"Interconnection" Opens: What Are the Long-Term Implications for Consumer Brands? | FreeS Fund Daily Business Musings
How can a brand truly grow into a new category?
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The Mid- to Long-Term Impact of Interoperability on Consumer Brands
Recently, the Ministry of Industry and Information Technology issued specific guidelines on external link management, suggesting that Chinese internet platforms blocking each other's links may soon become history. What does this "interoperability" among platforms mean for consumer brands in the mid- to long-term?
Change is already underway. Here are two preliminary thoughts:
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If platforms and marketplaces no longer block each other, consumers will browse with greater freedom — where you buy matters less. Who you buy from becomes the critical question. In this new environment, whether we're talking about WeChat business brands, social commerce brands, private-domain e-commerce brands, Douyin-native brands, Taobao brands, or even group-buying brands, consumers will find it easier to compare and choose among them all. This means the market will shift from traffic models or business-model innovation back toward brand-building and product innovation. It will also, over time, benefit category leaders.
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Because marketplaces will be everywhere and seamlessly connected — for browsing and discovery — attracting users into your store becomes a core competency. Beyond product strength and brand, content will grow increasingly important. Like a physical shop window, it needs enough pull to make consumers stop, step inside, learn more, and spend.
Over the past 12 months, we've been riding a wave of enthusiasm for consumer brand startups and investment. Several unusual factors are worth thinking about:
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Consumption overall has not fully recovered and remains at low growth. National Bureau of Statistics data shows that total retail sales of consumer goods grew 7.3% in the first eight months of 2021 compared to the same period in 2019 — meaning an average annual growth of 3.6% across 2020–2021. Catering in January–August 2021 was virtually flat versus 2019.
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COVID-19 brought short-term changes and special windows of opportunity: the rapid rise of instant meals and meal replacements, offline shelf advantages when major brands couldn't launch new products fast enough, temporarily low rents and vacant storefronts as offline brands closed, shifts in traffic distribution driven by algorithmic recommendations, and traffic arbitrage opportunities created by platform non-interoperability. As vaccination spreads and the pandemic comes under control, these special factors are shifting or fading.
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China's formidable supply chain capabilities, combined with the world's highest e-commerce penetration, layered with the pandemic's unusual effects and the frenzy of consumer investment, have produced an extraordinary number of new products. They've all appeared as "new brands." But as interoperability advances and pandemic disruptions gradually disappear, how many will genuinely grow into new brands for new categories over the long term? It's worth noting that internet interoperability will accelerate the efficient flow and symmetry of information and traffic, leaving consumers facing information overload — and making it harder than ever to remember a brand.
These factors and changes, combined with the longer-term shifts from interoperability, deserve our collective thought and discussion. We welcome your insights in the comments.
A final note: as we've long believed, this decade will see China produce a great many globally competitive brands. We hope to walk alongside outstanding consumer entrepreneurs to build enduring Chinese brands that represent the country on the world stage.
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