Embrace S2C, Move Beyond O2O: A New Era of Service-Driven Commerce

Many people you meet today will tell you they are developing O2O products. If you probe further and ask what exactly that entails, they will respond that they are moving certain offline offerings online for sales. Upon closer inspection of their products, to put it bluntly, they are essentially scaled-down, localized versions of Taobao...

In fact, if we examine the majority of products that claim to be O2O (Online-to-Offline) today, most are merely scaled-down, localized versions of Taobao stores, primarily dealing in fast-moving consumer goods (FMCG). These companies develop their own platforms, assist merchants in listing their products, provide payment functionalities, and implement promotional strategies to enhance cost-effectiveness, stimulate consumer desire, drive platform traffic, and generate transactions. But what exactly is O2O? Is it merely a transactional website?

O2O is essentially an internet-based conceptual term endowed with specific connotations, much like the previously trendy notion of “internet thinking,” which refers to a methodology imbued with particular meaning. It does not denote a single product or service, nor a combination of several related factors. As merely a conceptual label, it offers no tangible practical benefits in itself. Yet, driven by the term’s popularity, some have launched platforms and slapped on the O2O label, instantly feeling elevated and sophisticated. Many have jumped on this bandwagon, misinterpreting O2O as simply moving offline products online for e-commerce transactions, believing that such a shift constitutes O2O. Let us objectively examine what changes these trends have actually brought to our lives.

The internet enables us to find virtually everything, a trend most evident in the realm of Online-to-Offline (O2O) behaviors. Needs such as job hunting, discovering culinary delights, and arranging transportation have been largely met. We seek valuable information online to satisfy our needs, filter through options, and pay for them, then enjoy the corresponding services and products offline. This process has significantly enhanced our quality of life and efficiency, granting us the privilege of being “internet citizens.”

However, as the model deepened, an increasing number of participants grew skeptical. This may be attributed to the heterogeneous nature of the participants or the deterioration of the O2O landscape. With a surge in participants comes a wider array of choices and more intense price competition. Instead of adopting superior competitive strategies, businesses have focused solely on cost reduction, leading to declining product quality and the problematic, blind adoption of the O2O label. The food delivery O2O sector serves as a typical example: recently, media exposés revealed unsanitary “black workshops” on certain platforms, causing a sharp rise in user complaints across multiple platforms. Furthermore, group-buying platforms have drastically slashed prices to attract traffic, imposing restrictive expiration dates and significantly compromising service quality, thereby infringing upon consumers’ legitimate rights. While the underlying causes are manifold and beyond the scope of this article, it is evident that in the commercial sphere, merchants seek quick profits while users aim for cost-effective, rapid consumption. However, an excessive pursuit of the immediate gratification derived from “transactions” will inevitably lead to mounting problems over time for both parties.

Ele.me has recently secured a substantial round of financing. Meanwhile, we have observed Ele.me employing a marketing strategy known as “cashback on food orders,” a approach that seems familiar, as ride-hailing apps previously adopted similar tactics. The goal of those ride-hailing platforms in pursuing such cash-burning strategies was to cultivate users’ habits of making mobile payments. So, what is Ele.me’s objective?

Expanding Market Capacity or Deepening Service Reach? According to the latest strategy, Ele.me’s objective is the former. By expanding its presence in second- and third-tier cities to increase platform traffic, this approach is inevitable from a developmental perspective. As Ele.me entered the O2O sector through food delivery, how significantly will this capital-intensive strategy of expanding market capacity impact the company, and how might the market react in the future?

First, whether there will be factors of merchants turning against us in the future
Currently, the platform subsidizes both merchants and users, so merchants are naturally inclined to drive customers online. If the platform discontinues these subsidies, merchant interest declines significantly, especially given the risk of having to pay platform usage fees. In reality, apart from providing meager revenue through subsidies and fee structures, Ele.me offers little additional value to merchants. Its model is not fundamentally different from the group-buying trend that emerged three years ago. Without subsidies, merchants may revert to offline methods, such as distributing flyers, to encourage customers to place orders directly via phone. This does not mean merchants are abandoning the platform entirely; rather, their level of participation will simply decrease.

