’s domestic rival, have managed to earn decent profits.
Given the emphasis on digitalization in China, particularly due to the pandemic, some securities professionals have offered explanations to justify Youzan’s roughly USD 10 billion market cap, characterizing the company as more of a pure SaaS provider. Weimob, on the other hand, depends largely on advertising for revenue.
Another important contributor to Youzan’s rising market value is the support of Tencent.
In 2019, Youzan raised USD 117 million from Tencent through private placement. Youzan helped build WeChat’s mini-program e-commerce ecosystem, while Tencent provided the perfect landing zone for Youzan’s decentralized SaaS retail packages on WeChat and QQ.
Youzan’s SaaS services can also be used on other popular social media and e-commerce platforms like Alipay, Baidu, Weibo, and Red, 36Kr reported.
A unique path to an IPO
Aside from forming the backbone of e-commerce in China, Youzan is also a textbook example of a reverse IPO.
In March 2017, Youzan reached an agreement with China Innovation Payment Group (CIG), an online payments company that went public through a backdoor listing, to form a joined venture called China Youzan, which holds a 51% stake in Youzan Technology.
The two companies worked together to get Youzan’s SaaS business listed on the Hong Kong Stock Exchange’s Growth Enterprise Market (GEM) board.
The GEM board gave Youzan’s SaaS business a place to trade its shares. At that point in time, it did not satisfy the profit and revenue requirements for a listing on the main board.
As time went by, it became clear that GEM’s low trading volume and relative inactivity weren’t the right fit for Youzan Technology, the biggest e-commerce SaaS company in a country where USD 1.8 trillion worth of goods was sold online in 2020.
Now, Youzan is ready to stand on its own legs in the public markets.
In February, China Youzan submitted a proposal to Hong Kong Stock Exchange to list the SaaS service provider Youzan Technology on the main board. Once approved, China Youzan will be taken private, according to the filings, along with loss-making business divisions, like online payments, that may attract the scrutiny of regulators.
