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When Bytedance sets up a new BU for E-Commerce
ITC author
ITC
E-commerce|Strategy & Analytics

Just before the 618 shopping festival, Bytedance launched E-Commerce (EC) as its new primary BU directly reporting to its China CEO Zhang Nan and Chairman Zhang Lidong. This BU will be in charge of Bytedance's group-wide EC activities across Douyin (its overseas version is known as TikTok), Toutiao, Xigua video, and more. The person leading this BU is Bob Kang, who used to lead Bytedance's overseas products like the news app TopBuzz and the Indian social app Helo. The initial target Bytedance set for its new EC BU is to reach a gross merchandise volume (GMV) of 200 billion yuan (US$28.3 billion) for 2020.

Appointing a Head who is not from a department that is more related to EC branding/marketing seems to be a strategic move made by the company. As of this moment, the priority of the new BU is to reposition Douyin's existing EC ecosystem and set up the relating infrastructure for the next steps. In the past years, Douyin's EC features rely on partnerships with marketplaces such as Taobao/Tmall and JD: the marketplace link of a specific product can be embedded in the Douyin videos, upon clicking, consumers will be redirected to the respective marketplace shops.

According to 36kr, Bytedance aims to alter this situation and make Douyin a self-sufficient EC trading platform. This is enabled by Douyin's own EC platform Douyin Xiaodian (抖音小店) which allows consumers to perform a full circle of "traffic attracting - marketing - transaction" without leaving the platform. Combining with the other two EC features Douyin offers: Douyin Show Window (抖音橱窗) and Douyin Mini Program (抖音小程序), Bytedance offers businesses various choices that fit their needs.

Whether the commercialization of Douyin will threaten marketplaces' business is a question many people are curious about. In the short run, only when the GMV on platforms like Douyin would reach thousands of billions of RMB, could it be seen as a direct competitor to marketplaces. But in the long run, platforms like Douyin have the potential to establish a decentralized EC circle similar to the Google ecosystem, i.e., brands would buy Google traffic ads to bring consumers to independent e-commerce built through Shopify/Magento without opening a store on marketplaces like Amazon. This would be a bigger hit to the marketplaces and also the reason why marketplaces are rising their concerns at such an early stage: selling goods is an incremental feature development for Douyin, but a zero-sum game for marketplaces.

Douyin and marketplaces both have their unique assets for negotiations. On one hand, marketplaces can not neglect the 400 million DAU on Douyin while on the other hand, marketplaces are crucial partners for Douyin to successfully commercialize its business model. Along with the unresolved business negotiations, although Bytedance has exalted its EC division to a primary BU, the fact that it did not promote Xiaodian prominently in the 618 campaign means that Bytedance is still contemplating the right positioning of this EU platform: should it be a traffic redistribution platform or a transaction conversion platform? In the future, we will probably see that both short video platforms and traditional EC marketplaces would move closer to somewhere in the middle on this scale.

In any case, how platforms like Douyin and Kuaishou would compete/collaborate with EC marketplaces will be one of the most inspiring business diversification cases of 2020. Businesses should pay close attention to how this would have an impact on their existing EC strategies and react in time for the right digital transformation to maximize their ROIs.

Sources: weixin.qq.com; kr-asia.com, pandaily.com