It’s well-known that Chinese internet giants, unlike their American counterparts, don’t often stay in their own lane. Whether born of paranoia or sound business strategy, over the years, we’ve watched Alibaba’s attempts to enter digital entertainment and social media, Tencent’s efforts in e-commerce, and Meituan’s forays into ride-hailing.
TikTok and Douyin’s parent company ByteDance, of course, is no exception. In fact, it’s probably the most sprawling of the lot, having made high-profile investments that span gaming, education, e-commerce, health care, and more. But, in the last two years, e-commerce has been its primary focus — especially selling goods through live shopping. The company is even attempting to export its e-commerce success by rolling out TikTok Shop abroad, including the all-important livestream feature.
Sure, China’s consumers might be as hyped about new styles of e-commerce as ever. The catch is, according to Chinese business newspaper LatePost, some Douyin insiders believe that the entire livestream shopping market in China may top out very soon, within the next two years. That market is still just 14% of total online retail in China — despite its much-touted high growth, and despite all the noise around it. So, what does this say about Douyin’s e-commerce successes?
ByteDance has a bold goal of bringing in $200 billion worth of e-commerce activity for 2022 (in terms of gross merchandise value, or GMV), which is ambitious. But, for comparison, that’s a fraction of Alibaba’s $1.1 trillion in sales. That’s partly because the livestreaming pool is just so much smaller than regular online marketplaces.
In that spirit, the Douyin team has steadily stepped up its more “traditional” e-commerce marketplace efforts. It rebranded the individual shopfront format of Douyin Shops 抖音小店 to the marketplace Douyin Shopping Mall 抖音商场 last August, already anticipating livestreaming growth to slow. From here, the Shopping Mall is going to have to play a greater role to extricate Douyin from its livestreaming dependency. Achieving its even loftier goal of making $400 billion in two years’ time means that Shopping Mall will have to contribute at least $140 billion of GMV as soon as next year — up from the low tens of billions at the moment, in my estimate.
The first challenge for Douyin, as a video platform, is striking a balance between e-commerce and entertainment content. According to proprietary research firm Six Degrees Intelligence, a qualitative research platform with extensive coverage in China, Douyin’s e-commerce-related data showed that if there was more than 10% traffic dedicated to e-commerce content in a video feed, there would be a hit to user retention and time spent on the platform. It appears users, in fact, have a limited appetite for such shows. Six Degrees found that, in the past few quarters, Douyin has quietly lowered the ratio of e-commerce livestreams to other livestreams — from 30% to just 20%.
Second, the livestreaming format actually restricts how many individual kinds of items sell well. Each video can only accommodate one link; so, even if sellers on Douyin use short videos, typically only the bestselling items are shown. The result, according to Six Degrees, is that often, just two to three items contribute over 80% of sales for the average Douyin store.
Vendors can also struggle with high return rates, thanks to buyer’s remorse. Returns can amount to about 20% of products purchased, across the board, but after this year’s CCTV programming on fraud for World Consumer Rights Day, levels hit as high as 80% for some categories, like jewelry.
Third, Douyin needs to build out logistics. For this year’s Singles’ Day, Douyin was already beta-testing its own logistics services in a few major cities, in a form that resembled Alibaba’s fourth-party logistics provider Cainiao. It is too early to say what strategy it will ultimately adopt, although many think there’s no avoiding building its own delivery fleet if Douyin is serious about going down the e-commerce route, even though that is very costly.
Ideally, if all goes to plan, Six Degrees’ research says that Douyin would like to see livestreaming account for 50% of sales, and short video for 25%. The remaining 25% of GMV should come from the Shopping Mall marketplace product — or what is increasingly being referred to as “shelf e-commerce,” versus the much-hyped, interest-based, algorithmic model exemplified by livestreams.
In order to entice more users to explore the Shopping Mall, Douyin has just launched a 9.9 yuan area, which makes it compete head-to-head with deep discounter Pinduoduo. The thing is, Pinduoduo is still coming out on top right now. It uses the banana-in-the-bodega trick: cheap items priced low to entice users to browse further and find other items they might want to buy, all within Pinduoduo. Douyin doesn’t have the same control over where users may go after they enter the Mall, and they may click through to e-commerce short videos or livestreams that take them somewhere else.
But, if it succeeds, it might just help Douyin become a true full-stack e-commerce player: expanding out from the livestreaming it’s helped to make mainstream, and installing itself as a peer alongside marketplace giants such as Alibaba.