How the Chinese TikTok broke into e-commerce – Part 3: want a meal with that video?


Original image by Mohamed Hassan.

In the previous two articles in this series we explored how Bytedance diversified the monetization of its Douyin app, the Chinese version of TikTok, from just advertising into e-commerce. After creating traffic for third-party e-commerce platforms like Alibaba’s Taobao, it cut off traffic from livestreams and built its own e-commerce business. By 2021 Bytedance, the company behind Douyin and TikTok, was facilitating sales of RMB 800 billion worth of merchandise on its apps and had become ‘the biggest of the rest of the market’. Together with another short video company, Kuaishou, it had taken almost 10% market share from Alibaba. And Bytedance wasn’t planning to stop there. It already had its eyes on another market segment…

In this series of 5 articles, we explore different aspects of Douyin’s steps into e-commerce:

  1. Diversifying from advertising
  2. Pulling e-Commerce initiatives in-house
  3. Moving into local services
  4. Building an e-commerce infrastructure
  5. Failures and results so far

This article is the third in this series.

Early 2021 Bytedance took another remarkable step in monetizing its (at the time) 600 million daily active users by adding links to local services to Douyin. In China, the ‘local services’ market includes all kinds of intra-city services like meal delivery, cinema ticketing, bike rental and more. This sector was previously often referred to as O2O (link in Dutch), online-to-offline, because consumers place orders online in an app and have products or services delivered offline.  In the past decade, local services have been a territory of companies like Meituan and Alibaba’s Ele.me. 

Douyin entered local services by offering group-buying discounts for restaurants and accommodations in Beijing and Shanghai through an early version of this channel for location-based recommendations. Bytedance tried to lure in users by offering even better deals than Meituan, the company that had won the group-buying battle among thousands of Chinese Groupon-clones in the early 2010’s.

Example of group buying in Douyin (and paying with Douyin Pay).

But for this new functionality to become popular, Bytedance also needed to recruit lots of merchants offering their products and services. Quite a challenge, since Meituan is known for having a strong foothold with a very strong offline sales team. But Bytedance made merchants an ‘offer they couldn’t refuse’ by charging them only a 600 RMB registration fee and no sales commission (compared to Meituan’s 10-26%). Douyin also allocated 10.000 employees to build the local services business.

Travel

In July 2020 (link in Chinese) Douyin had started allowing merchants to add options for ticket booking and hotel reservations to their personal pages. By April 2021 Douyin users could order meals and book hotels in more than 300 cities in China. QR codes on tables in restaurants and front desks in hotels could be scanned to view the merchant’s personal page in Douyin. Users would see restaurants promoting themselves in livestreams or advertise in short videos. Douyin even worked on a test with mapping platform AutoNavi, making merchants visible on a map. All this to get Douyin users interested in actually visiting these establishments.

In May 2021, Douyin entered another Meituan territory by starting testing a travel agent mini program called ‘Mangosteen Travel’ (Shanzhu Lüxing, 山竹旅行), offering ticket booking and hotel reservations. Mini programs (link in Dutch) are small mini apps that run inside another app and were first made popular by WeChat in 2017. Since then, they have become an industry standard in China and have been copied by most Chinese internet companies.

It was no surprise that Douyin was interested in the travel business. Between November 2019 and November 2020 700 million travel related videos had been posted on Douyin, generating more than one trillion views. According (link in Chinese) to the “2022 Douyin Travel Ecology Report” more than 100.000 travel agencies had opened accounts on Douyin by the end of 2021. By building its own online travel agency, Douyin was doing the same thing as it had done with e-commerce: reducing traffic (link in Chinese) to third-party platforms like Ctrip and pulling more business into its own ecosystem.

Example of hotel booking from the ‘same city’ menu in Douyin.

Find food on Douyin

After first generating traffic to restaurants, Bytedance took another page from Meituan’s playbook and entered the food delivery market … sort of. In June 2021 Douyin added a mini program called ‘Heartbeat Takeaway’ (心动外卖, Xindong Waimai), providing food delivery services in China’s first and second tier cities. The app followed an earlier Douyin functionality from September 2020 called ‘Heartbeat Restaurant’ (心动餐厅, Xindong Canting) in which Douyin users could post videos with reviews of restaurants. 

While food delivery functionality was new to Douyin, it wasn’t something Bytedance had not done before. Early 2020, Jinri Toutiao, Bytedance’s news aggregation app, had already added functionality to order meals from restaurants, grocery stores and pharmacies through third-party platforms.

Douyin invited food and beverage businesses that were already active in the app to join this new mini program platform. There was a difference with Meituan though: restaurants had to arrange their own delivery. Unlike Meituan, Bytedance didn’t offer an army of food delivery couriers, only the orders.

Douyin’s Heartbeat Takeaway food delivery portal could be found through its livestream channels where hosts could also recommend specific delivery services. Douyin users would pick a restaurant and select products, fill in their delivery address and pay within Douyin Pay, an in-app payment option.

TechPlanet reported that during a livestream a pop-up for Douyin Takeaway could be seen in the lower right corner. Clicking on it would list restaurants around the user’s geo-location that offered take-away. It showed the name, address and product information of the restaurant, as well as the estimated delivery time. Besides the product price, delivery and packaging fees were also added to the total costs. Merchants could also offer an option for making table reservations. 

