In the past months, ChinaTalk has taken a deep dive into cross-border e-commerce from China; Chinese platforms and merchants selling directly to western consumers. One of the important players in this field is TikTok, which has been partnering with western e-commerce platforms like Shopify, has tried to make live commerce popular in the UK and recently started facilitating meal delivery through its popular short-video app. These initiatives have not all been as successful as parent company Bytedance hoped they would be, but they all follow the same roadmap as Bytedance applied to Douyin in the Chinese domestic market. As such, it’s well worth investigating Douyin’s steps into e-commerce in China as it might give us more insights into what tricks TikTok might have up its sleeve.
In a series of 5 articles, we will 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 e-commerce infrastructure
- Failures and results so far
This article is the first in this series.
Bytedance launched the short-video app Douyin in September 2016, using the same algorithmic content recommendation engine that had previously made their Jinri Toutiao news aggregation app an enormous success in China. Douyin quickly started attracting users and according to LatePost (link in Chinese) by 2022 Douyin has 700 million daily active users. That’s half of China’s population opening the app every day. Douyin currently generates about 200 million short videos and 9 million livestream sessions each month.
In August 2017 Bytedance launched the international version of Douyin, TikTok, and would merge it with the Musical.ly app it had acquired in August 2018. Despite widespread suspicions about the safety of TikTok and Bytedance’s alleged ties to the Chinese government, the app has seen the same explosive growth as Douyin. By the start of 2022 TikTok had 1,4 billion users globally.
We often hear how TikTok has been stealing away ‘eyeballs’ from apps like Facebook, which has even started losing daily active users while their monthly active users remain flat. A sign that users feel less interest in opening their Facebook accounts as frequently as they used to.
The same shift of user interests happened in China. With Toutiao and Douyin (and a range of smaller apps), Bytedance has been stealing user attention time away from the likes of Tencent’s WeChat. And of course, the advertising money that is paid for the consumers’ attention followed this shift.
Online advertising is exceptionally important in China, with 60-70% of all advertising budgets spent on digital advertising (the global average is 50%). According to Totem Media, Alibaba, search engine Baidu, Tencent and Bytedance together claim 86% of that total digital advertising market.
By the first half of 2019, Bytedance had gained 23% market share in online advertising revenue, surpassing Tencent and Baidu. It made Bytedance the most valuable start-up in the world. Baidu, which had few other sources of income besides its search engine, suffered most from Bytedance’s competition.
A report (link in Chinese) by Zhongguancun Interactive Marketing Lab, analysing the online advertising market in 2021, shows how Bytedance remains the second biggest receiver of online advertising spending after Alibaba (21% and 29% market share respectively) in recent years.
Note: the graphs on the left and right of the vertical line use different sources.
Diversify or die
These figures show how, in a matter of years, Bytedance became one of the major recipients for online advertising spending in China. But unlike western platforms like Facebook, Bytedance was not going to remain fully dependent on that advertising income.
In China, competition between internet companies works differently than in the west. Where western websites and apps mainly focus on one core business – Amazon for e-commerce, Facebook for social media, Google for search engines and online tools – in China it is much more about the ‘ownership’ of the consumer.
In the west we prefer to put something new and unique on the market, in China shameless copying of other internet companies is not considered to be a big ethical problem. It’s just one of the basics of competition: trying to do it even better than the one that came up with the idea in the first place. Until 10 years ago, this copycat behaviour mostly concerned imitation of products from western tech companies. In recent years, where levels of digital functionality in China have largely surpassed that in the west, Chinese internet companies have moved on to mainly copying each other.
Putting a product on the market and sitting back after seeing it become successful is therefore not an option in China. Once you’ve won the user over with one app or functionality, the only way to retain customers is to keep offering them new products and services. If you don’t, other internet companies will enter your new market segment within months or even weeks, copying the same idea you have just launched.
In Chinese internet companies’ attempts to monetize and get the most of their existing customers, the Chinese internet has started to resemble a Venn diagram with market players offering highly overlapping services. Companies like Didi and Meituan both offer ride-hailing services. Alibaba Group and Meituan both offer meal-delivery, bike rental and travel services. Meituan, Alibaba and JD.com all offer e-commerce using various business models. Baidu, Tecent and Alibaba offer entertainment content. And so on and so forth. While in their early years all these companies had started in one of these specific markets.
Considering the enormous volume of traffic Bytedance generated with Toutiao and Douyin, it is no surprise that Bytedance, after taking its first steps in advertising and livestreams, has made further strides into games, education tech, ecommerce and local services. The latter category, formerly also known as O2O (Online to Offline), includes all a wide range of services a consumer can purchase from businesses in his immediate vicinity, such as meal delivery, group-buying coupons for restaurants, etc. With these new initiatives, Bytedance is increasingly moving into the territory of Alibaba and Meituan.
