Amazon Pilots Shopping Service with Potential to Generate $20 Billion from TikTok
In a shophouse located in Northeast Jakarta, numerous salespeople rotate in promoting cosmetics, contact lenses, and hair accessories. One woman assists a potential customer in selecting the perfect lipstick shade to match her skin tone, while a man loudly announces the most recent discount on vitamin tablets.
This is not a rowdy flea market. It’s TikTok’s streaming marketplace and a gold rush for entrepreneurs looking to make their fortune on the world’s most popular short video app. Best known for viral dance challenges and owned by China’s ByteDance Ltd., TikTok Shop is the fastest-growing feature with a growing fan base in Southeast Asia.
Its success in the region is important to TikTok as it faces a possible ban in the US on national security grounds. It also provides the company with a model to take on Amazon.com Inc. in a way no social media company has attempted before, provided it is allowed to continue operating in the United States.
Indonesia was TikTok Shop’s first market and remains its largest market, helped by a young, mobile-savvy population that has embraced a combination of short videos and in-app purchases since its launch in 2021. The gross value of TikTok Shop merchandise is expected to reach $20 billion by the end of this year, a fourfold increase from a year earlier.
If it can sustain that momentum, analysts say, it could reshape the company, whose core video platform is already luring consumers and advertisers away from Meta Platforms Inc and Alphabet Inc’s Google.
Hank Wang, who manages about 50 streaming hosts in a bustling Jakarta trading house, believes it has the power to transform retail and turn entrepreneurs like him into the next e-commerce barons.
“I want to become the next Forrest Li,” said the 33-year-old former venture capitalist, referring to the Chinese-born founder of Sea Ltd., Southeast Asia’s largest Internet company. Wang directs his team to sell products on behalf of cosmetics and consumer goods manufacturers such as L’Oreal, earning a cut and sharing the profits with the live-streaming hosts. He moved from Shanghai to Jakarta seven months ago and started his company Flame Media, even though he doesn’t speak the local language. “TikTok and social commerce are creating the next generation of tech unicorns in this space,” he said.
TikTok CEO Shou Zi Chew visited Jakarta in June and pledged to invest billions of dollars in Southeast Asia over the next 3-5 years. Dressed in a traditional batik shirt, he shook hands with a key Indonesian minister and visited local mom-and-pop shops with TikTok accounts.
It was a stark contrast to his experience earlier this year in Washington, where he was subjected to a hostile five-hour hearing in Congress. He was grilled by politicians about China’s influence on business and the impact of its videos on children’s mental health, and the company faces a possible ban ahead of the presidential election.
TikTok Shop began operations in Indonesia, Southeast Asia’s largest economy, as ByteDance sought to expand beyond China, where it faces regulatory and financial challenges. In its early days, the global e-commerce project was codenamed “Magellan XYZ” after Ferdinand Magellan, the 16th-century explorer who circumnavigated the globe in search of a route to the Spice Islands, which are part of present-day Indonesia.
The company initially introduced it as an underground feature for younger, savvy consumers in Indonesia. Through agents, it collected hundreds of live streamers, some of whom were just after school. The presenters recorded themselves on their own mobile phones to sell products such as Tupperware and sunscreen. Launched during the month of Ramadan, when Covid still kept many people at home, it was an instant hit.
The business has since evolved further, with agencies like Wang’s Flame Media connecting brands with streaming hosts and setting up studios. Some companies are assigned a TikTok account manager to provide advice on content and campaigns, while others deploy trained performers or influencers to help brands reach millennials and Gen Zs. Still, the videos have retained a somewhat amateurish and improvised feel compared to Instagram’s carefully staged accounts, and that’s seen as a big reason for its popularity: buyers feel a closer, authentic connection with the seller.
Kohcun’s online Suanto is one of the most visible Indonesian influencers on the TikTok Shop, with her impromptu, laid-back style attracting more than a million followers. The 36-year-old was previously known for his gadget reviews on YouTube, but now he streams six hours a day on the TikTok Shop, selling Samsung phones and Louis Vuitton bags. He said the money he makes from commissions and brand deals is about three times what he makes through YouTube.
“TikTok has a big advantage in using its creators because it’s more entertaining and natural,” said David Nugroho, CEO of Jakarta-based DCT Agency, which manages 600 TikTokers and is one of the country’s largest TikTok Shop partners.
Today, TikTok says it has more than 100 million monthly users in Indonesia, who spend an average of more than 100 minutes on the app every day.
Chinese sibling
That virality is a key reason why ByteDance became the world’s most valuable startup — worth more than $200 billion — in a single decade, disrupting social media and Internet incumbents like Meta and Tencent Holdings Ltd. On both sides of the Pacific Ocean.
US social networks have tried to launch similar services, but users there have never shopped the way they do in China and Southeast Asia. Instagram, owned by Meta, did not allow users to tag products during live streams since March. YouTube and Amazon have also flirted with offering purchases of live videos without much progress.
In Indonesia, TikTok Shop entered a market where consumers were already accustomed to browsing online catalogs and spending hours on their smartphones for both entertainment and shopping. Local e-commerce pioneers GoTo Group’s Tokopedia and Alibaba Group Holding Ltd’s user rival Lazada spent billions of dollars to set up delivery networks across the country. TikTok attacked and took advantage of all this.
