To understand what TikTok is up to, one must first understand that TikTok is controlled by their parent company, ByteDance, based in China and worth $200B. Although TikTok is wildly popular in the USA, the majority of revenue and profits at ByteDance are driven by their Chinese app Douyin. 850M Chinese actively use Douyin making it one of the most popular app in the country. To increase usage of the app, ByteDance has turned Douyin into an online platform where consumers can buy virtually anything they want.
The challenge for ByteDance is that they have grown so fast in China that growth has begun to slow. This has motivated ByteDance’s executive team to turn to TikTok for growth. What’s the strategy? Turn TikTok into America’s version of Douyin. Simple, right? Wrong.
According to the article I’ve attached written by the exceptionally talented Erin Woo of The Information, TikTok’s CEO Shou Zi Chew is trying to build a big TikTok ecommerce business, including through the launch of a service called Shop, which lets people buy things in the TikTok app. To turn the vision of TikTok Shop into a reality, Chew replaced Sandie Hawkins, and COO Vanessa Pappas, and hired Nicolas Le Bourgeois and Marni Levine. They will oversee U.S. ecommerce and report to Bob Kang, ByteDance’s ecommerce chief.
TikTok has also signed partnerships with several logistics companies including Flowspace led by Ben Eachus, to store inventory and pick, pack, and ship orders for sellers. Selecting Flowspace was the right move.
From a foundational perspective, TikTok has everything they need to become an ecommerce platform except for one thing – brands and retailers willing to sign up and sell their products on TikTik Shop. TikTok is facing a potential ban in the U.S. due to the content displayed on TikTok and the fact that the most popular app in the U.S. is owned by a Chinese company. Merchants are fearful of signing up for TikTok Shop only to see the app banned. In my opinion, there will be no ban.
Assuming I’m right and TikTok isn’t banned, will TikTok Shop succeed? In my opinion, there will be an appearance of success but it will be an illusion. TikTok will have to beg and use brute force to get merchants to sign up for TikTok Shop. In addition, TikTok will have to invest billions to eliminate risk on behalf of merchants; for example, covering inventory and logistics costs.
I believe TikTok has chosen the wrong strategy for the company. Temu and SHEIN are investing heavily in e-commerce and fast fashion and losing millions selling products at low prices. Amazon, Walmart, and other retailers already provide unlimited choices for merchandise.
Meta has been reborn and is now a much more innovative company. Meta is who should expand into e-commerce by giving users the ability to shop and post from their user page.
TikTok has a Sisyphean task on its hands to succeed at e-commerce in the U.S.