Bytedance stumbles into e-commerce
Before Bytedance started integrating e-commerce in Douyin the company had already launched several attempts to get online commerce off the ground in its apps. In 2014 it added a daily deals section called Jinri Temai (‘Today’s Special Deals’, 今日特卖) and a shopping guide called Dian Shang Temai (‘E-commerce Special Sale’, 电商特卖) to its 2-years old Jinri Toutiao news aggregation app.
In 2016, Bytedance teamed up with JD.com (link in Dutch) for a strategic cooperation under the name Jingtiao Jihua (‘Jing Tiao Plan’, 京条计划). This partnership saw JD open a shopping portal on Jinri Toutiao and implement data-driven advertising based on Toutiao’s readers’ interests.
In 2017, when Jinri Toutiao was 5 years old and had accumulated 232 monthly active and 120 million daily active users, Bytedance decided it was time to roll out its own e-commerce initiatives to this pool of news-hungry consumers. That year, the company launched an online shopping section in the Toutiao app called Fangxin Gou (‘buy with confidence’, 放心购).
A year later, in October 2018 it was followed by an e-commerce platform called Zhidian (‘value point’, 值点), which was integrated in Toutiao and also had a separate app. Zhidian was a bargain-hunting app with prices similar to those on Pinduoduo (link in Dutch). Like Pinduoduo, Zhidian would source products straight from manufacturers and cut out any middleman. According to Caixin it offered free delivery with a minimum purchase of just 9.90 yuan ($1.42).
2018 also saw Bytedance launch a content community platform Xincao (‘new grass’, 新草) in an attempt to compete with Xiaohongshu (link in Dutch). Xincao was a failure and ceased operations within a year. Fangxin Gou wasn’t a success either. Early 2019, the public account in Jinri Toutiao sent its followers an announcement (link in Chinese) that it was closing down and merging into Zhidian. Four years later, Zhidian doesn’t seem to have made much of a dent and Bytedance has mostly shifted its strategy to integrating Douyin’s e-commerce functionality into Jinri Toutiao.
Left: Zhidian integrated in Jinri Toutiao. Middle: ‘Fangzin Gou changed name to Zhidian.’ Right: Zhidian native app.
The first steps Bytedance took with e-commerce in Douyin were more like affiliate marketing than true e-commerce. In March 2018, Douyin started allowing creators of videos to add links to (their) Taobao stores, one of Alibaba’s online marketplaces, to their videos. Douyin added a shopping cart icon that linked directly to those Taobao shops, not unlike the ones you often see in TikTok nowadays.
Later, Douyin also enabled such links to JD.com, VIPshop, Pinduoduo and Alibaba’s Tmall marketplace. Douyin content creators that did not have their own Taobao stores could select products from the Douyin Sourcing collection of links to other people’s Taobao stores and thereby earn a commission on sales. All platforms paid Bytedance a referral fee for this traffic.
In May 2018, Douyin launched Douyin Stores, a native ecommerce system allowing people to buy products from video creators directly in the Douyin app. Instead of sending users to Taobao or other third party webshops through paid clicks, Bytedance had started to pull the sales of merchandise into Douyin.
Douyin KOLs (Key Opinion Leaders, the term China uses for influencers) with over 1 million followers could open such a Douyin Store. Clicking on a link in a video or on the creator’s profile page would take a user to the creator’s Douyin Store. Creators could also link their stores to other apps in the Bytedance ecosystem, like news aggregation app Jinri Toutiao and video apps Huoshan and Xigua.
After having invited KOLs and celebrities with large numbers of followers for half a year, Douyin lowered the requirement for opening a Douyin Store to 8.000 followers by the end of 2018. Soon after, any Douyin creator that had uploaded at least 10 videos could create their own native Douyin Store.
Into live commerce
One of the first things Bytedance had done to monetize Douyin was to enable Douyin content creators to livestream and receive virtual gifts from their viewers. This business model in which the livestream host and platform share the revenues from the sales of those virtual gifts has been very common in China (link in Dutch) for more than 10 years.
In March 2019, Sensor Tower reported that TikTok and Douyin together had sold $75 million worth of virtual coins that users exchange for virtual gifts for livestream hosts. By the end of 2019, user spending had increased to $177 million and in January 2021 the two apps were generating $128 million on in-app purchases in that month alone. By that time, as far as in-app purchases go, TikTok and Douyin were the world’s highest earning non-game apps for the 10th consecutive month. But to put this in perspective, it was just peanuts compared to Bytedance’s total revenue of $37 billion in 2020.
Certainly, there was much more profit to be made from livestreams than just the virtual gifts. Mid 2018, when live-streaming e-commerce (a.k.a. live commerce) had started taking off in China, Douyin was one of the players that expanded its video capabilities to this new form of online selling.
So far, Douyin had taken its steps into the e-commerce market by generating traffic for third party e-commerce platforms, Douyin Stores and live commerce. During Singles Day 2018 a total of RMB 200 million (~$30 million) was sold through Douyin Stores. Still peanuts compared to other platforms, but it was a start…
In the second part of this series, we’ll learn how Douyin started severing some of its ties with third party e-commerce platforms and started pulling e-commerce business into its own ecosystem.