Second, rising living standards have led consumers to pursue quality-driven consumption.: It can be said that the food delivery market is currently in a nascent and unregulated phase, where users choose platforms and merchants based on low prices and substantial subsidies. With such large-scale promotion, merchants of all kinds, regardless of their operational standards, have joined these platforms. Although media reports indicate that major food delivery platforms are cracking down on illegal underground kitchens and unsanitary physical stores, it is undeniable that hidden safety risks persist in food delivery, particularly during the preparation and packaging stages. As subsidies diminish or cease entirely, and as consumers face an increasingly diverse range of choices, user behavior will shift from being price-driven to quality-driven, with safety, suitability, health, and taste becoming the primary criteria for selection. Consequently, food delivery platforms that aggressively onboarded non-compliant merchants in the early stages to capture market share may suffer losses and gradually be abandoned by the market.

Let us set aside, for now, the effectiveness of entering the O2O market by burning cash to drive “volume.” Instead, let us reflect on what the concept of O2O should truly entail, or rather, what we expect it to be. It is an inevitable trend of the times for merchants to leverage the internet for marketing their products, which is entirely understandable; likewise, it is inevitable for consumers to utilize the convenience of the internet to meet their needs. If the term O2O has been imbued with vitality, it is because it assumes a critically important role: facilitating internet-based “transactions.” However, transactions inevitably give rise to services. So, if transactions are taking place, where have the services gone?

The Depth of O2O Lies in Service. With the evolution of the internet, marketing and transaction models have undergone significant transformations. As users have generally acquired basic digital literacy, their expectations for user experience—and consequently for product quality—have been rising steadily. This trend has become a major driving force behind internet development: users are no longer passive recipients; they enjoy increasing choices, and a buyer’s market has firmly taken shape. It is against this backdrop that the S2C (Supplier-to-Consumer) model has emerged.

S2C, or Service to Consumption, refers to online services that drive offline consumption. Simply put, it involves delivering high-quality services to users via the internet and guiding them to make purchases in physical stores. Compared with the term O2O (Online-to-Offline), S2C is arguably more grounded and more readily accepted by consumers. If you explain your work as being in S2C—providing premium online services and then directing users to offline consumption—the concept is, at least in my view, very clear: deliver services, facilitate transactions, guide customer behavior, and obtain feedback.

The internet provides an excellent platform that has met the diverse needs of individuals to varying degrees. However, our aspirations extend far beyond this; delivering higher-quality and more attentive services is the relentless pursuit of every internet professional. Meanwhile, it is inevitable that merchants leveraging the internet to provide premium services to users will become a key trend in the future market landscape shaped by digital influence.

In the O2O (Online-to-Offline) model, purely transactional approaches—selling one’s own products—will face increasing constraints in both spatial and temporal dimensions. As production technologies advance, product differentiation diminishes, while consumer expectations continue to rise. Consequently, future competitive advantages will increasingly hinge on differentiated services. How, then, can merchants excel in service delivery? The internet presents significant opportunities for businesses. By leveraging digital tools, big data analytics, or third-party services, merchants can gain deeper insights into customer needs and feedback, providing online follow-up and guidance. This enables customers to feel genuinely cared for by the merchant. In essence, it is no longer sufficient to merely sell products; businesses must respond to and address customers’ evolving needs through continuous feedback and support.

The S2C model, a core paradigm, is now upon us.Xiaomi smartphones are a typical example of the S2C model.By collecting user-related data via the Internet, proactively addressing user needs, and developing products that align with those needs based on user feedback, while providing continuous follow-up and feedback, Xiaomi ensures users experience its thoughtful care.The Recently Emerging Trend of Waiter-Free Restaurants in the Food and Beverage IndustryBy collecting user-related data via the internet, offline restaurants can also leverage online tools for customer management (e.g., ordering and service). This process generates substantial behavioral data, enabling merchants to better understand specific customer needs in a timely manner and provide more appropriate products, services, and transactions. It also reduces operational costs, at least by minimizing the need for sales staff.

