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the essence of e-commerce is the circulation of product value

source: houchangcun

author: ersan

on september 1, simba directly "blasted" brother yang during a live broadcast, accusing him of not only reporting the problem that led to the inability to replenish hairy crabs, but also of problems in the quality inspection, after-sales service, and compensation attitude of products such as moutai, braised pork with preserved vegetables, and hair dryers. he later stated that he would pay 100 million yuan in cash to the injured consumers of the three sheep to teach the industry a lesson.

simba is not teaching the industry a lesson, but completely exposing the complicated life of live streaming sales on douyin e-commerce.

01 tik tok’s “algorithm monopoly” of traffic

tiktok succeeded because of algorithms, but businesses are trapped by algorithms.

according to data from the china internet network information center, as of april 2024, douyin will have approximately 700 million daily active users. from douyin's perspective, this daily active data marks its leadership in the short video field, but for businesses within the douyin ecosystem, it marks the beginning of a monopolistic "dilemma."

through the development data in the statistical table of "douyin's e-commerce development stage", it can be clearly seen that since douyin established the first-level e-commerce business unit in 2020, there has been a change in the three forms of external e-commerce > own e-commerce/shelf e-commerce > full-domain e-commerce; gmv sales (or target) has also increased from 700 billion to 3.5 trillion in 2024 at a rate of more than 80% per year.

before 2020, when douyin was just starting to develop its e-commerce business, most of the first merchants to enter the market were "second-class e-commerce companies". the so-called second-class e-commerce companies do not pay attention to brands and repeat purchases, but simply pursue same-day orders, chase short-term profits, and provide almost no after-sales services. at that time, douyin and other bytedance's affiliated products provided a cash on delivery model for second-class e-commerce companies, and provided sales channels for small-town information-gap consumer products such as non-heated shawls, height-increasing shoes, and televisions and radios. the business model of second-class e-commerce is also relatively simple. products with a purchase price of 10 yuan are sold at 69 yuan, and douyin only needs to pay 20%-40% of the investment and customer acquisition fees.

as the traffic and brand advertising scale of the douyin platform expand, douyin will inevitably focus on shelf e-commerce if it wants to continue to maintain its beautiful imagination space. therefore, in 2020, douyin store was renamed douyin e-commerce, a first-level "e-commerce" division was established internally, and the access of external e-commerce platforms such as taobao and tmall was cancelled. during this period, douyin e-commerce was in a "two-one" alternation. on the one hand, it urged the second-class e-commerce sales to change from offline payment to online ordering in small stores, so as to retain sales; on the other hand, it increased efforts for brand entry and sales. the entry of brand flagships is not as efficient as traditional shelf e-commerce for the conversion and sales of douyin e-commerce. the reasons are as follows:

the dispute between brand clients on how to allocate brand budget and performance budget

overall support for douyin's e-commerce management, supply chain, customer service, and logistics systems

the brand operation team's professional capabilities in douyin advertising, customer acquisition, operation, and after-sales

consumers’ purchasing intention for branded products is much lower than that of taobao, tmall and jd.com

based on its own competitive advantages, douyin proposed the "global interest e-commerce" strategy to break the impasse. the so-called global interest e-commerce means that merchants can cover many traffic products such as douyin, toutiao, and xigua under bytedance through various content carriers such as pictures, texts, videos, and live broadcasts, to achieve the goal of full coverage of diverse content and diversified traffic. however, it now seems that the global interest e-commerce strategy cannot solve the "price" shackles of douyin's e-commerce.

before discussing the issue of product prices in douyin e-commerce, let’s look at a set of data:

according to a newsletter released by 36kr in april 2024, bytedance's ebitda in 2023 will exceed $40 billion, up nearly 60% from about $25 billion in 2022, and its revenue will be close to $120 billion. in other words, bytedance's profit margin is about 25%-35%. although advertising revenue has always been the bulk of bytedance's revenue, the rapidly developing e-commerce has now become an important pillar of revenue, and this profit margin will also be largely infiltrated into douyin's e-commerce business.

in order to further study the price of douyin e-commerce products, houchangcun found a person in charge of douyin e-commerce for consultation and understanding. wei hua (pseudonym), the person in charge of douyin e-commerce of the company, has been engaged in douyin e-commerce for about 4 years. during the peak period from 2019 to 2021, the company had more than 400 employees and 3 branches in beijing, shanghai and guangzhou. the annual advertising fee recharged on douyin was close to 100 million, and the gmv turnover of commodity sales was about 200-400 million. the company's business model is relatively simple, that is, through big data analysis tools, it finds fast-moving consumer goods retail products with a good upward trend, conducts value assessment, cooperates with production factories, and creates product landing pages for paid traffic sales products.

wei hua said that before 2021, it was basically possible to make money doing e-commerce in bytedance. the difficulties faced by e-commerce companies mainly came from funding and stockpiling of products. however, with the internal attention paid to the shelf e-commerce model, the second type of e-commerce has basically no room for survival in bytedance. the sales cost of products has also increased from 10-20% at the beginning to about 30-60% of the current selling price. moreover, it does not mean that you can definitely sell it at this price. you also need to "take your chances" with many factors such as products, timeliness, optimization, materials, etc. even if you are lucky, the company's profit for explosive products is only a few cents.

