Original image by Ulrike Leone.
In the previous article in this series on Douyin’s e-commerce initiatives we saw how the short-video app quickly gained popularity and started stealing away advertising revenues from other internet companies. With Douyin, TikTok’s Chinese sister app, having claimed a substantial part of consumer’s online time, some of these same companies now also depended on Douyin to create traffic to their e-commerce platforms. Companies like Alibaba and its merchants needed to advertise on Douyin to create traffic to Tmall and Taobao stores. Starting in 2018, Douyin allowed its content creators to promote such stores in their short videos and livestreams and soon allowed them to build complete Douyin Stores of products. From here it was only a small step from being a traffic-generating affiliate to becoming a true e-commerce platform.
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 e-commerce infrastructure
- Failures and results so far
This article is the second in this series.
After Bytedance had kicked-off e-commerce in Douyin in 2018, the GMV (Gross Merchandise Value) of goods sold through the app grew slowly but steadily. In 2019, live commerce, selling products through livestreams, generated RMB 10 billion (~$1,4 billion) in Douyin. When live commerce boomed (link in Dutch) during the COVID-19 outbreak in China, Bytedance set the target for e-commerce GMV in 2020 to RMB 200 billion. Hearing this, competitor Kuaishou set its target at RMB 250 billion. Although Bytedance wouldn’t fully reach that ambitious target, it would come impressively close…
To be able to reach its target, Bytedance would have to make some changes. In the two previous years the company had been selling traffic for third-party e-commerce platforms like Alibaba’s Taobao and Tmall, as well as JD.com, VIPShop and Pinduoduo. In the meantime, Bytedance was also building its own online shopping functionality in Douyin in the form of Douyin Stores (see the first article).
At the time Douyin allowed merchants to open four types of stores: a basic store (for companies and individuals), a flagship store (for brands), a specialty store (for authorised resellers of one specific brand) or a franchise store (for authorised resellers of multiple brands). Setting up a store required paying a deposit, ranging from a mere 500 RMB (~$70) for a basic store to 4.000 – 20.000 RMB (~$600-$3.000) for the other store types. Douyin charged a 5% commission on sales. This might not seem like much of a revenue source, but keep in mind that – like on Alibaba’s e-commerce platforms – merchants and brands also needed to advertise on Douyin to create traffic for their stores.
Now Bytedance clearly wanted more of those ecommerce sales to take place on its own platform, thereby being able to claim a part of the enormous Chinese e-commerce market. At the end of 2019 Douyin had launched Doudian (抖店), a comprehensive e-commerce management system for merchants selling on Douyin. Mid 2020 Douyin started to block Qianniu (千牛), Taobao’s order management system, from accessing Douyin Store e-commerce data. What’s more, WalkTheChat reported that Bytedance seemed to have adjusted its algorithms so more traffic would be directed to Douyin Stores than Taobao. For some product categories like fruit, links to Taobao were even completely blocked.
In June 2020 Bytedance merged responsibilities for e-commerce across all its apps in a new e-commerce department. In the organogram this new department was placed at the same level as the leading Toutiao and Douyin apps, stressing its strategic importance. Bytedance also started aggressively recruiting local e-commerce teams to sign up merchants for its platform and it opened positions for supply chain management. All signals that Bytedance was planning to become more self-sufficient.
In July 2020 Bytedance teamed up with Suning.com to help Douyin Store operators with product supply, logistics and after sales service. In the meantime, competitor Kuaishou came to a partnership with JD.com for similar support.
Cutting off third parties
Between May and August 2020 Douyin’s internal e-commerce sales had increased from RMB 50 million per month to RMB 100 million (~$14 million) per month, while sales generated on third-party platforms decreased from RMB 63 million to RMB 43 million (~$6 million) per month. In August 2020 Douyin started pushing creators to use its native e-commerce platform by raising the commission on sales on third party platforms to 20%, while the commission in Douyin Stores was only 5%.
The final blow came in October 2020, when Douyin started blocking all links from live commerce streams to third-party platforms. Livestream hosts could no longer promote items sold on other companies’ platforms anymore…
The blocking of links did not apply to regular short videos, for good reasons. Advertising on Douyin by e-commerce platforms and their merchants is a highly profitable business for Bytedance, while being an important traffic generator for those third-party e-commerce platforms. In other words, while competing on e-commerce sales, companies like Bytedance and Alibaba also dearly need each other. As a matter of fact, Alibaba represented around a quarter of Douyin’s RMB 80 billion (~$11.5 billion) ad revenue in 2019.
In 2019 Douyin and Taobao had signed an agreement that had Alibaba paying RMB 6 billion in ad revenue and RMB 1 billion e-commerce commission for such traffic. Despite Bytedance blocking outgoing links from live commerce streams, the two companies renewed their deal shortly afterwards. Alibaba even tripled the value of the agreement to RMB 20 billion for 2020.
