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ByteDance's platform takes on US e-tailers
By BELINDA ROBINSON in New York | China Daily | Updated: 2024-02-02 09:42
The TikTok logo is seen in this illustration. [Photo/VCG]
Snapshot Brief: Key Takeaways
Strategic Expansion: TikTok is diversifying its business model by entering the e-commerce space, aiming to leverage its 150 million US users.
E-Commerce Goals: Aims for $17.5 billion in merchandise volume this year, signaling ambitious growth plans.
Market Challenges: Converting a video-sharing platform's user base into e-commerce customers poses significant challenges, with skepticism from experts about the feasibility and profitability.
Global Presence: Already operational in multiple regions, including Southeast Asia, where it has seen success, indicating a broad and strategic global e-commerce initiative.
Competition and Differentiation: Faces competition from established e-commerce giants but seeks to differentiate by integrating shopping seamlessly into the entertainment experience offered by the app.
Tactic for Sales: Utilizes impulse buying through easy access to shopping features within the app, hoping the convenience and integration will encourage purchases.
Partnerships and Infrastructure: The shop is linked with third-party platforms like Shopify, indicating a strategy to integrate with existing e-commerce ecosystems.
Challenges Ahead: Despite early successes, TikTok's e-commerce venture faces significant challenges, including competing against Amazon's established infrastructure and distribution advantages.
TikTok, the wildly popular video-sharing platform, is attempting to challenge e-commerce giants such as Amazon of the United States and Shein and Temu of China with its own e-commerce shop that sells made-in-China goods to Americans directly via its app.
The e-commerce shop offers everything from clothes to electronics to kitchen gadgets and aims to tap into the potential buying power of TikTok's 150 million users in the US. The company hopes the move will enable it to achieve a goal of $17.5 billion in merchandise volume this year, according to Bloomberg.
But Z. John Zhang, professor of marketing at the Wharton School of the University of Pennsylvania, sounded a note of caution over a company's ability to immediately use its base from one thing (like video sharing) to succeed in another sector, such as the sale of goods.
"It is not yet totally clear that a large customer base built for some other reasons can be converted into profitable retail customers," Zhang said.
TikTok, owned by Beijing-based ByteDance, which has $80 billion in revenue, first launched its shop in Saudi Arabia and in the United Kingdom in 2022. It is also available in Thailand, Vietnam, Malaysia, the Philippines, Singapore and Indonesia.
It has been successful in Southeast Asian markets such as Indonesia, where it has more than 100 million active users. It was set to make $20 billion in global gross merchandise sales in 2023.
The US version of the shop was first available in September 2023. Analysts said that it is clear that TikTok is positioning itself to take on Amazon, and Chinese-owned companies Temu, Shein, Shopee and Alibaba's AliExpress, which are already popular in the US.
However, those brands are a few steps ahead, as their e-commerce platforms have already gained momentum. And since 2019, Amazon has had a livestreaming service that allows for items to be sold through live videos.
While it is yet to be seen if the in-app marketplace can rival the biggest in the business, as of October, TikTok Shop was selling about $7 million worth of products daily in the US, The Wall Street Journal reported.
Users in the US can buy goods while scrolling through an endless number of short videos and livestreams. They simply click a button on the video that leads them to a link to purchase.
Buttons that connect to the shop also are on the app's home screen and allow shoppers to buy products without leaving the app. That, it is hoped, will lead people to buy goods impulsively, according to analysts.
"With TikTok Shop, we're giving people a place to experience the joy of discovering and purchasing new products without leaving the app," the company said in a statement.
The tactic of entertaining people and encouraging them to shop has been successful for Douyin, the domestic Chinese version of TikTok and JD.
Content creators and influencers also are able to review or market the merchandise and receive a commission on the goods sold — much like a similar program by Amazon.
George Yip, emeritus professor at Imperial College London and a distinguished visiting professor at Northeastern University in Boston, said he believes that TikTok is simply following a tried-and-tested method of how apps operate in China.
"What's different about China is that they have these all-in-one apps," Yip told China Daily. "That is their main focus, such as Tencent's WeChat, which is now bringing people in to purchase as well. The Chinese are very good at all-in-one apps, and (TikTok is) simply trying to follow that practice in the US."
The TikTok shop is linked to third-party platforms like Shopify, Salesforce and Zendesk, according to Reuters.
It is trying to lure the same US customers who spent a record $38 billion online in the US during Cyber Week — the five days from Thanksgiving on Nov 23 to Cyber Monday on Nov 27.
But it will have an uphill battle competing with Amazon. During the same timeframe, it had an extended Black Friday and Cyber Monday promotion, which led customers worldwide to order more than a billion items, giving Amazon "record-breaking" sales.
Yip said: "Amazon, of course, has the advantage of its distribution system and warehouses. So that's hard to beat."
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