TikTok, the popular short video app owned by Beijing-based ByteDance, is expanding into e-commerce to find additional sources of growth. Despite having a large user base and millions of viewers, TikTok has struggled to translate its popularity into profit. That’s why the company has launched TikTok Shop, an in-app e-commerce platform that allows users to purchase items directly within the app.
TikTok Shop has already seen significant success in Southeast Asia, where sales have increased sevenfold in the past year. This is largely driven by young users, and TikTok’s presence in Indonesia, one of its largest markets outside of the United States. Now, the company is aiming to replicate this success in the US, Amazon’s home territory. TikTok Shop launched in the US this month and has already attracted over 200,000 sellers.
One of TikTok’s biggest advantages in the e-commerce space is its large and engaged user base. With over 150 million users in the US alone, TikTok has a vast audience that it can expose to products and recommendations. Users spend an average of 95 minutes on the app every day, giving TikTok ample opportunity to showcase products and drive sales.
However, there are regulatory risks associated with TikTok’s expansion into e-commerce. Countries like Indonesia have accused the platform of “monopolistic” business practices, while US officials have raised concerns about TikTok’s Chinese ownership as a national security risk. The Biden administration has even threatened a nationwide ban if TikTok’s Chinese owners don’t divest their holdings. A ban in the US market would pose a significant risk for ByteDance investors, as the company heavily relies on growth in the United States.
Despite these risks, TikTok has a narrow window of opportunity to capitalize on the favorable trend of social media-driven e-commerce. Chinese shopping platforms like Shein have already achieved phenomenal popularity and growth in the US market, thanks to their ability to connect with young consumers. TikTok can leverage its recommendation algorithm and user interests to suggest relevant items to shoppers, further boosting its e-commerce efforts.
In conclusion, TikTok’s expansion into e-commerce through TikTok Shop is a strategic move to find additional sources of growth and monetize its large user base. While there are regulatory risks and concerns about national security, TikTok has an opportunity to tap into the trend of social media-driven e-commerce, especially among young users. By leveraging its recommendation algorithm and engaging users, TikTok has the potential to become a major player in the e-commerce space.
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Dear reader,
When a company’s core business model is overwhelmingly successful, there isn’t always much pressure to find additional sources of growth. TikTok’s short videos have hundreds of millions of viewers. But growth does not equal profit. This explains why TikTok, owned by Beijing-based ByteDance, is moving forward e-commerce plans.
In-app e-commerce platform TikTok Shop is already a major player in Southeast Asia. Users can purchase items directly in the app instead of clicking through to other sites.
Sales have increased sevenfold in the past year. Young users are driving the rapid growth. It helps that Indonesia is one of TikTok’s largest markets outside of the United States.
That’s quite a feat, given that the region has long been dominated by giants such as Alibaba-backed Lazada, Singapore’s Shopee and Indonesia’s Tokopedia.
Now TikTok wants to replicate that success in the United States, Amazon’s home territory. TikTok Shop launched in the US this month. More than 200,000 sellers have signed up, and TikTok is aiming for a gross merchandise value of $20 billion for its e-commerce business this year.
A large user base, with over 150 million users in the US alone, gives it an edge. It helps that many of its users are young and already experienced in online shopping. Sourcing viral products from TikTok content is especially popular.
Additionally, TikTok’s recommendation algorithm matches videos to users’ interests. This was a key factor in keeping its viewers hooked. Applying this algorithm to shopping preferences should prove useful by suggesting relevant items to shoppers.
Users spend the most time on TikTok among all platforms worldwide, with the average TikTok user spending 95 minutes on the app every day. This means plenty of time to expose more products to potential buyers.
There are regulatory risks. Indonesia has threatened to curb the trading platform, accusing it of ““monopolistic” business practices.. Such concerns could be replicated in other markets.
US officials have described TikTok as a national security risk for years. The Biden administration threatened a nationwide ban if TikTok’s Chinese owners didn’t divest their holdings. Earlier this year, the US House of Representatives banned TikTok on employee devices. Dependent users would complain bitterly if access were revoked. But the United States isn’t the only country concerned about the app. India banned TikTok in 2020, citing security concerns.
A ban on the app in the US market would pose the biggest risk for ByteDance investors. It is one of the most valued private companies in the world, with a reported private valuation of $220 billion following an investment round in March, and is heavily dependent on growth in the United States.
The good news is that so far, Chinese shopping platforms like Shein have enjoyed phenomenal popularity and growth in the US market. It has its US users to thank for its record profit in the first half of the year. TikTok still has a narrow window to capitalize on the favorable trend.
Elsewhere in Asia
Speaking of e-commerce and social media, WhatsApp has just has launched an in-chat payments service in India. It looks like Meta has finally managed to monetize its messaging app.
There is a lot of interest in the new Huawei Mate 60 Pro smartphone and whether Chinese consumers will choose it over Apple’s new iPhone lineup. Qianer Liu in Hong Kong took one look closely at the internal workings to see how impressive the chips are. Meanwhile, Martin Wolf argues that we can’t declare “peak China” for now.
Have fun the rest of the week,
June Yoon
Editor of Lex Asia
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