Many ecommerce ecosystem stakeholders we spoke to have been puzzled by TikTok Shop’s prolonged focus on profitability this year.
Earlier this year, TikTok Shop reduced subsidies and increased commissions in many countries in Southeast Asia. Many expected it to be a short term adjustment to test the bottom line before ramping up the attack again – as the current market share would not make TikTok Shop feel secure in Southeast Asia.
However, we are already in the last quarter of 2024, and we still do not see the return of aggression. In the meantime, share price of Sea Group, whose subsidiary Shopee is one major rival of TikTok Shop in Southeast Asia, has increased by more than 150%.
What is happening? Is that because of the uncertainties in the US market surrounding TikTok Shop? Or because the ByteDance management imposed stricter ROI requirements?
An article published last night by well-respected Chinese tech media LatePost might offer some clue to this. Here we have extracted a few key points of the article – do note that we do not necessarily agree with the points made here:
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- In a town hall at the end of 2020, ByteDance founder Zhang Yiming mentioned that the company had “used up all its major moves”. Not sure how many in the audience sensed the urgency in what he said: the company was becoming big and bulky, and spending billions of advertising profit to find new growth areas, in education, gaming etc.
- ByteDance’s advertising income continued to grow after that town hall, surpassing Alibaba and making it one of the top three advertising companies in the world.
Ecommerce was a major driver of that advertising revenue surge – merchants and MCNs were willing to pay for consumer traffic because they saw Douyin (TikTok’s cousin focused on Chinese domestic market) as a major growth engine on ecommerce sales. - However, this year, the growth momentum seems to be dissipating. According to numbers acquired by LatePost, while ecommerce MAUs of Douyin has increased to more than 400 million by September 2024, growth of ByteDance quarterly advertising revenue in China YoY has dropped from 40% to 17%, missing targets in the last two quarters.
- However, with many Chinese ecommerce platforms focusing on “savings”, Douyin finds it less competitive compared to Pinduoduo in offering the lowest price. GMV YoY growth has decelerated from 60% to 20%. While the management had anticipated some drop because of the ‘low price’ strategy, the magnitude of the drop exceeded their expectations.
- Douyin has been trying to move away from the low cost strategy since the middle of the year. However, ecommerce merchants could not move that fast because they had inventory planned and operational models optimised. The swing in strategy has also caused some confusion amongst Douyin’s workforce as well as merchants on the future direction.
- In the meantime, Douyin’s assault on local services has faced very strong resistance from Meituan. Through a strong on the ground BD team targeting merchants, enhancement of loyalty schemes for consumers, and heavy investment in live streaming, Meituan made it hard for Douyin to encroach further into its turf.
- More importantly, Douyin brought surges of orders while Meituan offered more consistent order volume, allowing local service merchants to better cope with the demand.
- One Douyin ecommerce employee told LatePost “Q4 is the peak period for ecommerce, and an opportunity for Douyin ecommerce to pick up the momentum again. It would be a warning sign if we can’t accelerate our growth in Q4”.
- The author of the article concluded that ByteDance might need to consider what Alibaba has done: focusing on what matters the most for the group, and giving up the non core businesses.
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You can read the original article for more details. While we do not necessarily agree with the points made above, we do feel that some major re-thinking is going on, and that would impact the strategies for TikTok Shop for sure.
It is interesting that the top liked comment on the article reads: “My habit now is to watch Douyin Live to understand more about a product, and then go on to Pinduoduo to search for the same product. It is always much cheaper on Pinduoduo.”
That is telling on the current competitive dynamics amongst all the major ecommerce platforms in China.