Original image by Mohamed Hassan
In the previous three articles in this series we’ve seen how Amazon banned cross-border e-commerce merchants from China, how they found new sales channels and how cross-border sales have become a serious threat to local western brands, platforms and sellers. In this fourth article, we’re looking into the initiatives of TikTok, which is trying get local and Chinese merchants to sell through the app.
TikTok was launched in 2017 and gained traction in 2018, quickly becoming one of the most popular global apps with 1 billion global users in September 2021. While both Facebook and Instagram still have more users, with an estimated 29 hours per month that an average US user spends on TikTok it gets more user time than Facebook (16 hours) and Instagram (8 hours) together. In the past years TikTok’s main monetization model has been advertising, with revenue from this source approximately $4 billion in 2021 and expectations that this might triple this year. (Note: to fully understand TikTok’s rise, I would suggest you read Matthew Brennan’s excellent Attention Factory – The story of TikTok and China’s Bytedance.)
Douyin, TikTok’s sister app in the Chinese home market, has been experimenting with various models for e-commerce since 2018. In that year it started generating traffic to external webshops like Alibaba’s Taobao and JD.com (more on this in a future article). In 2020 it severed their ties to these external platforms and rolled out its own e-commerce backend infrastructure. And has been very successfully at that, growing their market share in China’s e-commerce market from less than 0.5% in 2019 to 5% in 2021, mostly at the expense of market leader Alibaba.
Considering TikTok’s success outside China, it was only a matter of time before Bytedance, the company behind TikTok and Douyin, would try to replicate its e-commerce initiatives in TikTok, thereby diversifying its monetization and no longer solely depending on advertising, like many western apps.
As in China, TikTok started its e-commerce ventures by teaming up with third parties that run their own e-commerce infrastructures. In October 2020 TikTok launched a partnership with Shopify, allowing Shopify merchants to build TikTok advertising campaigns from their Shopify dashboard. Video ads were automatically generated for selected products, driving traffic from TikTok to their Shopify store.
On November 8 2020 Walmart ran a TikTok campaign called #unwrapthedeals, in which it cooperated with several TikTok creators to generate traffic to the Walmart website by clicking on a button on the screen. According to the retailer, creators made over a million videos for the campaign, and it generated 5.5 billion views. At the time Walmart was a potential party in a possible forced sale of TikTok to the retailer and Oracle, initiated by the Trump administration. Bytedance managed to stall the negotiations long enough for the newly arrived Biden administration to scrap Trump’s executive order.
In December 2020 the Walmart partnership was extended to a test with TikTok’s first ‘shoppable livestream’, an attempt to recreate China’s popular live commerce trend in the US, using TikTok creators to promote apparel products. As with the #unwrapthedeals campaign, buyers were taken out of the app to the Walmart website if they wanted to buy products. Shoppers would have a seperate check-out process, requiring seting up a user account if you didn’t have one yet. Considering how at that time e-commerce was already fully integrated in Douyin, it felt far from seamless.
Although Walmart didn’t share specific sales results – only saying the stream had seven times more views than anticipated and that it grew its TikTok follower base by 25% – Walmart called the test a success and planned another one-hour TikTok livestream in March 2021, this time focusing on beauty care products.
But the real test for e-commerce was taking place elsewhere…
In February 2021 TikTok launched Seller University, a training hub to help merchants do business on the app. It was later rebranded TikTok Shop Academy and rolled out to various countries in Southeast Asia. Early 2021 TikTok began testing e-commerce features in Indonesia and the UK.
In August 2021 SCMP reported that TikTok had expanded its partnership with Shopify and launched TikTok Shopping in the US, UK and Canada. Shopify merchants with a TikTok for Business account could add a shop page to their TikTok profile and synchronise their Shopify item catalogues to it.
In September 2021 a comparable partnership was announced with Square, a US digital payment company. Besides creating a shop with Square x TikTok (with actual sales taking place on Square) the connection also allowed for product links to be created in their TikTok videos that forward shoppers to a merchant’s Square webshops. Other partners TikTok expanded the shopping connection to were Ecwid and PrestaShop.
At a marketing event called ‘TikTok World’ in September 2021, TikTok presented the in-app storefronts for brands and launched a full-service e-commerce service. In November 2021 SCMP reported that TikTok had launched a stand-alone app for merchants in Southeast Asia to manage their TikTok stores.
