Social media platform TikTok has enlisted the help of tech start-ups to improve its struggling ecommerce operations.

Social media platform TikTok has enlisted the help of tech start-ups to improve its struggling ecommerce operations. TikTok is the fastest growing social media platform and is aiming to diversify its revenues as a slowdown in digital advertising has affected all tech platforms.

Social commerce is where users can buy items without leaving the social media app. TikTok’s version is “TikTok shop”, where merchants, brands and creators can showcase and sell products directly on TikTok through in-feed videos, LIVES and the product showcase tab. The TikTok Shop Open Platform enables merchants to integrate their ecommerce infrastructure with Open API and sell their products across the TikTok ecosystem.

Social ecommerce has so far been a big success in China, where TikTok’s sister app Douyin saw a 300% rise in sales between May 2021 and May 2022, with users buying more than 10 billion products. China’s ByteDance, owner of TikTok and Douyin, is planning to expand this model globally through TikTok Shop. However, the rollout has been hit with numerous problems; staff departures, brands abandoning the platform due to lack of sales, and customer complaints of shipping delays and counterfeit products. According to the Financial Times, over the summer the UK TikTok office received approximately 200 new customer complaints each day from users who had bought items through the app, primarily due to shipping issues such as waiting months for orders to be delivered. TikTok has stated it has a robust anti-counterfeit policy, reporting measures and clear refund policies where customers can appeal if their items are unsatisfactory or haven’t been delivered.

TikTok has therefore enlisted the help of tech start-ups to help alleviate some of these issues and encourage more sellers and buyers to use the platform. The start-ups include ChannelEngine, TalkShopLive and YunExpress, which specialise in software that integrates shopping technology and fulfils orders. Outsourcing the ecommerce operations in a bid to boost this area as a revenue stream may help TikTok become a more viable platform for buying and selling if the slowdown in digital advertising continues. TikTok recently slashed its global revenue targets for 2022 by at least 20% as it struggles to meet its goals and optimal performance.

According to the Financial Times, multiple retailers have ended partnerships with TikTok Shop as the technology was too difficult to navigate and the level of resources needed to sell on the app was not worth the returns. Founder and chief executive of ChannelEngine, Jorrit Steinz, said that TikTok recognised there is a “challenge” to get brands on to the platform. ChannelEngine offers brands or retailers software to sign up to multiple online marketplaces and has more than 1,5000 brands selling across 200 marketplaces on its platform. 

Global Expansion

In trying to work its way into the US ecommerce market, TikTok is currently inviting select US businesses to participate in the testing initiative of TikTok Shop. It is not just a technological challenge to break into the US market, but a political one; an FCC commissioner Brendan Carr and two Republican lawmakers Marco Rubio and Mike Gallagher have called for TikTok to be banned, citing "security concerns." TikTok has also reportedly begun planning its own US fulfilment centres, indicated by LinkedIn job postings that include global fulfilment centre positions in Seattle and Los Angeles. More than a dozen job postings were open last month, including for warehousing, delivery and returns. ByteDance is following a trajectory to replicate Douyin’s success in the Asia market in Europe and the US, particularly as TikTok is so popular with younger audiences and is increasingly used as a search tool for products. 

TikTok reported a surge in turnover to $1bn (£875m) across its operations in international markets. Filing for TikTok UK - which includes operations in Brazil, Mexico, South Africa and Columbia, showed the popularity of the app can be translated to ecommerce, with turnover rising 477% from $171m in 2020 to $990m last year. Europe and the UK account for more than 80% of the total. In the UK specifically, turnover jumped from $51.8m to $279m, placing TikTok on par with Snapchat and Twitter in terms of advertising. But there is also heavy spending, with the UK division reporting an almost doubling of “selling and marketing” expenses to $666m in 2021. It has also doubled its UK operations, going from 669 to 1,554 staff and the overall wider group of regions covered by TikTok UK rising from 1,302 to 4,396 employees. This resulted in an increased wage and salaries bill of $391m, up from $121m in 2020. The majority of TikTok UK’s $990m annual turnover came from online advertising, with live streaming and ecommerce making up the remainder.

TikTok has a billion monthly users only four years after its global launch, gaining international popularity rapidly during the pandemic. It has achieved this milestone in half the time it took Facebook, YouTube and Instagram and three years faster than WhatsApp. Tiktok is also beating Meta-owned Facebook in social media users of the 18-25 demographic. Facebook and Instagram launched Reels in an effort to compete with TikTok’s short video format.

Other social media rivals have experimented with their own version of internal ecommerce. Instagram introduced this feature in 2020 with the “Instagram shop” section alongside a design update that made accessing the shop tab easier. Facebook has its Facebook Marketplace option, and YouTube launched YouTube Shopping in partnership with ecommerce software Shopify. Users can purchase products from Shopify merchants while watching a YouTube video or live stream, with the entire payment process taking place on the platform. A merchant needs a minimum of 1000 subscribers to use this feature. Retailers or merchants can tag products in a live stream video or list them under the video in the caption, or add a “store” tab on their channel.

(Ecommerce News, The Financial Times, The Verge, Social Media Today, The Guardian)