Becoming a major player
Douyin closed 2020 with a total generated e-commerce GMV (gross merchandise volume) of RMB 500 billion (~€76 billion), three times the generated GMV of 2019. According to Latepost, RMB 100 billion (~$14 billion) of 2020’s GMV came from Douyin’s own e-commerce channel, while the other 80% were sold on third-party platforms. Of China’s top 50 live commerce hosts, Douyin claimed 12.
Bloomberg claimed that Bytedance’s total GMV for e-commerce in 2020 (including sales from through apps) had been even higher at $26 billion. It also claimed the company aimed to have more than $185 billion GMV by 2022. Bytedance expected to grow to this size because it thought its recommendation algorithms, which had made Toutiao and Douyin so successful, would also be able to serve users relevant shopping content. The company had also implemented an online system that connected merchants with the right influencers and agencies and supplied studios technical support for livestreaming.
According to data analysis platform Feigua (quoted by SMCP), clothing was Douyin’s top-selling category, while jewellery, shoes, hats and bags were other popular ones. 70% of sales were generated through live commerce streams while the other 30% originated from short videos. This clearly showed that Bytedance’s decision to block sales from livestreams had been a clever idea.
According to figures by Big Data, shared in a Techbuzz China Insider conference, by the start of 2021, Douyin had reached 19% of Alibaba’s Tmall revenue, up from 9% the previous year.
Douyin decided to set the GMV goal for 2021 at RMB 1 trillion (~$143 million).
Towards the trillion
In April 2021 an allegedly leaked internal memo from Bytedance mentioned goals to grow the advertising business by 42% from 2020’s RMB 183 to RMB 260 billion and triple the size of e-commerce GMV from RMB 170 (~$24 billion) to RMB 600 billion (~$85 billion) in 2021 and RMB 1.200 billion (~$170 billion) in 2022.
At its first ‘ecosystem conference’ in April 2021, Douyin’s Vice President of e-Commerce promised that Douyin would ‘cultivate at least 1,000 businesses with annual sales above 100 million yuan (~$14 million) in 2021, 10,000 individual merchants with annual sales of more than 10 million yuan, and at least 100 ‘hot’ products with annual sales above 100 million yuan’.
On June 18th 2021, during ‘618’, China’s second largest shopping festival after Singles Day, Douyin joined Alibaba and JD in the fight for the Chinese consumers’ yuan. Douyin did not reveal any sales figures at the end of the shopping festival but claimed that ‘merchants nearly tripled their revenue’ compared to the previous year’s 618.
According to data shared by Big One in a TechBuzz China Insider conference call, Douyin’s in-app e-commerce GMV as a percentage of that of the GMV of Tmall and JD.com grew from 7% and 11% respectively in July 2020 to 23% and 30% respectively one year later. Douyin’s net GMV (excluding returns and non-paid items) was estimated to be around RMB 40 billion per month by Q3 2021.
According to a report by Bytedance and Trend Insight, between April and September 2021 700.000 unique products had been purchased by 6.6 million shoppers on Douyin. In October Douyin announced that its e-commerce GMV had increased almost 8 times between January and September 2021.
At the end of 2021 media reported (link in Chinese) that Bytedance had set a target for e-commerce at a GMV of RMB 2 trillion, half of which should be realised in the domestic market through Douyin and the other half outside China in TikTok.
In June 2022 Bytedance released some figures about its e-commerce division for the year 2021. The company had more than tripled (320%) its GMV compared to 2020, selling more than 10 billion products. Sources told Caixin (link in Chinese) that the GMV figure of the fiscal year 2021 (ending in April 2022) was RMB 800 billion and Bytedance was expecting this to grow to RMB 1 – 1.2 trillion in 2022. As so often, Bytedance denied these ‘unofficial figures’.
For comparison, Alibaba’s 2021 GMV was RMB 8.3 trillion, JD.com’s RMB 3.3 trillion, Pinduoduo’s RMB 2.4 trillion, and Kuaishou’s 680 billion.
Although still relatively insignificant compared to Alibaba, Bytedance had become an e-commerce player to be reckoned with over the course of three years. With RMB 800 billion in GMV the company had claimed approximately 7,5% market share of the RMB 10.8 trillion online retail market for physical goods. Surely, not as large a player as Pinduoduo (15%), JD (20%) or Alibaba (52%), but it had become the biggest of the ‘rest of the market’ which had formerly consisted of platforms with market shares smaller than what Douyin had claimed. And this had largely been at the expense of Alibaba. And this was only the beginning. Bytedance has its eyes on another market segment that was dominated by another Chinese e-commerce company…
In the third article in this series, we will see how Bytedance has started entering the local services market.