The S2C model teaches you how to better deliver your products to the users who need them.Through the Internet, you can gain insights into user needs. Once you fully understand these needs, you can provide value-added services tailored to them; these services constitute your product, enabling users to satisfy their own requirements by utilizing them. For instance, a free health management mobile app can initially deliver corresponding services to users via internet connectivity, collect relevant user data, and ultimately identify underlying needs through data mining. This approach guides users toward offline consumption, such as fitness activities, and further provides value-added services like personalized fitness guidance, thereby addressing individualized user needs.

S2C and O2O have different positioning. The essence of O2O is “transaction” first, service second, which can be intuitively seen from those O2O platforms that trade commodities. In contrast, the essence of S2C is service first, transaction second.. Those involved in O2O platforms may argue that they, too, provide services. However, I would contend that their services are typically transaction-initiated and conclude upon completion of consumption, representing a standardized service model with minimal follow-up support. This is characteristic of seller’s market behavior, albeit known for its simplicity and high efficiency.

Why I Say Don’t Be Obsessed with O2OBecause it is merely a buzzword. If you place excessive importance on it and insist on labeling yourself as an “O2O” player, it is because you value the one thing it brings: “transactions.” My immediate association with O2O is direct monetary exchange. Whenever money becomes the primary consideration from the outset, the outcome often falls short of expectations. The aforementioned unscrupulous vendors are typical examples. If an internet platform provides fake or substandard products solely to generate revenue, I fail to see any value in its existence. Group-buying platforms, in their pursuit of traffic through price cuts while neglecting service quality, leave users with mixed feelings of both attraction and resentment.Offline merchants are lazy and will resort to unscrupulous means in pursuit of profit., which is one of the many criticisms leveled against O2O. Furthermore, service delivery in a seller’s market typically fails to consider user experience and struggles to accommodate the needs of a broader customer base, as it adheres to uniform seller-side standards. These are the consequences of blindly labeling such services as “O2O.”

The Internet is an open platform where many issues, such as the one just mentioned, are difficult to resolve or avoid. However, the emergence of a buyer’s market compels us to shift our mindset.S2C is characterized by the front-loading of services, where merchants deliver services online via the internet. A critical attribute of service is its “process,” during which merchants gain insights into users’ relevant needs through internet-based interactions and subsequently tailor their services to meet those needs.Of course, this does not mean that merchants are required to interact directly with hundreds or thousands of people online every day, which is unrealistic. Instead, merchants can leverage platforms or other third-party tools to communicate with and analyze their own users, as well as user behavior and demands in the broader market. By analyzing user behavior, merchants gain insights into user needs and align their products and services accordingly. This process further “refines” the relationship between merchants and users, enhancing the merchants’ ability to deliver personalized services while simultaneously improving user satisfaction and loyalty. Under the S2C model, merchants can no longer remain passive (as evidenced by the highly engaged communities of Xiaomi and its fans); they must proactively provide high-quality services to achieve customer satisfaction. In this model, malicious price wars will no longer occur; customers stay, and profits are made—surely a win-win scenario that we all aspire to see.

Focus on S2C, focus on your service. The transformation brought by S2C will be immense and full of challenges. The S2C model truly realizes the essence of “the customer is king,” meeting users’ personalized needs—this is a model that genuinely creates value. The internet does more than just change our lives; more importantly, it enhances our quality of life, making it more convenient and enjoyable. However, the internet’s impact on daily life is often subtle, working silently behind the scenes. Through these nuanced services, users can feel the thoughtfulness and sincerity of internet-based offerings.

The service-oriented economy is also an economy that prioritizes user needs and orientation. Although China’s large population base once made any business model appear viable, this view is now outdated. Chinese society has moved past the demographic dividend era. With internet technology, big data, and artificial intelligence becoming increasingly prevalent, we must believe that anything is possible. As society progresses, we must advance even more, because the needs of individuals in society—including ourselves—are continuously upgrading.

"Reflect seriously on the service you provide to users, and learn to enjoy it; perhaps you will become the next Xiaomi."

(This article was contributed to VCBeat by Bao Hu. Bao Hu: Entrepreneur, Founder of MicroNutrition.)