Measuring “grass planting”, Xiaohongshu wants to make more money

As Xiaohongshu continues to explore and accelerate its commercialization path, how this content community giant can achieve profitability while maintaining user experience has become the focus of the industry. This article deeply analyzes Xiaohongshu's transformation from "buyer e-commerce" to "lifestyle e-commerce", as well as the challenges it faces in 2024 and its future development direction.

Editor's note: The three giants of content communities are Bilibili, Zhihu and Xiaohongshu. Compared with the previous two big brothers, Xiaohongshu is more relaxed in terms of profitability. According to FT reports, Xiaohongshu will have a revenue of 2 billion US dollars and a loss of 200 million US dollars in 2022, and will achieve profitability in 2023. Bloomberg disclosed that Xiaohongshu's full-year profit this year has reached 1 billion US dollars.

In contrast, Bilibili only achieved quarterly profitability in the third quarter of this year.

Idealism may be a common problem in content communities. According to a report by Mirror Observatory, Xiaohongshu’s management relies more on intuition than data to make decisions. To put it bluntly, the unique ecosystem of “when in doubt, ask Xiaohongshu” is not calculated by an algorithm, but grows naturally in the soil of the community.

But idealism alone cannot fight against the gravity of the business world. On the last day of 2024, we want to talk about Xiaohongshu and see how this medium-sized Internet company balances, or tries to balance, business and content. By the way, I wish all readers a happy New Year. Recently, some media quoted Bloomberg as saying that Xiaohongshu's profits will double in 2024 to more than $1 billion, and it may go public in 2025.

In the past two years, Xiaohongshu has begun to accelerate its commercialization and has achieved certain phased results. It achieved profitability for the first time in 2023. However, commercialization is like "going to the West to learn scriptures". As you move forward, you will encounter more trials.

Since the beginning of this year, Xiaohongshu has frequently made structural adjustments. Recently, Xiaohongshu has been facing a large number of account bans and has become a hot topic. The contradictions and pain points of the platform are emerging at an accelerated pace.

Therefore, Xiaohongshu recently clarified the three major directions of commercialization for next year at the 2025 WILL Business Conference. How to do difficult but right things is Xiaohongshu’s current "cultivation".

1. The pain of commercialization

For a long time, "planting grass" based on community content has been the foundation of Xiaohongshu, which has also allowed it to grow into a more restrained company in the past ten years, because only a relatively pure community atmosphere can allow the content ecology to "self-grow".

However, as Internet traffic gradually dries up and industry competition becomes increasingly fierce, Xiaohongshu must also put aside its "aloof" attitude and seek greater commercial monetization, otherwise the unprofitable company will sooner or later be eliminated.

In 2019, Xiaohongshu started to build a commercial system and set up a business department to connect with advertising. Before that, Xiaohongshu had also worked hard in self-operated e-commerce and cross-border e-commerce, but in the context of lacking supply chain genes, Xiaohongshu's early e-commerce business was not successful.

Xiaohongshu began to accelerate its commercialization in 2023, and first proposed the concept of "buyer e-commerce". At this time, domestic e-commerce platforms are accelerating differentiation, and Douyin's interest e-commerce and Kuaishou's trust e-commerce have provided new ideas for Xiaohongshu.

For Xiaohongshu, this is also a commercialization model that is more suitable for the "content community", which can make the "grass planting" better implemented and is more in line with the mainstream model of live streaming sales; at the same time, the two phenomenal live streaming sales cases of Dong Jie and Zhang Xiaohui have also given Xiaohongshu more confidence.

On "Double 11" in 2023, the GMV of Xiaohongshu's live broadcast room was 4.2 times that of the same period last year, and the GMV of store broadcasts was 6.9 times that of the same period last year. More importantly, compared with the fierce "price war" in the past two years, Xiaohongshu also has the differentiated feature of high customer unit price.

Having tasted the sweetness, Xiaohongshu has further accelerated its commercialization pace. The most obvious market perception is that Xiaohongshu has begun to participate more actively in e-commerce promotions. For example, during the "618" period this year, Xiaohongshu launched rules such as "50 off for every 300 spent across stores, and coupons can be stacked."

Second, the commercial content in Xiaohongshu has increased significantly, and many users have reported that the number of product notes with shopping links and live broadcast links they have seen has increased significantly. Gintoki, the person in charge of Xiaohongshu's live broadcast, once announced that the company will allocate 50 billion traffic to support buyers (anchors) and 50 billion traffic to support merchants.

However, in this process, the contradiction between Xiaohongshu's content and commercialization has become more prominent:

First, merchants and users are "mutually dissatisfied" with the distribution of traffic. According to a former employee of Xiaohongshu's e-commerce department, the traffic obtained by Xiaohongshu's e-commerce mainly comes from community supply, accounting for 5% of Xiaohongshu's total traffic, and live broadcast accounts for 3%. Users will encounter 8 commercial content when browsing 100 posts.

Compared to Douyin, where 3 out of 10 videos may contain ads, Xiaohongshu’s “ad content” is actually very low, but users are still dissatisfied. However, for merchants, Xiaohongshu’s user base is not large, so such traffic is not enough, and some even complain that Xiaohongshu does not have a very direct business conversion rate.

Secondly, bloggers and merchants who are anxious for traffic have begun to learn to "cater to traffic". Xiaohongshu has always followed the logic of "traffic equality", but live streaming sales requires the aggregation of traffic and the supply chain advantage through the scale advantage of big anchors. This is the general logic of current anchor sales.

For this reason, as Xiaohongshu further encourages commercialization, merchants or MCN agencies have begun to learn to create content based on the logic of traffic distribution, leading to the proliferation of marketing content on the platform; some small bloggers are anxious to reap the commercial dividends of Xiaohongshu, and their eagerness for advertising has also led to an increase in illegal notes.

