This morning, it emerged that a bug in Pinduoduo’s promotion system allowed users to claim CNY100 (US$15) vouchers – unlimited.
Users can then use these vouchers across the platform. Rumours claim that Pinduoduo lost CNY 20 billion (US$3 billion) during the incident, which ran through the night until about 10am this morning, when engineers at the ecommerce platform plugged the holes.
Most of the vouchers were allegedly used to top up mobile phone credits. As the following screenshot shows, it cost only CNY0.44 (US$0.06) to top up CNY100 (US$15) worth of credit.
Pinduoduo issued an announcement that criminal syndicates used a system bug to illegally profiteer, and it has reported to the police for further investigation. The platform also claims that the actual lost was only in the tens fo millions (CNY10 million = US$1.5 million).
Chinese internet users call those who profiteer from online marketing campaigns “Wool Party”(羊毛党). The metaphor means that they find all the ways to ‘shear the wool'(薅羊毛). Quite often, there are organised syndicates who seek to arbitrage on discounts, vouchers and other marketing spend.
It is at least a billion dollar industry, though the operators almost always keep a low profile, such that they are able to continuously shear the wool.
We think it is unlikely that the amount is CNY 20 billion and all spent on mobile top-ups – that would be about 3% of China Mobile’s annual revenue (well yes, China Mobile is huge, but still).
Pinduoduo has bigger problems to solve. After having accumulating so many users through cheap goods/sellers that Alibaba has been trying to ditch for a few years, it now needs to prove that it can make money.
An important aspect of that is the ability to move up(per) scale, however slight that is. That will not be easy, Alibaba is guarding the better sellers and customers very very carefully.
It would be interesting to watch what kind of feat Pinduoduo can pull off.