(wei hua provides a reference for the price structure of douyin e-commerce products of its subsidiary company)

since 2023, wei hua's company has been shrinking its business, reducing its product skus, and laying off employees. now it has only 30 employees, and it still cannot make ends meet every month. the most important reason is that the bytedance investment cost is too high and the company has not been able to quickly change its outdated business model. wei hua complained that douyin's algorithm seems to know clearly how much money you can make. it will not let you make a lot of money, but it will not let you lose too much. at a critical point, if the company has weak control over product, supply chain, and personnel costs, it will lose money.

when asked why houchangcun did not build its own brand ip in the past four or five years, wei hua said that his company's most popular product has sold about 3 million orders on douyin, and it has already laid out the trademark and brand level. however, under douyin's unique interest e-commerce model, user retention is poor, and consumer brand perception and loyalty are also low, which has resulted in 3 million orders sold in 4 years, but it is still a "white label". there is no natural repurchase from old customers and no premium space for brand products. it can only continue to pay for new user orders.

douyin or bytedance's monopoly on traffic, coupled with rich data nodes throughout the entire link, has built an "intelligent" algorithm system. today, tens of thousands of douyin merchants are trapped in this algorithm, unable to escape, inseparable from it, and unable to make money.

02 online influencers who sell goods “don’t understand e-commerce”

brother xiao yang's failure was both accidental and inevitable.

for many people in the industry, the moutai and hairy crab incidents of xiao yangge have long been expected, and are more like an inevitable result. the traffic cost of douyin is getting higher and higher, and it is becoming more and more difficult for merchants to make money from traffic business. the so-called global interest e-commerce of douyin is essentially a "return to content", which also means that many merchants and influencers have to fight for traffic. the content cost of live e-commerce leads to its rigid cost being much higher than that of shelf e-commerce. douyin has to solve the dual problems of product price competitiveness and the scale development of douyin's e-commerce business. the platform can only recruit "cost-effective" white-label goods as much as possible, and then support entertainment anchors with the largest traffic user pool to realize and bring goods.

e-commerce or retail is actually the most difficult business to do. its business model is that of a "middleman", which controls product quality and reduces product costs upstream, and meets user needs and provides sustainable "service value" downstream. however, this is the biggest challenge for many douyin live streamers who started out as entertainment influencers.

in the era of short videos, it takes three to five days for an ordinary person to become an internet celebrity, and three to five years at most. during this period, 95% of the time and energy of the internet celebrity and his team will be spent on planning, creativity, filming, increasing fans, and entertaining the anchor. most anchors have no knowledge of supply chain, products, user experience, and after-sales service.

(image source: internet public)

let's talk about xiao yangge, who is currently stuck in the mooncake quagmire. it took him 4 years (2020-2024) to increase his e-commerce gmv sales from 0 to 30 billion. the three sheep group behind him sells more than 10,000 skus of products each year, and the order volume is estimated to exceed 200 million packages. what kind of "physical" support does such a huge e-commerce business model need?

according to public information, the total number of insured employees in the 44 companies controlled by three sheep group is only 633. however, in august this year, "china entrepreneur" exclusively reported that three sheep network has 1,500 employees, and the insurance participation rate is less than 50%. other media reported that the three sheep hangzhou branch responsible for investment promotion has only 30 people.

houchangcun checked the recruitment section on the official website of three sheep and found that the current recruitment positions of three sheep group are typists, central control, assistant broadcasters, investment promotion, anchors, operations, human resources, and technology. there are no "product quality control" positions such as supply chain research and development, quality inspection, and laboratory technicians. there are also no customer service personnel such as after-sales and user experience. the boss does not understand e-commerce, has a small number of people and a large consumer group, and does not recruit professionals to form a service team. it is only a matter of time before such a peculiar three sheep model live e-commerce model fails.

based on public reports from internet media, houchangcun compiled a list of 16 products that were sold out by xiao yangge from 2022 to 2024 (not all of them). among them, xiao yangge's products were counterfeited as many as 10 times in the year from 2022 to 2023. the underlying incentives for such a deformed business model are the lack of management and professionalism of xiao yangge and the three sheep group. however, the more realistic problem is that xiao yangge and the three sheep have to spend a large proportion of their energy and budget on douyin to obtain traffic, and the budget and time for the supply chain and product flow are negligible.

today, xiao yangge has failed, and tomorrow there will be more xiao yangge waiting to fail, and the pace may be getting faster and faster. dongbei yujie, who has just been popular for two years, failed because of promoting "rice field crabs", and recently, mr. k, who has been popular for just a week, has been caught in a storm, claiming that his family was threatened by investors, and revealed in a live broadcast that his commission for a 79-yuan product accounted for 39.5 yuan.

in the work of live broadcast e-commerce celebrity anchors on douyin, how to plan live broadcasts and how to invest in traffic to gain popularity and fan growth in the live broadcast room is the top priority, and live broadcast products are the "profitable business" after success. all you need to do is to attract investment, review the information provided by the merchants, and memorize the profit points of the script cards provided by the manufacturers. as for the factory production capacity, product quality, and after-sales guarantee, they can only be improved and perfected little by little with the growing gmv.

