TikTok looked to storm onto the e-commerce scene this year, and its ambitions were widely telegraphed. A “game changer,” one investor called it — natural to believe, since, as Douyin in China, it had achieved huge success in blending the experiences of shopping and video. Fast-forward to July, and TikTok’s troubled U.K. expansion had run aground, stalling the e-commerce rollout in the U.S. and Europe.
With that in mind, it’s worth asking: What exactly is Douyin trying to export, and how did it achieve such stunning results in China in the first place?
Douyin decided to focus on e-commerce in 2020, and its ability to interweave that with its content platform is paying off. One of those methods is live shopping events, or livestreaming. It’s a battleground that Douyin has come to dominate — despite being the last to enter the field, a year after competitor Kuaishou and several years after e-commerce giant Alibaba. Douyin has focused on brands and smaller sellers to great results, and avoided the reputational risks of relying heavily on superstar sellers, who can sell billions of dollars’ worth of goods, but whose popularity can tank in a moment.
It’s not that Douyin’s livestreaming functionality is all that different from that of its competitors. Livestreams are interspersed through the user’s feed; of course, you can always tap into the function as well, and browse among the categories. A real-time leaderboard shows you the top streamers, ranked by metrics like sales and viewership.
So how does Douyin actually make money from livestreaming e-commerce? If you guessed “by commission,” you would only be half-correct, as the platform actually charges very little — typically 1%–5% of sales value, depending on the category of goods being sold. The take rate is low, partly because of the stiffly competitive environment, and partly because this helps boost turnover as more sellers are encouraged to use the platform. But in order to succeed, most of those sellers will have to pay Douyin in other ways, via different forms of advertising.
Sound familiar? That’s right — much like how Amazon sellers pay to show up in top search results, Douyin allows you to advertise your livestream in users’ feeds. TikTok has just one option for creators to have paid posts (straightforwardly called “Promote”). But Douyin has at least two more, targeted towards boosting the livestreams of business accounts. Together, these are believed to be a significant revenue stream for Douyin, and presumably, still part of the playbook TikTok hopes to bring overseas.
Since Douyin requires livestream e-commerce transactions to be completed on the platform instead of being redirected elsewhere, this all forms a “closed loop,” where the user never strays from the app. It’s the ideal flywheel, and the envy of platform companies everywhere.
Douyin has a third item in its e-commerce armory: Douyin Partners. They’ve emulated Alibaba by having verified third parties who take care of all your finicky operations as a seller. Partners will run your entire account for you — from making your short videos to operating your storefront, partnering with livestreamers, coming up with an advertising strategy, delivering customer service, and even handling warehousing and logistics. It would be interesting if TikTok tried to replicate this, at least in some international markets. It hasn’t tried yet, even in Southeast Asia where livestream shopping is rolling ahead.
Just a few years ago, it was early pioneer Kuaishou that was winning in China’s booming short-video scene. That has since tipped the other way. Douyin is growing fast, with 880 million monthly active users — up by more than 22% compared to 2021 — and pulling away from the competition through its relentless focus on algorithmic recommendations. Kuaishou, on the other hand, is hovering at 607 million users, a decline of 1% on the previous year. I wouldn’t say that’s stagnation, but it’s something close to it — perhaps to be expected in a saturating, highly competitive market.
Unlike Kuaishou, Douyin has leaned into the two formats of live shopping that aren’t linked to influencers — those run by brands (who are selling their own products) or stores (selling various lines). That’s been especially smart for Douyin and the merchants’ bottom lines, as far as analysts can tell. Stores have figured out that they want ownership over their customers, and want to avoid paying influencers their 20% or more cut of sales. Meanwhile, big, personality-based streaming sellers have shown that they are vulnerable to scandal. Their share of Douyin’s Top 1000 livestreaming accounts has sunk to 49% as of March 2022, from over 70% in July 2021.
What would have happened if Douyin had gone the other way? Kuaishou is still synonymous with fan-based livestream e-commerce, where the top “family” of influencers, led by livestreamer Xinba, reached over 40% of the app’s total monthly average users in 2020. It’s not a bad strategy, but with scandal after scandal, and the constant fear that they’ll abandon one platform for another, celebrity livestreamers come with much more uncertainty than brands.
(A quick, cautionary metric to watch out for: time spent on both apps per day, which is hitting over 100 minutes in China and, consequently, running the risk of entering serious addiction territory and scrutiny from the government. But neither TikTok nor Kuaishou have that worry overseas, at least for the time being.)
Livestreaming may not be the answer everywhere. But, despite its hazards, there are plenty of things TikTok can still do to become a force in e-commerce internationally. Southeast Asia seems the closest shot for now, in terms of similarity to China in retail purchasing behavior.
Douyin was an e-commerce underdog in China just two years ago; now, through a combination of making selling easy and leaning into its competitive advantages, it’s drawn ahead. With a strategy that is more friendly to brands and merchants, it can win again, I think.