Original image by Geralt.
In the previous three articles in this series we have seen how Douyin, the Chinese version of TikTok, diversified from just having advertising revenue as a source of income to integrating e-commerce and local services like meal delivery and hotel booking in the popular short-video app. In this fourth article we will see how Bytedance has started building an infrastructure around these initiatives.
In this series of 5 articles, we explore different aspects of Douyin’s steps into e-commerce:
- Diversifying from advertising
- Pulling e-Commerce initiatives in-house
- Moving into local services
- Building an ecommerce infrastructure
- Failures and results so far
This article is the fourth in this series.
e-Commerce is not just about selling stuff in a livestream. The complete process comes with payments, storage, logistics, after sales service and more. Also, traffic for those livestreams needs to be generated either in the app or elsewhere. When Douyin started to pull more e-commerce business into its own app instead of simply forwarding traffic to third-party marketplaces for a commission, it realised it needed to build an infrastructure.
Payment
In January 2021 Bytedance added an e-wallet to Douyin, which consumers could use to buy virtual goods for livestreamers and items in Douyin Shops (see the first article in this series). Adding a payment option sounds a lot easier than it actually is, since the Chinese authorities are very reserved in handing out licences for payment tools. In recent years, many big Chinese internet companies could only obtain such a licence by acquiring a smaller company that already owned one. This was also the case with Bytedance, which acquired Ulpay when it bought its operator Wuhan Hezhong Yibao Technology in 2018. Eventually, Douyin Pay became one of the payment options in Douyin’s check out process, next to Tencent’s WeChat and Ant Group’s Alipay. After linking their bank card with Douyin Pay shoppers can pay for in-app purchases by entering a 6-digit code upon check-out.
When Douyin Pay was launched, Bytedance incentivized users to choose it over AliPay or WeChat Pay by giving users a 2 RMB discount upon payment. To get people to start linking their bank cards, Douyin also handed out digital ‘red envelopes’ with money during the Spring Festival TV Gala, just like WeChat had done in 2014 (link in Dutch). At the time of writing, I found payment discount when using Douyin Pay to be ranging from just 0.09 RMB food goods to 3-6 RMB for local services.
You might ask why Bytedance went through all of the hassle when Douyin already enabled payment with two other commonly used payment apps. Well, it gave Bytedance an opportunity to claim the payment fee that merchants would previously pay to those competing apps. According to SMCP Bytedance charges 0,6% payment commission. That might be a small percentage but imagine the hypothetical situation of all of the GMV (gross merchandise value) of e-commerce in Douyin in 2021, no less than RMB 800 billion, being paid with Douyin Pay. That would make Bytedance another RMB 4,8 billion in pure revenue. It is another way to make some more money from any sale of virtual or physical goods on the platform.
Prior to launching Douyin Pay, Bytedance had already started offering consumer finance products to its users. By July 2018 it had launched Fangxinjie (放心借, ‘Borrow in Peace’), modelled after Ant Group’s Jiebei (link in Dutch). In October 2019 Bytedance added Manfen (满分, ‘Full Score’), offering consumer credit (up to RMB 200.000), instalment payments, and credit card services. In January 2021 (link in Chinese) Bytedance launched Dou Fenqi (Dou分期, ‘Dou Instalment’), which allows users to pay monthly instalments on their bills.
While removing barriers to spending for its app users, all of these services are also nice cash cows for Bytedance. Take for instance Fangxinjie: at the end of 2021 it charged an annual interest rate of 10.8% – 24% to users, while it charged 7.2% – 18% to small businesses that can also use the service to loan money.
Logistics
Delivery and after-sales service are other important aspects of e-commerce. Mid 2021, Douyin already had 1.900 customer support staff working on customer service, fighting counterfeits and solving other problems, and was recruiting 900 more to support the e-commerce business.
By December 2021, after receiving a bit too many delivery-related complaints and product returns, Douyin started testing a home delivery service called ‘Yinzunda’ (音尊达). Merchants that sold products through Douyin could use it to provide express delivery to consumers for an extra RMB 0.8 (~€0,11) per order. If the express company failed to deliver according to the promised service and the customer complained, the merchant would be compensated with 5 RMB. Logistics are provided by the Chinese courier services ZTO Express, YTO Express and YUNDA Express (two of which are also partners in Alibaba’s Cainiao logistics network). By offering this improved service, Douyin hoped to improve customer satisfaction, decrease the number of returns and increase the repurchase rate of customers.
In January 2022 Douyin also entered into a partnership with JD Logistics, the logistics and supply chain division of JD.com, to support the delivery of goods purchased on Douyin during the Chinese New Year holiday season. According to JD’s semi-annual report it served more than 10.000 businesses on Douyin’s e-commerce platform in the first half of 2022.
Mid 2022 Douyin started testing its Jisuda (极速达, ‘speedy delivery’) service that guaranteed next day delivery within a city and delivery in 2 days in nearby cities. Although these initiatives are improving Douyin’s delivery services, Bytedance still depends on third-party logistics companies and therefore lags behind that of JD (who has its own logistics network) and Alibaba (who works with a number of logistical partners in the Cainiao network).