There’s two ways that TikTok facilitates shopping in the app. First, there’s the TikTok Shop in which transactions are completed in the app and TikTok takes 5% commission. Another option is the TikTok Storefront which is used in the Shopify and Walmart examples from the US. In this case products are visible in TikTok, but the transactions are completed on the third-party platform (as mentioned, often requiring a user account on that webshop).
Many of these partnerships remind me of one of the first phases of e-commerce on Douyin, when the app would forward traffic to external marketplaces like Taobao … before eventually cutting those ties and setting up its own e-commerce infrastructure. I’m wondering what will happen to those partnerships if TikTok’s own e-commerce platform starts taking off…
Live Commerce in the UK
And then things got serious…
In November 2021 TikTok rolled out its first live commerce streams in the UK for Black Friday. One of the brands participating with a 3-hour broadcast was Charlotte Tilbury. It had ‘over 500 viewers’ at its peak, which doesn’t seem all that impressive. The cosmetics brand offered special low prices during the livestream, a tactic that is one of the success factors of this type of e-commerce in China. Another merchant, electronics seller TheTechHead, claimed to have sold £100.000 in its stream on the 25th. December 2021 saw TikTok UK try another live commerce event called ‘On Trend’.
In January and February 2022, TikTok was holding weekly webinars to explain e-commerce on the app. TikTok also launched a new TikTok Shop Academy website for the UK and a UK seller Whatsapp group.
Of course, to get users to start buying in the app you first need a lot of TikTok Shops. In January 2022 it became clear how much TikTok UK wanted retailers to use the app as a sales channel. Business Insider reported how small businesses were invited to open an in-app shop and how 13 top sellers would get awarded monthly prizes ranging from £1.000 to £10.000. Retailers could also win up to £3.000 in vouchers if they would do up to 30 livestreams of 2 hours each per month. Incentives and subsidies like these are very common in China. TikTok also often funded some discounts that brands were giving, as well as the costs of livestreams, like studio space and technical staff.
On top of these incentives, TikTok also lower the commission on sales from 5% to 1,8% for the first 90 days of new TikTok Shops and offered £1.000 rewards for referrals of new merchants.
It’s not just western merchants that you will find on TikTok. Many Chinese merchants have opened shops on TikTok, seeing it as an alternative to platforms like Amazon, especially after the latter started cracking down on fraudulent sellers (see the first article in this series). According to LatePost, before August 2021 only 10% of TikTok’s total e-commerce sales came from local UK merchants. By the end of 2021 this had risen to 50%.
In November 2021 Bytedance started incentivizing merchants from Guangdong to sell to consumers in the UK through TikTok. Besides free commission on the first 90 days they would receive various other benefits, like free shipping.
But it’s not easy. Language skills and a lack of understanding of the culture and audience these Chinese livestreamers are trying to sell to is often a challenge. At the same time, hiring local staff to be the livestream host is often too costly for the merchants. Another challenge are the delivery times. The cross-border logistics between a Chinese seller and a UK buyer is handled by different service providers for each of the three steps: the shipment from merchant to domestic warehouse, domestic warehouse to UK warehouse and UK warehouse to UK consumer. The last step is done by Royal Mail and the full process can take 10 to 30 days.
According to a LatePost article (link in Chinese) Bytedance is trying to solve this problem with a plan called ‘Aquaman’ (海王). It calls for setting up UK warehouses to enable e-commerce fulfilment, comparable to Amazon’s ‘Fulfilment by Amazon’ model, in which it stores and distributes sales for merchants on its marketplace for a fee. Products with stable sales will be stored in these UK warehouses to shorten delivery times to 3-5 days. Merchants can send goods to a central warehouse in China that will handle transport to the UK hubs.
Fanno & Dmonstudio
TikTok’s UK initiatives aren’t Bytedance’s only attempt at e-commerce in Europe. In November 2021 it launched an app called Fanno in Germany, UK, France, Italy and Spain. Fanno is comparable to AliExpress and many other cross-border e-commerce platforms from China, selling goods directly from Chinese factories to western consumers.
In November 2021 Bytedance also launched an e-commerce website called Dmonstudio and started advertising it on Facebook and Instagram. The site sold clothing and accessories in a clear attempt to rival Shein (watch this explainer video on Shein). Dmonstudio was shut down three month after its launch. Lack of users seems to be the main reason; according to sources the website only had 8.000 visitors per day and an average number of 2 pageviews per visitor. Maybe it was the name. You would think that a company from a culture that is highly superstitious about homophones of words and numbers would refrain from using references to demons…
In the next article in this series, we’ll learn how Bytedance is struggling to make live commerce work in TikTok UK.