TikTok Is Starting to Make Money by Promoting "In-App Shopping"

Technology, Consumer Staples Author: Yunfeng Zhang Apr 18, 2023 09:14 AM (GMT+8)

As a supernova that has dominated the top of global app downloads for many years, TikTok is arguably one of the most influential platforms in the world at the moment, and behind all this, it is also apparently due to ByteDance's continuous high investment in publicity for many years. And now, the time to harvest is coming.


TikTok is reportedly inviting sellers in the U.S. market to test its feature "in-app shopping" and create stores in TikTok, as well as promoting their products through clickable links in videos or live streams.

To attract sellers to join and users to spend, TikTok offers free shipping and fully or partially subsidizes promotional discounts on merchandise, even as it charges sellers only a 5% commission, which is lower than Amazon's 8% to 15% commission rate. On top of that, to revitalize its e-commerce business, TikTok is also testing an affiliate marketing program for local creators, who can promote items through videos, live streams and profiles, from which they earn commissions for driving sales.

In late 2021, TikTok began piloting its e-commerce business, TikTok Shop, in the U.K. and launched a campaign called "On Trend" with plans to gradually expand the business to other European countries such as Germany, France, Italy and Spain in the first half of 2022, and then to the U.S. at a later date. And then the U.S. market.

In fact, TikTok Shop is an innovative shopping feature that enables merchants, brands and creators to showcase and sell products directly on TikTok through streamed videos, LIVE and product display tags. In fact, this model should be very familiar to domestic Douyin sellers/users, and TikTok Shop can basically be seen as a simplified version of a "Douyin mini-shop".

Previously, users on TikTok had to return to the corresponding retailer's website through a link to purchase the products they saw on TikTok.

So in a sense, ByteDance is trying to replicate Douyin's successful experience in China to the US market. The logic behind Douyin's interest in e-commerce has been proven in the domestic market before, where creators create demand out of nothing through short videos or live streaming, thus stimulating users' interest in shopping. Also due to the limitations of the short video presentation, consumer interest is often fleeting, so in order to maximize the transaction, it is necessary to open the chain of consumers directly in the platform to complete the purchase.

What's more, not doing "in-app shopping" also means that TikTok can only cooperate with third-party e-commerce platforms to complete the cash flow. But bundling with third-party platforms may not be a good thing, as users jump to third-party platforms to make purchases, which means that TikTok's paid users are ultimately contributing to the third party. Long-term, as a traffic provider, TikTok risks becoming a passive shopping guide platform.

According to the information revealed by TikTok's commercialization department employees as quoted in related reports, the commercialization value of TikTok's individual users is less than one-fifth of Meta's, which actually corroborates that TikTok is still in the stage of losing money to earning money.

In the view of some industry insiders, TikTok actually has outstanding cost-effectiveness. Because TikTok's algorithmic recommendation mechanism will recommend the seller's video to users so that sellers can directly attract buyers without buying advertising, which is more effective and less expensive than advertising on Instagram and Facebook. Although TikTok's in-app shopping function is logically sound as a typical "Copy from China" project, the actual implementation level may be much more difficult than outsiders think.

Initially, TikTok's attempt in the field of e-commerce was started in cooperation with the e-commerce platform Shopify, when TikTok was responsible for traffic problems, and import transactions, Shopify is responsible for solving the return, logistics, and after-sales issues. But TikTok if you want to go it alone, storage, logistics and after-sales these problems will have to be solved by themselves. Their strategy, for now, is to issue subsidies to sellers to handle the logistics and delivery of orders themselves. Although this is a relatively low-cost solution, once disputes arise, TikTok wants intervention is actually very difficult.

The bigger problem, perhaps, is on the user, or buyer, end. Unlike the domestic super APP mobile Internet ecology, there are clear boundaries in the overseas Internet world, such as Google's search, Meta's social, Amazon's e-commerce, Nifty's video streaming, Microsoft's software and games, etc. Almost except for Apple and Google in the smartphone field will be directly against each other, the major giants are almost well water. So the end result is that the mobile application experience in the U.S. market is relatively more fragmented, different manufacturers have their own strengths, and users are used to downloading different applications to complete to meet their needs.

Nowadays, in the perception of American users, TikTok is for fun, so how to link TikTok and shopping closely together in the minds of users, which undoubtedly needs to test the level of TikTok's commercialization department.