Toutiao is an undisputed giant in the content and news aggregator market in China. We have also written about how its video app “Tik-Tok” is hugely popular in Southeast Asia. But what you may not know is that Toutiao quietly launched an app named Zhidian in September this year to enter China’s lucrative ecommerce market.

Ownership breakdown of Bytedance, Jinri Toutiao, and Zhidian. Toutiao controls 100% of Zhidian.  Source: Sohu Tech.

Toutiao’s large user traffic and strength in machine learning present a major opportunity for entering ecommerce.

The obvious question – how will it remain competent and distinguish itself from established players such as Alibaba, JD.com and Suning?

The name gives a clue to this question. Zhidian roughly translates to “value point”. Meaning, it will retail high-quality consumer goods at low prices. Its strategy is to sell these products at prices below CNY200 (USD29). It will achieve this by sourcing them directly from factories and thus removing middlemen in the process. This maps well onto its reader base which include mid and lower economic strata.

Choosing enemies

Toutiao’s strategy of selling products at lower prices puts it in direct competition with Pinduoduo, a recently listed ecommerce platform that also targets bargain hunters especially in lower-tier cities. However, at this point Pinduoduo’s range of products are much wider than that of Zhidian’s. We checked the app and noted that as of now it offers clothing, household essentials, kitchen items, food and beverages, and car products. 

There is no reason why Toutiao won’t be able to add more sellers and SKUs since there are so many of them and they are ready to list on any platform that can sell. However, this runs a risk of earning the wrath of Alibaba if they pose a threat. We saw the anti-competitive attack by Alibaba on Pinduoduo just recently.

Pinduoduo is a direct competitor and has already built a big presence. Source: GGV Capital

Zhidian’s rivalry with Tencent is also apparent because they accept mobile payments only via Alipay and not WeChat. The decision to leave out WeChat stems from the long-standing rivalry between Bytedance (owner of Toutiao and now the world’s highest-valued tech startup overtaking Uber) and Tencent Holdings (owner of WeChat). We have written about the rivalry in detail in our earlier post. This has especially escalated in the last year as Tencent barred users from sharing Tik-Tok videos (owned by Bytedance) on its social app WeChat in order to promote their own video platform Kuaishou. Tencent is also the largest shareholder of Pinduoduo making the battle lines more explicit.

Toutiao keeps friendly ties with Alibaba and JD.com

Its relationship with Alibaba and JD.com on the other hand is friendly. One can’t afford to keep too many enemies. Apart from accepting payments from Alipay, Toutiao has also previously partnered with Alibaba and JD.com by offering users to buy products from those platforms within the Toutiao app.

It will be interesting to see how Toutiao continues to partner with Alibaba and JD.com now that it has its own standalone ecommerce app. As of now Alibaba and JD.com are blocked from Tencent’s WeChat and QQ so Toutiao’s social distribution channel will be of great value to the two ecommerce biggies.

Marriage of content and ecommerce 

Picture from Toutiao’s website that says “The only headlines are those that you care about.”

Toutiao is known as China’s content king. It has earned this name because it offers targeted, high quality-content feed backed by machine and deep learning algorithms. It can now leverage this pushing algorithm with its 200-million+ strong base of monthly active users in ecommerce.

Toutiao’s large monthly active user base

Early signs of how Zhidian is planning on leveraging data can be seen from the very interesting fact that at the moment it sells only men’s apparel. We think that this could be because Toutiao has had some experience earlier with ecommerce via the shopping section on the Toutiao app called Fangxin Gou. This ecommerce section specifically caters to middle-aged males from smaller cities who are not traditional online shoppers. Is it possible that they found this demographic to be an underserved niche potential (a blue ocean)?

Apart from identifying what its users want, Toutiao has been phenomenally great in aligning it with their business model. Great monetisation strategy = unmatched revenue growth (image below). By catering products that are highly relevant to a user’s needs, Toutiao can play a role in product discovery mechanism via Zhidian.

Making the shopping platform addictive

Algorithms to curate targeted content are great. However, they mean nothing if there is no user data to work on. The more time consumers spend on your app, the more you learn about them. Toutiao has done this really well because it focussed on making an addictive product. Toutiao users on average spend 73 minutes daily on the app (more than Facebook) and the engagement data generate better personalisation and recommendation.

Toutiao is transferring this stickiness to Zhidian as consumers can also read the news while they are browsing for products to shop. The app offers various news feeds on topics such as health and food and hopes that spending more time can prompt shopping behaviour.

What lies ahead?

The future of Zhidian is hard to predict. Pinduoduo is a formidable competitor and one has to wait to see whether Zhidian will generate substantial revenues to add to Bytedance’s overall business model. It is also unclear how well Fangxin Gou has performed and whether it will be merged with Zhidian. Outside its core strength of data-driven algorithm, Toutiao will have to face tough challenges in building a strong supply chain network.

 

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.