TikTok has also benefited from expertise gained through its sister app Douyi, ByteDance’s China-only video platform, which has become a $200 billion acquisition after expanding its range of services to include food delivery and hotel bookings. China is years ahead of the rest of the world when it comes to live shopping, helped by long Covid lockdowns that forced people to spend time on their phones and platforms like Douyin and Alibaba’s Taobao.
An important part of this expertise is algorithms. On both Douyin and TikTok, algorithms help show the right video clip to users so they can scroll through and figure out what kind of products they’re most likely to buy.
TikTok Shop’s key managers are from China. Bob Kang, a senior ByteDance executive who frequently travels between Shanghai, Singapore and the United States, oversees thousands of employees at both Douyin and TikTok’s e-commerce operations. Yu Weiqi, a former assistant to the company’s billionaire co-founder Zhang Yiming, heads TikTok Shop’s operations in Southeast Asia.
While many of the entrepreneurs working with TikTok Shop are Indonesian, such as DCT’s Nugroho and Pasar Kreatif Digital founder Daniel Tjandra, who have strong networks of local influencers and businesses, some are from China, bringing with them Chinese capital and previous live performance experience. shopping.
Richard Ma, a 31-year-old marketing expert from Beijing, is a TikTok Shop salesperson who trains a small team of Indonesian live streamers to market things like $40 air fryers and $8 Bluetooth headphones. Recently, his company has been buying goods from Alibaba’s wholesale website 1688.com and delivering them to a warehouse near Jakarta. Many of these products are bestsellers in Douyin’s emerging e-commerce market.
“We can emulate China’s model and adapt it to different markets,” he said, while admitting that his operation was still loss-making due to upfront investments and low price tags. Ma said that as the scale of the site grows, he is confident that he will soon turn a profit.
Major US market
While TikTok’s success in Indonesia helps shield the company from the effects of a potential US ban, uncertainties remain.
While the purchasing power of Indonesia’s middle class is growing, many of its users earn far less than U.S. consumers. According to research firm Cube Asia, TikTok customers in Indonesia spend an average of $6 to $7. That’s why, even though there are several bills in Congress that could ban the app, the United States is still very important to TikTok’s e-commerce.
In November, TikTok launched an in-app shopping feature in the US with a series of mini-shops linked to the profiles of influencers and creators. It opened up more widely to American brands earlier this year. The company’s next plan is to launch a marketplace in the next few months that is more like a traditional shopping website. Instead of coming across individual stores through their feeds, consumers can search, compare and buy products in one place.
Chinese manufacturers and exporters have been offered free listings, shipping and zero commissions in recent meetings with ByteDance sales executives to eventually sell into the US market. The company is setting up its own U.S. warehouses and delivery operations and is actively pitching brands about the idea, two people familiar with the matter said.
It’s a strategy that sets the company apart from US social platforms such as Instagram and YouTube, which have avoided managing actual products even as they have tried to expand into e-commerce. It also competes directly with Amazon on its home turf.
For the business, which is also more e-commerce than social media, TikTok is hiring former employees of fashion and lifestyle brands to oversee retail categories such as fashion, home and beauty. The roles are expected to play a key role in recruiting and educating merchants on what makes the right video and how to successfully work with content creators.
If TikTok can make the entire streaming purchase process seamless for users, brands and creators in the U.S., “that’s a tipping point,” said Ryan Detert, CEO of marketing firm Influential. “And then all of a sudden the huge sums of money that went into paid media and video content are also going into live broadcasting.”
Jianggan Li, founder and CEO of Singapore-based consulting firm Momentum Works, said that TikTok’s e-commerce expansion into the US market is not only about attracting consumers with greater purchasing power, but also about “getting huge benefits from bargaining power in its supply chain.” and implementation systems.”
It won’t be easy, although TikTok already has 150 million users in the US and has become a hugely influential sales force across the country, from books to movies. Competing in the U.S. retail market would mean taking on other Chinese players such as Shein and PDD Holdings Inc’s Temu, as well as Amazon.
Even in Southeast Asia, there are concerns about whether it can continue to grow as it scales back its aggressive marketing and influencer endorsements.
For example, in Vietnam, TikTok spends thousands of dollars a month on gift cards for influencers, according to local leaders. Gift cards are usually distributed to fans during live shopping events to boost sales. This strategy has led some brands to question TikTok’s ability to sustain its growth once it stops burning cash. Samsung Electronics Co. meanwhile, has reduced its spending on the TikTok Shop in Southeast Asia after noticing that users who added products to their carts did not always make it to checkout, another person with knowledge of the matter said. Samsung declined to comment for this story.
And while the Indonesian government has so far been supportive, there are fears that it will eventually step up its regulatory oversight of the TikTok Shop.
The government recently issued a no-confidence motion against TikTok’s “online begging,” or videos of women begging for virtual gifts. Some have also begun to question the social impact of impulse purchases encouraged by the app, described by the popular hashtag #Tiktokmademebuyit. Relations between Indonesia’s Muslim majority and the wealthier ethnic Chinese minority also remain a sensitive issue.
Vietnam’s government has said it will review whether TikTok threatens its youth and culture, while India banned it in 2020 on national security grounds.
For now, however, entrepreneurs like Wang only see growth for TikTok Shop. With his company’s monthly merchandise sales approaching a million dollars, he plans to soon move into a newly renovated office building in Menteng, an upscale neighborhood in the Indonesian capital. He also plans to hire 500 live streamers by the end of this year. After that, he said, he might move on to other growth markets.
“The first thing is to become number one in Indonesia,” he said. “Then we can try another region, another continent. It’s one step at a time.”=
