TikTok, which lost 3.6 billion yuan in e-commerce, is in a hurry to compete with Amazon | In-depth

The saying "A tree that stands out in the forest will be destroyed by the wind" is very apt to describe TikTok's long journey to the United States in recent years.

As of the end of 2022, TikTok's global user base has exceeded 1.6 billion, with the United States, as the largest market segment, covering more than 150 million users, nearly half of the local population.

In the six years since its establishment, TikTok has been growing rapidly overseas, even surpassing the growth miracle of Douyin. However, the increasingly fierce geopolitical risks have always constrained TikTok's pace - the sword of Damocles hanging over its head may fall at any time. Therefore, before the trial comes, TikTok chooses to take the initiative to try to replicate Douyin's e-commerce myth.

In TikTok's e-commerce utopia, the US market is a must-attack. But ideals are no match for the harsh reality. Facing this tough nut to crack, the interest e-commerce territory that TikTok has conquered is just the tip of the iceberg.

Initially, TikTok's attempt to e-commerce in the United States mainly relied on a semi-closed loop model, but if it only directed traffic to third parties, it was obviously far from the mature empire that TikTok envisioned. In November 2022, TikTok's US store was officially launched, marking the beginning of building an e-commerce closed loop in the US market.

However, TikTok Shop did not make as much of a splash as expected. Under the threat of sanctions from the US government, most businesses are unwilling to invest too much time and resources. Especially after the hearing in March, the number of businesses that actually sold products in small stores in the United States was less than 100.

Traffic is the source of e-commerce, and TikTok has never lacked traffic stories, but rather the ability to monetize. Although it has 150 million American users, most of them simply see it as an entertainment and social venue, and some even just see it as a shopping recommendation agent. If TikTok wants to get rid of the constraints of its identity as a social media platform and turn traffic into actual orders and sales, it is inevitable that it will change its strategy.

To this end, TikTok did not hesitate to cut off the semi-closed loop model and completely cut off external links. According to reports, TikTok's semi-closed loop model will be closed on September 12, and the focus will be on closed-loop stores.

Previously, TikTok was bound to the Shopify plug-in. When users clicked on the shopping cart of the video content or the product link placed in the homepage window, they could jump to the external platform to make the purchase.

For merchants, TikTok's semi-closed-loop yellow car is a low-cost and efficient independent station traffic channel. But from TikTok's perspective, in the semi-closed-loop model, it only serves as a traffic transfer medium, and it is difficult to build its own e-commerce ecosystem from it.

What’s even more thankless is that TikTok cannot track external transaction information, making it difficult to control merchants, but it needs to be held responsible for merchants’ bad sales practices. The direct consequence is that many users have low trust in TikTok consumption.

With multiple hidden dangers, it is almost inevitable for TikTok to shut down its semi-closed loop model. On the one hand, this is due to the need to build a mature e-commerce ecosystem and keep users' consumption behavior on the platform; on the other hand, this also means that TikTok can effectively track each link and retain the corresponding data in order to further improve its e-commerce sales.

In fact, TikTok's current transformation and change are infinitely moving towards Douyin. In the early stages of Douyin's e-commerce process, it was briefly used as a medium for third-party e-commerce traffic, and most of its e-commerce KPIs came from platforms such as Taobao and JD.com.

Three years after closing the window for e-commerce traffic leakage, Douyin e-commerce has formed a mature and self-consistent ecosystem. When TikToK's global user base exceeded 1.6 billion, Douyin's users were about half of that. But Douyin is far ahead in what TikTok is trying to replicate the most: commercial monetization capabilities .

Relevant data show that in 2022, Douyin's commercial revenue was approximately 264 billion yuan, accounting for 80% of ByteDance's revenue; TikTok's commercial revenue was approximately 10 billion US dollars, accounting for only 12.5% ​​of ByteDance's revenue.

But even so, ByteDance still has great ambitions for TikTok: According to The Information, Douyin's GMV exceeded US$200 billion last year. Executives hope that by 2028, TikTok will be able to achieve the same revenue level as Douyin in 2022 - US$200 billion in GMV, and the initial plan for the US market is about US$40 billion to US$60 billion.

In order to fulfill this blueprint, TikTok cut off the semi-closed loop model and focused on the full closed loop of TikTok Shop by following the example of Douyin.

However, the TikTok Shop in the U.S. is still implementing an invitation system. Not only does it have high logistics requirements - it must have a local warehouse in the United States and ship within three days - it also puts a great test on financial strength. Coupled with the possible risk of being banned, domestic and foreign merchants are generally cautious about such a sales channel that is still in its traffic dividend period.

TikTok is not the only one eyeing the North American pie. Putting aside the local giant Amazon, the competition pressure from overseas platforms such as SHEIN and Temu is increasing. In particular, Temu, which entered the overseas market in September last year, has established a foothold in many markets around the world in less than a year and has long been the top shopping app in the United States.

Compared with the other two, TikTok's advantage lies in its huge user base of 1.6 billion. According to data from market intelligence company SensorTower, the combined users of Temu and SHEIN only account for 20% of TikTok's global user base.

However, although TikTok occupies a high traffic area, its e-commerce genes are far less strong than those of TikTok. If it has traffic but cannot monetize it, then this advantage will be meaningless. How to solve the problem? Of course, if you can't beat them, join them - imitate the full hosting model .

If eliminating semi-closed businesses is the inevitable path for TikTok's e-commerce process, then TikTok stores and the fully hosted model are both important parts of the full closed loop of e-commerce . The former focuses on local American merchants, while the latter is aimed at Chinese cross-border merchants.