In January 2022 self-operating food-delivery platform MissFresh, which currently is close to bankruptcy, entered into a partnership with Douyin, launching a grocery shopping service that would deliver within one hour in Shanghai and Beijing. After ordering products in MissFresh’s livestreams or its Douyin Shop, fulfilment and delivery of the orders was taken care of by MissFresh’s front-end warehouses (link in Dutch).

Time to charge

In May 2022 SCMP reported that Douyin had started charging hotels and restaurants that were promoting their businesses through group-buying discounts in the app. The charges ranged from 2,5% for restaurant orders to 4,5% for hotel bookings and 8% for wedding services, all of which were ‘still lower’ than the industry average standard. Meituan’s usual charge was roughly 20% but remember that unlike Douyin that fee also includes delivery. New merchants would still get 60 days commission-free access on Douyin. 

TechPlanet reported in July 2022 that Douyin users could order combo meal delivery from restaurants through group-buying features in the app. By clicking on a product link in a short video the user could place an order. Restaurants still needed to provide their own delivery drivers or use existing delivery platforms like Dada (link in Dutch). The process was supported directly by Douyin instead of a mini program built by the merchant or other third-party mini programs and is still being tested on a small scale. 

While both September 2020’s Heartbeat Restaurant and June 2021’s Heartbeat Takeaway remained in testing phase, Douyin opened another takeaway ordering functionality to the public in the summer of 2021. Users could order takeaway through external connections to meal delivery platforms Meituan and Ele.me. As such, this looked a lot like the traffic that Douyin had generated for third-party e-commerce platforms (see the first article in this series). 

It was clear that, whatever the business model, Bytedance wants to take a bite out of China’s food delivery industry that is dominated by Meituan and Alibaba’s Ele.me, which had 67% and 27% market share in the first quarter of 2022 respectively. According to figures of the National Bureau of Statistics, the food delivery market was worth over RMB 934 billion yuan ($134 billion) in 2021. Prior to this year’s problems with various COVID lockdowns across China, the penetration for food delivery was still growing from 16,9% of online Chinese in 2020 to 19.9% in 2021. 

If you can’t beat them…

Considering the large user base of Douyin and how Bytedance had already conquered a substantial part of the e-commerce market, the existing market leaders must have seen a potential threat coming. ‘If you can’t beat them, join them’, might be what Ele.me thought: in August 2022 it announced a partnership that let users order food through an Ele.me mini program in Douyin. Ele.me would promote offerings from millions of restaurants through Douyin videos.

Tech commentator Pei Pei raised some questions about this cooperation in a WeChat post (link in Chinese). Considering that local services is a volume business with very thin margins he questioned how Ele.me would still make money if it had to pay Douyin for advertising, services or a commission. Or, if Ele.me didn’t have to pay a commission, what’s in it for Bytedance?

According to LatePost (link in Chinese), Douyin had set a target of 20 billion yuan (~$2,9 billion) for the GMV from local services in 2021. Bytedance denied this target, while TechPlanet claimed it was 6 billion yuan. According to 36Kr (link in Chinese) Bytedance in January set the 2022 target for GMV from local services at RMB 40 billion but raised it to RMB 50 billion (~€7,1 billion) shortly after. 

In July 2022 36Kr reported that Douyin’s local services initiatives had expanded to 33 cities, with a target of reaching 50-55 cities by the end of the year. Douyin had reached RMB 22 billion in local services GMV in the first half of the 2022 and had raised the target for 2022 even further to RMB 55 billion. Douyin was also expanding the categories of local services: massage, supermarkets, flowers, parent-child, travel, sports, leisure & entertainment, etc.

While the Mangosteen Travel mini program no longer seems to be active in Douyin and its official account hasn’t posted new content since August 2021, the local services ecosystem in Douyin had greatly expanded. Douyin has a channel called ‘same city’ (同城, tong cheng) in its top menu. Clicking on it brings you to a new screen that offers a menu showing lists of service providers in food, leisure and entertainment, attractions, beauty & hairdressing, accommodation, sports and more. Through this portal, Douyin has created an opportunity for any kind of local business to promote itself. 


Wide range of local service categories in Douyin

Early 2022, Bytedance would also acquire movie ticketing company Yingtuobang (影托邦), which became available as a ticket booking option in Douyin, next to Meituan’s Maoyan and Alibaba’s Taopiaopiao.

Not the only new player

Douyin isn’t the only new short video app that has an appetite for the local services market. Its main competitor, Kuaishou, has also been rolling out local services initiatives. In February 2022 it was running pilots in 6 cities and added 7 more in July. In September 2022 LatePost reported that Kuaishou’s local services division had been promoted to a first level department, showing that the company has given it a higher priority. 

Where Douyin works with Ele.me, Kuaishou has teamed up with Meituan, but according to LatePost the first 6 months of this partnership hasn’t brought the desired results, with GMV remaining in hundreds of millions (RMB) compared to Douyin’s RMB 20 billion.  

In the meantime, Bytedance seems to have plans to replicate its early success in China in other markets. In the UK, Bytedance’s primary test market for e-commerce in the west, we’ve already seen the first food service-related initiatives in TikTok. Since August 2022 TikTok users in the UK can purchase fresh food from TikTok Stores of brands like Pasta Evangelists, The Veg Box Company and The Fish Society. As in China, the merchant arranges delivery to the consumer.

Will we all be ordering our pizza’s and making appointments at the hairdresser through TikTok soon?

In the fourth article in this series we will explore how Bytedance has built an e-commerce infrastructure including logistics, payment, search and more…