03 “brand weakness” of hobby e-commerce

shaking brands, the dream goal of white-label manufacturers

in 2021, douyin officially proposed the concept of "douyin brand" and launched a special douyin brand support plan based on interest e-commerce. today, three years have passed, with an e-commerce gmv scale of more than 2 trillion yuan and an order volume of nearly 10 billion yuan. can you name a douyin brand you know without thinking?

according to industry data, douyin's e-commerce takerate (commission rate, monetization rate, usually called "monetization rate" in the e-commerce industry) has always been relatively high among e-commerce platforms. taobao, pinduoduo, kuaishou and other platforms are about 4-5%, and douyin is about 10%. that is to say, for the same product, the "cost price" that merchants need to pay for selling on douyin and other platforms is higher than 5%. you must know that the average gross profit margin of the retail industry today is only 3%-8%. this is also the reason why wei hua said "not making money" at the beginning of the article.

douyin and even bytedance were born out of algorithms, and they have achieved remarkable success because of algorithms. this inertial thinking has also been extended to the business genes of douyin e-commerce. in douyin, the core of e-commerce is data algorithms. the purpose of algorithms is to pursue the ultimate conversion rate and profit margin. this is good for douyin's revenue and monetization efficiency, but it is a bad thing for the long-term e-commerce business. the profits of high-quality merchants who make products steadily have been driven out of good money by douyin's bad money through algorithms.

in fujian, guangdong and other regions with developed supply chains for fast-moving consumer goods, several large and small live broadcast and supply chain bases have been formed based on douyin live broadcast e-commerce, which are called "xiamen gang and guangzhou gang" by industry insiders. these white-label live broadcast e-commerce companies are engaged in crazy product involution, price involution, and human efficiency involution through high payment, live broadcast rooms that never set, incubation of talents, overseas short video, hrbp and management trainees. in the eyes of white-label e-commerce companies, there is no product quality, no innovation, and even no user experience. there is only crazy payment and investment, and the continuous control of product costs, so that there will be orders every day when you open your eyes and make money every day.

the endless inward circulation of white-label merchants in pursuit of short-term profits from orders has further exacerbated the "adverse reactions" of the douyin e-commerce platform and the ipization of white-label merchants' brands.

according to feigua data and media statistics on douyin's beauty monthly sales list in the past three years, the top white-label brands that have been on the top 20 of the list only maintained their sales for an average of eight months, and the shortest was only one month. most white-label brands rely on super single products to boost sales. even some white-label brands that have been on the list for more than a year, such as fv, ​​julio, betty bonnie, renhe craftsmanship, akf, jiaorunquan, etc., had monthly sales of hundreds of millions at their peak, but now some have already fallen below 10 million or even 500,000, which can be said to be a drastic decline, and there is no value accumulation of e-commerce brands and loyal users.

04 final thoughts

good companies make profits; great companies win hearts and minds.

as an excellent company, bytedance has launched many successful products and earned hundreds of billions of yuan in profits for investors, but it still has a long way to go to become a great company. it has achieved outstanding success in many fields such as user growth and content recommendation, but it has adopted a relatively short-sighted traffic algorithm core in the e-commerce field that truly serves users' food, clothing, housing and transportation. this has to be said to be a bad strategy, making money in the present but losing the healthy development in the future.

xiao yangge was criticized for selling mooncakes and moutai, and the first one who should reflect on it should be douyin e-commerce. why did xiao yangge, as the face of the store, repeatedly fail in product quality issues? why did the supply chain, products, and after-sales service of the three sheep group, which was incubated by douyin e-commerce and has an annual revenue of tens of billions, do so poorly? why can fake moutai, fake mooncakes, inferior pork with preserved vegetables and many other bad products pass the multi-level review and quality inspection of the platform and anchors and appear on douyin e-commerce and become popular products?

if douyin e-commerce continues to insist on not pursuing product quality and brand value, and only goes the entertainment "interest e-commerce" route, in the near future we may see brother xiao zhang, brother xiao wang, and brother xiao li constantly being exposed for counterfeiting and overturned, because all douyin e-commerce anchors have been "shaped" by douyin's traffic algorithm e-commerce to have unique e-commerce views, product views, and business views.

traffic is important, gmv is important, and profits are also important, but for a company, a good brand, loyal users, and high-quality partners are more important. as a social organization with an annual revenue of nearly one trillion yuan and more than 700 million monthly active users, douyin's more important positive social responsibility is to truly help countless people live a better new quality of life.

some references:

1. bytedance's profit will rise by about 60% to $40 billion in 2023 - 36kr

2. douyin sells goods worth 10 billion yuan, revealing the crazy xiao yangge and the company behind him - chinese entrepreneur

3. crazy xiao yangge was cracked down on for counterfeiting 10 times in half a year, quality control problems and supply chain dilemma - new broadcasting field