Original images by mohamed_hassan
In the previous four articles in this series, we have seen how Bytedance has built an e-commerce powerhouse in Douyin, the Chinese version of TikTok. It diversified its revenue sources, grew in-app e-commerce and local services business and built an infrastructure around it with payment, logistics, search and more. As we will see in this fifth and last article in this series, Bytedance has been quite successful, but not without leaving a trail of failures as well.
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 fifth and last in this series.
One of Bytedance’s strategies has always been to constantly develop and launch new apps and see what sticks. As such, it is logical that the company doesn’t only have success stories like Douyin, TikTok and Toutiao, but also a growing number of failures. Some of these were e-commerce initiatives.
In the first article in this series we already saw how Fangxin Gou and Zhidian, Bytedance’s earliest attempts at e-commerce in its popular news aggregation app Toutiao, failed to take off. Early attempts in local services like Mangosteen Travel have also disappeared, as we saw in the third article. October 2020 saw Bytedance testing a new app for cross border e-commerce from abroad into China. The platform, named Fuxiang Haigou (福巷海购), was accessible as a mini program in Douyin and Toutiao. This is another app that has disappeared (link in Chinese).
But there are also more recent attempts that failed to get traction.
Cloning Xiaohongshu
At the end of 2021, Bytedance started testing a stand-alone e-commerce app called ‘Douyin Box’ (link in Chinese) (抖音盒子). Douyin Box focussed on fashion products and was supposed to complement Douyin’s own in-app e-commerce with traffic generated through other Bytedance apps, including Douyin and Toutiao. Douyin Box would use short videos to stimulate sales and was supposed to be a ‘trendy fashion e-commerce platform’ and compete with China’s popular social commerce platform Xiaohongshu (link in Dutch).
Latepost (link in Chinese) would later report that Douyin had decreased the ratio of e-commerce content in feeds in the beginning of 2022. This was done to avoid damage to the user experience. After all, people still primarily come to Douyin for entertainment, not to buy things. Douyin Box was meant as a solution to this problem of e-commerce eroding the content ecosystem of Douyin. Bytedance hoped to move some of that e-commerce content from the main app to this separate app. Bytedance also hoped to grab new traffic with the Douyin Box app.
Unlike e-commerce in the Douyin app itself, Douyin Box didn’t turn out to be a success. In September 2022, word went round that Bytedance was suspending Douyin Box. And although Bytedance denied the rumours, it seemed to have stopped updating the app.
Douyin Box failed to attract and retain both users and content creators, the latter of which stopped making content because they could not gain enough followers in this separate app.
The app didn’t offer anything new to users: all functionality was already present in Douyin’s main app. Migrating users to a different app with no added value is hard and acquiring new users even more so. According to statistics from Sensor Tower daily active users of Douyin Box dropped to 50.000 while monthly active users were only 350.000.
Douyin Box isn’t Bytedance’s first failed attempt to create a Xiaohongshu-like platform. It had already failed with the Xincao (新草, new grass) app in 2018. In July 2022 Bytedance launched another Xiaohongshu-like app called Kesong (可颂, croissant) with the slogan ‘new lifestyles for young people’. Like on Xiaohongshu users could publish photos, share and comment on items. Kesong was taken out of the app stores only a few weeks after its release. Early adopters of Kesong had complained how similar it was to Xiaohongshu.
According to JingDaily, Bytedance is trying again and again to create a clone of the popular social commerce lifestyle platform because Douyin’s own e-commerce sales are dominated by commodities. Its attempts to create their own Xiaohongshu come from the need to reach affluent consumers that want to buy luxury products.
Outside of China Bytedance seemed to have more success with Xiaohongshu-like product recommendation apps. The app Lemon8 (formerly ‘Sharee’) saw a growing user base in Japan and reached one million downloads in March 2022 (but has far fewer daily active users). Lemon8 has started to expand to Southeast Asian markets like Thailand.
So where are we now?
Despite all the failed initiatives that didn’t stick, Bytedance is doing pretty well with e-commerce in Douyin.
In April 2021 an allegedly leaked internal memo from Bytedance mentioned the goal to triple the size of e-commerce GMV (gross merchandise value) from RMB 170 in 2020 to 600 billion RMB in 2021 and RMB 1.200 billion in 2022. According to Caixin (link in Chinese), the actual GMV for 2022 was 800 billion.
As we saw in the first article in this series, e-commerce in Douyin and Toutiao was a way for Bytedance to diversify its revenue sources and not just depend on advertising income.
In 2020 Bytedance as a whole recorded RMB 240 billion in revenue, 73% of which came from its primary advertising business. This was already a decrease from the 90% share in 2019. Diversification was working.