‘Interest-based e-Commerce’, ‘Content e-Commerce’ and ‘Shelf e-Commerce’
At the end of 2021 Bytedance announced that it would help 100 new brands sell RMB 100 million through Douyin in 2022. Douyin would focus on ‘interest-based e-commerce’ that would ‘provide high-quality content to motivate users to shop based on specific interests. According to Jing Daily this ‘high quality content’ would take the form of long form variety and entertainment shows like talent shows, talk shows and reality TV shows with clickable links to buy products.
In August 2022, TechPlanet (link in Chinese) reported that Douyin’s e-commerce business will be divided into ‘content (内容, neirong) e-commerce’ and ‘shelf (货架, huojia) e-commerce’. ‘Shelf e-commerce’ is considered to be the traditional form of e-commerce where ‘people look for products’. In ‘shelf e-commerce’ consumers search for specific products on platforms like JD, Taobao or Tmall and there is a strong purchase intention.
Douyin’s ‘interest-based e-commerce’ is a form of ‘content e-commerce’ and works differently: it uses an algorithm-based recommendation mechanism to present content (videos and livestreams) and products to a consumer. Unlike with ‘shelf business’, purchasing is more often done by impulse.
According to TechPlanet (link in Chinese) Douyin’s ‘content e-commerce’ has been strong and is mature, but Bytedance now wants to further develop ‘shelf e-commerce’. At the same time, many of the traditional ‘shelf business’ platforms are trying their hands at ‘content e-commerce’ initiatives.
To make ‘shelf e-commerce’ work, a company needs a strong search engine. And that’s exactly what Bytedance has been building over the years.
Search Engine
When you are selling products, either through short-videos or livestreams (see the second article in this series), users will need to be able to find this content. Some of this is done through advertising by the livestreamers within Douyin. Other traffic is generated from on third-party media outside the app. March 2022 Douyin started testing a new affiliate marketing tool called Douke (抖客) to create such traffic for the live commerce streams in Douyin. And then there’s search…
China’s main search engine, Baidu, has never played a significant role in e-commerce since people mostly immediately went to e-commerce platforms like Taobao, Tmall or JD and search for products there. Bytedance’s apps have become a competitor for this type of product search, as well as search for other content and information that people use Baidu for.
May 2019 saw Douyin adding search functionality that let users view videos of similar or related products as those in a video advert. In the years that followed Bytedance built powerful search engines in its Toutiao and Douyin apps. In Douyin users can search in many types of content: videos, livestreams, users, products, music, locations, topics and even content on the internet outside the Douyin app. Toutiao also offers these categories, and more: shopping, news, Q&A forums, pictures, encyclopaedias and more. Both apps offer filters within these categories, for instance group-buying and food delivery.
In February 2020 Bytedance even launched a separate Toutiao Search app. It doesn’t seem to be available in the Chinese app stores anymore, but Bytedance did launch a new standalone search app called Wukong Sousuo (悟空搜索, Wukong Search), named after the famous fictional character the Monkey King.
Whether Wukong will be a success or not, Bytedance has created a strong position in search already. According to an allegedly leaked Bytedance memo from April 2021, Toutiao saw 200 million daily search queries and Douyin 600 million. While this is just 1/6th of Baidu’s volume, it already puts Bytedance in the top 3 search engines in China.Search results for ‘hotpot’ in Toutiao, Douyin and Wukong.
Other tools and initiatives
In 2022 new e-commerce initiatives started popping up at a fast pace.
Douyin opened a special channel for livestreams and sales of second-hand goods (二手好物, Ershou Haowu) in the app’s shopping section, Douyin Mall (抖音商城, Douyin Shangcheng). Through this channel users can even send in their second-hand items for evaluation, recycling and resale, getting a percentage of the sales price. Douyin also started initiatives for merchants of cross-border imported brands and a self-operated e-commerce division for alcoholic beverages.
In April 2022 Douyin began testing a new homepage layout in the app. The former ‘Friends’ button in the app’s lower navigation bar has been replaced by ‘Mall’, improving the emphasis on e-commerce. In the meantime, Douyin has also been offering repurchase coupons and helping merchants and brands build a following of purchasing consumers.
In June 2022 Bytedance’s Toutiao news aggregation app upgraded its livestreams by integrating Douyin’s livestreams. For every five or six news items on Toutiao’s main feed, one live commerce link is presented. Toutiao now also allows users to see their Douyin orders on their personal page and use Douyin-issued discount coupons. As such, Toutiao was becoming an additional channel for Douyin’s e-commerce activities.
In June 2022 Douyin started trial runs with an online supermarket with home delivery, called ‘Douchao Home Delivery’ (抖超送货上门, Douchao Songhuo Shangmen) in Guangzhou, Shenzhen and Hangzhou. The initial focus of the initiative is on beverages and fresh food products.
As we’ve seen, Bytedance has been expanding e-commerce and local services in both the Douyin and Toutiao app. But not everything it tries is an enormous success. In the last article in this series, we will share some of its failures while also looking at the results of Bytedance’s e-commerce business so far.