In May of this year, TikTok Shop launched a new project code-named "S", taking the lead in testing the full-hosting model in the UK and Saudi markets, and introduced it to small stores in the United States in August.

Under this model, the platform takes full responsibility for complex links such as operation, warehousing, logistics and after-sales service, and merchants only need to be responsible for product creation and supply. This means that TikTok Sho can better control the pricing and quality control of products, and transform the overall planning of the rear supply chain into a product advantage for the platform.

In order to attract more suppliers to join, TikTok Shop has held dozens of offline events since May, not only relaxing the entry threshold, but also providing tax subsidies and bearing logistics costs for suppliers. According to some industry insiders, its fully managed business is currently in the same strategic position as local small stores.

However, although platforms such as Temu have long proven the feasibility of full hosting, for TikTok Shop, which has a more special positioning, can it finally cure its e-commerce problems as it wishes?

The implementation of the full trusteeship model also means extreme control over store operations, logistics fulfillment, after-sales service and other aspects. However, in comparison, TikTok Shop's e-commerce infrastructure is relatively weak.

During this process, the required expertise, talents and even thinking patterns will change, and a lot of investment in warehousing, supply chain management and after-sales service will be needed, which is a big challenge for the newly started TikTok Shop.

According to sellers' feedback, TikTok Shop's fully managed management is chaotic and disorderly, and the process is complicated and lengthy. Not only is the product review cycle too long, but some suppliers also need to shoot product videos themselves to grab traffic resources, which is not a true hands-off storekeeper.

Another key issue is that TikTok Shop belongs to the content e-commerce track. The fully managed model of integrating supplier resources and coordinating scheduling is actually somewhat contrary to the logic it follows. Whether it can cultivate users' interest in e-commerce consumption habits and successfully form a dual-link model of "content + shelves" is the key to breaking through its full e-commerce closed loop.

According to industry reports, the predecessor of TikTok Shop's fully managed business was IfYooou, which initially followed SHEIN's strategy of weakening the store and building the entire SHEIN brand. With the strong rise of Temu, TikTok Shop soon turned to it, fully benchmarking Temu's model of highlighting the store.

Perhaps for TikTok Shop itself, there is currently no clear outline of what kind of full-hosting path it should take.

For TikTok Shop, which has established a foothold in the US market, Amazon is still an insurmountable mountain.

This gap mainly comes from two aspects. First, the lack of user awareness. Europeans and Americans are still in the process of developing their interest in e-commerce consumption habits. Most users are accustomed to shopping through shelf e-commerce platforms led by Amazon. Second, the backwardness of e-commerce infrastructure . After years of accumulation, Amazon has formed a complete and mature platform operation system and warehousing and logistics facilities.

Earlier, foreign media reported that TikTok Shop will set the tone for the next phase of e-commerce business, seeking to challenge giants such as Amazon through new e-commerce initiatives. Judging from its movements in the past year, it is enough to get a glimpse of this.

Since February this year, TikTok Shop has been launched in multiple Southeast Asian sites in Thailand and the Philippines, and landed in the UK in June. It is expected to be launched in the US market soon.

The so-called TikTok Shop mall is a shopping area within the app that displays TikTok's own products. These own products are provided by Chinese manufacturers. Like the Douyin mall, it has search, store, shopping cart, product recommendation and other columns, and has the core elements of traditional shelf e-commerce.

TikTok Shop aims to provide support for the entire transaction process, including product discovery, shopping, checkout, payment, and returns, and to build an Amazon-like flywheel consisting of three major elements: media, advertising, and e-commerce.

Since October last year , TikTok has posted a large number of positions related to US logistics and warehousing positions on relevant recruitment websites. In June of this year , TikTok established a partnership with US warehouses and cooperated with external logistics companies that lease and operate warehouses to provide sellers with warehousing management, packaging and transportation services.

In addition, TikTok Shop has recently launched FBT logistics services in the UK, providing warehousing, sorting and delivery services for TikTok Shop UK merchants. FBT is comparable to Amazon FBA, but the difference is that TikTok Shop mainly completes logistics fulfillment through cooperation with third-party logistics companies.

The secret of Amazon's dominance in the North American market is the high-quality experience brought by its self-operated logistics and warehousing, but behind its speed is the result of more than 20 years of long-term accumulation. Of course, compared with the asset-heavy road of self-built logistics, cooperating with external logistics is a better way for TikTok Shop at this stage.

According to Ebrun, TikTok Shop's GMV in the United States has surpassed that of the United Kingdom, with an average daily GMV of up to US$2 million. Some sellers have a daily turnover of US$100,000 to US$200,000.

According to data from major research platforms, the total number of TikTok Shop stores in the United States increased by more than 80% month-on-month in July, and the total sales growth rate exceeded 100%. The specific number increased from more than 300 in April to nearly 6,000 in July.

As far as the above data is concerned, from benchmarking Amazon's e-commerce optimization initiatives, to entering full hosting, and then to closing the semi-closed loop model, TikTok Shop's e-commerce full closed loop journey has achieved phased results.

However, behind the beautiful GMV figures, TikTok Shop is also facing the dilemma of burning money for growth in the United States. According to the latest news, TikTok Shop's losses in the United States this year are expected to exceed US$500 million.

The main reason for this loss is the huge investment in recruiting employees, building a distribution network, and subsidizing merchants (free product listing, free delivery service, zero commission and free storage space).

Therefore, given the current situation, TikTok Shop still has a long way to go before it can truly enter the hearts of European and American consumers.