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Dear reader,
When a company’s main business model is a runaway success, 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 pushing forward with ecommerce plans.
The in-app ecommerce platform TikTok Shop is already an important player in south-east Asia. Users can buy items directly in the app instead of clicking through to other sites.
Sales are up sevenfold in the past year. Young users are driving the rapid growth. It helps that Indonesia is one of TikTok’s largest markets outside the US.
That is a feat given 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 US — Amazon’s home turf. TikTok Shop launched in the US this month. More than 200,000 sellers have registered and TikTok is targeting a gross merchandise value of $20bn for its ecommerce business this year.
A large user base, with more than 150mn users in the US alone, gives it an edge. It helps that so many of its users are young and already well versed in online shopping. Sourcing viral products from TikTok content is especially popular.
Moreover, TikTok’s recommendation algorithm matches videos to user interests. That has been a key factor in keeping its viewers hooked. Applying this algorithm to shopping preferences should come in useful by suggesting relevant items to shoppers.
Users spend the most time on TikTok out of all platforms around the world, with the average TikTok user spending 95 minutes on the app every day. That means ample time for more products to be exposed to potential shoppers.
There are regulatory risks. Indonesia has threatened to curb the shopping platform, accusing it of “monopolistic” business practices. Such concerns could be replicated in other markets.
US officials have also been describing TikTok as a national security risk for years. The Biden administration threatened a nationwide ban if TikTok’s Chinese owners did not divest their stakes. At the start of the year, the US House of Representatives banned TikTok on employee devices. Addicted users would complain bitterly if access was revoked. But the US is not the only country to worry 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 yet to ByteDance investors. It is one of the world’s most highly valued private companies, with a reported private valuation of $220bn following an investment round in March, and is heavily reliant on growth in the US.
The good news is that until now, Chinese shopping platforms such as Shein have been enjoying 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 in which to take advantage of the favourable trend.
Elsewhere in Asia
Speaking of ecommerce and social media, WhatsApp has just launched an in-chat payments service in India. Meta appears to be finally getting around to monetising its messages app.
There is a lot of interest in Huawei’s new Mate 60 Pro smartphone and whether Chinese consumers will choose this over the new range of Apple iPhones. Qianer Liu in Hong Kong took a close look at the inner workings to see how impressive the chips are. Meanwhile, Martin Wolf argues that we can’t declare “peak China” just yet.
Enjoy the rest of your week,
June Yoon
Lex Asia editor
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