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China tech

TikTok tests Alibaba's e-commerce might with viral videos

Streaming app helps owner ByteDance grab bigger slice of lucrative market

A farmer in China's Shaanxi province is live-streaming his tips for choosing apples via Douyin, the Chinese version of short video app TikTok. (Photo by Michelle Chan)

HONG KONG -- Zhao Zhongqiang is a TikTok addict. Every day, the 44-year-old from a farming village in northern China's Shaanxi province spends hours scrolling down the viral video streaming app that has taken both China and the world by storm. And who can blame him?

After all, on a good day Zhao sells 800,000 yuan ($113,520) worth of apples, cherries and numerous other fruits on the platform, both for himself and his local community. That puts him among growing numbers of Chinese merchants who are learning to exploit the app -- called Douyin in China and which boasts 400 million daily active users in the country -- as a lucrative sales channel.

"Live-streaming is a great way to make a sale," Zhao said. "Even if viewers do not plan to shop for apples, once they see a video of fresh ones, they will likely buy some." Even on a bad day, his e-store on TikTok still guarantees him a revenue of 50,000 yuan.

For ByteDance, the Chinese social media giant that owns TikTok, the application's growing popularity for e-commerce offers a chance to challenge bigger rivals such as Alibaba Group Holding, and Pinduoduo. ByteDance recently enabled businesses to open e-stores on TikTok, making it the fourth-largest e-commerce platform in China for some merchants like Zhao.

China's e-commerce market has exploded and stood at more than $1.9 trillion last year, based on estimates by eMarketer.

There is no reliable data on the value of goods sold through TikTok and ByteDance doesn't disclose the number of its in-app merchants. But a quick online search reveals a long list of sellers offering everything ranging from fruit to shoes and homemade sausage. The idea of integrating e-commerce with streaming via TikTok has become so popular that there are even online courses teaching aspiring users how.

ByteDance's move to blur the line between video streaming and online retail comes as the company has stepped up its efforts to find new commercial opportunities, with analysts believing it will eventually be a candidate for an initial public offering -- though ByteDance says it has no such plans for now. It declined to comment on its e-commerce strategy.

Despite TikTok's popularity, its owner faces serious challenges. ''It is hard for ByteDance to produce another killer app,'' said David Dai, an analyst specializing in China's internet sector at Bernstein Research in Hong Kong. Dai cited slowing growth in the Chinese smartphone market and lucrative sectors such as gaming and music already dominated by others as obstacles.

"ByteDance's best opportunity for monetization is through building vertical businesses upon its existing popular apps," Dai said, referring to TikTok and an artificial intelligence-driven news aggregator called Jinri Toutiao.

Indeed, Toutiao, which initially focused on providing customized news feeds based on individual user reading habits, this month reinvented itself as a do-it-all app. News consumers can order food from restaurants, shop for groceries on third-party platforms and even search job openings within the app. The logic behind the transformation, according to Dai and others, is to leverage Toutiao's huge user base to empower other businesses while profiting from that partnership.

ByteDance previously tested the waters in online retail through partnerships with domestic e-commerce platforms. For a fee, TikTok has since 2018 integrated external online shopping links from Alibaba into its platform, allowing TikTok viewers to purchase clothes from Alibaba's merchants, such as after seeing a video of a model trying out the clothes. Other e-commerce operators such as and Vipshop quickly followed suit.

That there is both rivalry and collaboration between ByteDance and e-commerce rivals also indicates TikTok's influence among Chinese consumers. Like it or not, no e-commerce operator can afford to overlook the short video app's ability to daily attract the eyeballs of millions of consumers, ranging from schoolchildren to retirees, analysts and merchants say.

Wen Changbin, a merchant in central China's Hubei province, knows this well -- as his attempt to videotape his everyday life through TikTok also helped fatten his wallet.

Shortly after Wen posted a video of making local snacks in 2018, he received a somewhat unexpected inquiry. "One viewer asked me if he could buy what I made," Wen recalled with laughter.

Then more and more viewers reached out. After a month, Wen decided to connect his online shop on Alibaba with his TikTok channel, promoting homemade sausage, locally produced vegetables, and other agricultural products through video streaming. Today, Wen says that roughly half of his new customers come from TikTok.

"People only go to [Alibaba's] Taobao when they need to buy something, but most Chinese would use TikTok all day long thanks to its entertaining nature," Wen said. TikTok's powerful algorithm allows it to make personalized recommendations, making it hard to let go of the platform. "Sometimes you plan to watch TikTok videos for an hour but end up staying on the app until midnight," Wen said, speaking from experience. That, in turn, has given merchants a substantial amount of sales time.

Even so, Wen has no plan to move his e-store from Alibaba to TikTok just yet, citing logistics issues as well as a lack of after-sales support as among key concerns. "For me, TikTok is mainly a tool to attract attention," he said.

Some market observers are also similarly downbeat. "TikTok won't be able to challenge Alibaba, and Pinduoduo in e-commerce," said Bernstein Research's Dai. That, he says, is because the three Chinese e-commerce giants have already generated economies of scale and established a robust distribution network to help merchants carry out deliveries faster and cheaper, thus making it hard for newcomers like ByteDance to achieve inroads.

Still, merchants keep getting lured into TikTok. Luo Peng, another fruit seller in Shaanxi, recently opened three e-stores on the app.

After witnessing how fellow villagers such as Zhao have used TikTok's popularity to boost sales, Luo has also begun devoting much of his time to creating videos in an attempt to crack the secret formula for drawing viewers to his channel.

"Figuring out how to sell more on TikTok is my number one mission for 2020," Luo said. "As TikTok is gaining traction, I cannot afford to be missing out."

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