The popular short-video app TikTok is reportedly considering banning links to external online marketplaces. The possible decision, while not confirmed by TikTok itself, has sparked discussions about the platform’s strategy to enhance its own online shopping offerings and drive sales exclusively through TikTok Shop.
TikTok’s E-Commerce Ambitions
Reports from The Information suggest that TikTok is considering the idea of prohibiting external e-commerce links. This would mean users could only make purchases through TikTok Shop, the company’s in-app online marketplace.
The intention behind this move is to funnel all shopping activities through TikTok’s own ecosystem, thereby creating a captive market and generating revenue directly within the platform.
TikTok Shop’s Struggles and Losses
While TikTok Shop holds promise, it appears to be facing a challenge in gaining traction. The platform is on track to incur a substantial loss of over $500 million in the U.S. this year.
This loss is largely attributed to significant investments made by TikTok, which include hiring efforts, establishing a delivery network, and providing incentives to merchants such as discounts and free shipping.
Learning from Douyin
If TikTok indeed implements the ban, it would be drawing inspiration from its Chinese sibling app, Douyin. Back in 2020, Douyin took the audacious step of banning links to external e-commerce sites like Alibaba’s Taobao. This strategic move enabled Douyin to direct all purchasing activities through its own platform, contributing to its impressive growth.
The Impact on TikTok Shop
The reported ban is poised to have a significant impact on TikTok Shop’s trajectory. Currently, U.S. consumers spend approximately $3 million to $4 million daily on TikTok Shop.
This figure, however, is expected to surge to over $10 million by the end of the year, according to TikTok staff projections. This increase in user spending demonstrates the potential effectiveness of TikTok’s strategy to keep shopping activities within its own ecosystem.
Southeast Asia’s Success Story
TikTok Shop’s story is different in Southeast Asia, where it has been available since 2021. In this region, TikTok Shop boasts a daily gross merchandise volume of around $50 million to $60 million.
TikTok’s ambitions don’t stop there; the company hopes to elevate this figure to a remarkable $90 million per day by the end of the year. This success underscores the viability of TikTok’s online shopping model when it successfully captures user interest.
A Global E-Commerce Vision
ByteDance, the parent company of TikTok, envisions TikTok Shop as a key platform in the international e-commerce industry. Drawing inspiration from Douyin’s extraordinary merchandise volume of more than $200 billion last year, ByteDance aspires to replicate this success on TikTok.
The company aims to achieve similar levels by 2028, with an estimated revenue generation of $40 billion to $60 billion from the U.S. market.
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Merchant Attraction and Project S
TikTok has been proactively seeking to attract merchants to its platform. One approach involves TikTok employees identifying bestselling items on Amazon and then enticing merchants to join TikTok Shop.
The offer includes an enticing proposition: zero commissions for the first three months. This strategy aims to create a win-win situation, luring both consumers and merchants to the platform.
Also, ByteDance has embarked on “Project S,” an initiative that involves TikTok leveraging its deep understanding of trending products on the app. This initiative allows ByteDance to either acquire or manufacture popular products.
ByteDance is venturing into producing its own merchandise in gathering a network of suppliers. This could be a significant step in TikTok’s online shopping ventures.
User Influence and Sunsetting Storefronts
Even prior to the reported ban, TikTok has managed to wield substantial influence over users’ shopping behavior. The phrase “TikTok made me buy it” has become a widespread testament to the platform’s capacity to drive impulse sales.
This trend is reflected in the 7.4 billion views and 67 billion hashtag uses for the phrase on TikTok.
As TikTok aims to propel TikTok Shop, the company recently announced plans to discontinue its storefronts product. This decision is a strategic one, as TikTok Shop takes center stage, rendering storefronts less relevant.
Introduced in 2021, storefronts were initially established when TikTok’s online shopping offerings were limited in the U.S. market.
A Contemplated Ban and Future Prospects
While discussions of a potential ban on external e-commerce links arise, TikTok has yet to confirm the move officially. The platform’s intention to reinforce its online shopping presence, however, is evident.
E-commerce expert Nick Morgan, Founder and CEO at Vudoo commented, “TikTok planning to ban links to outside e-commerce sites like Amazon is evidence of how the ‘content commerce’ revolution of instant purchasing is starting to take off and become competitive. If other e-commerce industry players want to keep up with those like TikTok shop and Amazon Everywhere, they must adapt to an environment where consumers expect seamless purchasing experiences within the content they’re consuming, whether within video or articles.”
As TikTok explores ways to strengthen its hold on the e-commerce sector and encourage users to shop solely within its platform, the future of online shopping through TikTok remains an exciting development to watch.