At the end of 2021, Rui Ma and Michael Hsieh shared an analysis with some interesting insights about Bytedance’s e-commerce model with the Techbuzz China Insider community. They expect the GMV from e-commerce (primarily live commerce in Douyin) to continue growing steadily over the coming years.
We can see in the chart below that the revenue (commission) Bytedance gains from e-commerce (including revenue from live commerce) is growing. Although it is still small compared to advertising (which includes advertising by other e-commerce platforms as well as payment for affiliate marketing clicks to those platforms) and revenue from livestreams (including virtual gifting, excluding live commerce), Ma and Hsieh expect this to continue growing steadily.
Weathering the storm with ‘internal circulation’
This year, most internet companies have seen decreasing advertising revenues. An important cause is that advertising on internet platforms is often done by other internet companies trying to create traffic for their own platforms. As we’ve seen in the second article in this series, Alibaba spends enormous amounts on advertising on Douyin to create traffic for Taobao and Tmall.
Because of the slowing economy in China, many internet companies have been decreasing their marketing spendings and thereby advertising revenue has also been shrinking for many internet companies. But according to LatePost (link in Chinese) Douyin and Kuaishou, its biggest competitor in the short-video market, have been exceptions, both maintaining growth of about 15%. The secret? ‘Internal circulation’.
In July 2022 LatePost (link in Chinese) reported that Douyin’s positive performance in advertising revenue was largely due to merchants and livestream hosts advertising their livestreams in order to get more traffic and thereby sales. In the first quarter of 2022, more than one third of Douyin’s advertising revenue originated from this so-called ‘internal circulation’, while this grew to 40% in the second quarter. A year earlier, in May 2021 this had only been 10%. As such, Douyin has moved into the business model of Alibaba: gaining advertising income from merchants selling on your platform.
Robbing Alibaba
In the meantime, it has become clear that Alibaba has started losing market share to the short-video apps Douyin and Kuaishou, both of which have been building e-commerce initiatives in their apps in recent years. We’ve discussed those of Douyin extensively in the five articles in this series, but Kuaishou seems just as motivated to make e-commerce in its app a success. Kuaishou, which like Douyin has been active with live commerce, is now planning to open a shopping mall channel to monetize its traffic even further. In August Kuaishou tested discounts in the app and it has started recruiting merchants.
Consumers spend lots of time in these short-video apps and for merchants it’s cheaper to run a Douyin or Kuaishou store than one on Taobao. Advertising is less costly, and commissions are lower. Even brands and retailers like Uniqlo and Adidas have moved some of their advertising budgets to the short-video apps and started livestreams and flagship stores.
What about outside China?
In this series of articles, we’ve seen how, in the past 5 years, Bytedance has been launching many different initiatives into e-commerce and local services in China. Some of these have also been rolled out to the west, most notably the UK. In a previous series on cross-border e-commerce from China we have described how TikTok started experimenting with e-commerce in The UK and Indonesia. We also described how it ran into difficulties trying to launch live commerce in the UK.
Techplanet (link in Chinese) reported that the GMV of TikTok e-commerce in the first half of 2022 has exceeded $1 billion, which is equal to its full-year volume in 2021. After opening TikTok Shops in the UK and Indonesia in April 2021, TikTok Shops in Vietnam, Thailand, Malaysia, the Philippines and Singapore have also opened between April to June 2022.
While TikTok is struggling with sales in the UK (see this previous article) it’s having more success in Southeast Asia. Sales of goods in the first half of 2022 were mainly contributed to Indonesia, which had reached a monthly GMV of $200 million. The UK only saw $24 million in GMV per month. Considering that the UK was said to have had a GMV of $270 million for the whole of 2021 there doesn’t seem to have been much growth in that market.
Besides TikTok, Bytedance also launched a website called Dmonstudio and an app called Fanno, neither of which have been a success. In September 2022 news broke that Bytedance had launched a Shein-like fast-fashion platform with the strange name IfYooou in some European markets. Closer inspection proved that the site had already been active for a while, with its Facebook page showing posts in March 2022. It remains to be seen if this new webshop will be more successful than Bytedance’s other cross-border initiatives in western markets. I can’t help but wonder though what could happen if Bytedance would prominently promote Ifyooou in TikTok…
In this series of articles, we have mainly looked into Bytedance’s e-commerce activities within Douyin, but this is just the tip of the iceberg of new business projects that the company has been rolling out in recent years. Bytedance has taken steps into real estate broking, gaming, music, healthcare and education (although the latter has largely been scaled back after the government’s 2021 crackdown on after-school tutoring). It’s a company that is well worth watching closely … both inside and outside China.