Because of this, Xiaohongshu recently launched the "General Action to Manage Black and Gray Market Accounts". Many users complained that their accounts were gone when they woke up, which is also the inevitable "pain" in Xiaohongshu's commercialization process.

In the context of limited product selection and traffic scale, prioritizing business order conversion will inevitably consume a portion of the community's endogenous traffic; but if the community is allowed to grow wildly, the value of planting grass will not be easy to see, and user and content growth will also face more pressure.

2. From “buyer e-commerce” to “lifestyle e-commerce”

In order to solve the difficulties of commercialization, Xiaohongshu has undergone multiple rounds of organizational structure adjustments since this year.

In January this year, Wu Yingbing, former head of Didi's supply and demand strategy, and Zhang Rui, former head of Didi's ride-sharing business, joined Xiaohongshu, responsible for e-commerce and commercialization business; in March, market news said that Ye Heng, former head of e-commerce products at Kuaishou, resigned and joined Xiaohongshu.

In April, Xiaohongshu welcomed a new community content director, Jiang Yuan (nickname: Yunfan); in August, Xiaohongshu announced that it would no longer set up R-level positions and that leaders at all levels would be appointed.

In December, Xiaohongshu integrated the algorithm departments of commercialization, community, and e-commerce to form a new application algorithm department, which will be concurrently headed by Xia Hou, the head of Xiaohongshu's community technology department. It is reported that Xia Hou has made great achievements in community algorithms, search integration, and ecological governance.

Last year, Xiaohongshu's e-commerce and live streaming businesses underwent important adjustments, including the promotion of the live streaming business to an independent department at the beginning of the year; in August, the e-commerce business and the live streaming business were integrated into a new transaction department, becoming a first-level department parallel to the community department and the business department.

From these structural adjustments, we can see that Xiaohongshu has been finding problems in commercialization:

In terms of content, how to maintain the number of active users has become a major challenge for Xiaohongshu. At the beginning of last year, after the daily active users of Xiaohongshu exceeded 100 million, it set a goal of reaching 140 million daily active users by the end of 2023. However, the DAU for the whole year of last year was 106 million, which is still a certain distance from the goal. For reference, the DAU of Douyin, a first-tier content platform, has exceeded 800 million.

Among them, the increase in advertising content and the single user group have become the reasons affecting the growth of Xiaohongshu users. Many netizens believe that the platform has problems such as false propaganda, excessive promotion, and selling anxiety, and that Xiaohongshu has changed from planting grass to cutting leeks.

In terms of commercialization, live streaming e-commerce, which was once highly anticipated, seems to be unable to take on the heavy responsibility. During this year's "618", Xiaohongshu increased its investment in e-commerce business, but the platform did not announce the "618" GMV, only revealing that the number of live streaming orders and purchasing users reached more than five times that of the same period last year.

For reference, Xiaohongshu's e-commerce business was just starting on "Double 11" in 2023, but its GMV was already 4.2 times that of 2022. In addition, Xiaohongshu ushered in a new round of layoffs after "618", which makes people suspect that the management does not seem to be satisfied with the e-commerce performance.

Having discovered the problem, Xiaohongshu also tried to solve it. In July this year, Xiaohongshu adjusted its positioning as a "buyer e-commerce" that had been used for a year. Xiaohongshu COO Conan defined Xiaohongshu e-commerce as a "lifestyle e-commerce" for the first time.

Conan said, "We have seen that many merchants are starting to operate based on user segmentation needs. Xiaohongshu e-commerce hopes to better support and serve this group of merchants who meet personalized needs and understand lifestyles."

The change from "buyer e-commerce" to "lifestyle e-commerce" is considered to be an internal "correction" of Xiaohongshu. In the past year or so, Xiaohongshu has tilted most of its resources to "buyers", but from the actual performance point of view, the development of live broadcast e-commerce has not been as expected. More importantly, the over-emphasis on "buyer e-commerce" has also made some merchants dissatisfied.

First, "buyer e-commerce" has a high-end and niche tone. Although it can form differentiated competition with other e-commerce platforms, it is not consistent with the brand tone of most merchants in an environment of consumption downgrade; second, top "buyers" like Gigi Lai and Dong Jie are scarce resources, and ordinary buyers may not be able to support high-end customer unit prices.

Therefore, Xiaohongshu also needs to adjust its e-commerce positioning and learn to put its eggs in more baskets. First, it needs to refocus on Xiaohongshu’s core battlefield and extend its “personalized” content to e-commerce to meet the needs of everyone, even the smallest group of people.

Conan once gave an example, saying that a merchant on Xiaohongshu helped slightly plump girls buy suitable clothes more conveniently by deeply understanding their needs.

Secondly, Xiaohongshu has moved from passively waiting for users to discover content to actively guiding the flow of community content, connecting product supply with more segmented and differentiated scenarios, driving users to make ordering decisions, and resolving the embarrassment of planting grass on Xiaohongshu and pulling it out on other e-commerce platforms.

Finally, "lifestyle e-commerce" can also be said to be an active avoidance of the current mainstream e-commerce platforms. Although "buyer e-commerce" also emphasizes personalization, it essentially still needs to support top buyers to form scale and then empower e-commerce business. However, it may not be easy for Xiaohongshu to break out of the current fierce price war in the e-commerce environment.

Therefore, "lifestyle e-commerce" can also be said to be in line with the market trend of consumer stratification. In the "absolute low-price" market environment, a market segment dominated by "individualized niches" is carved out, emphasizing the satisfaction of personalized needs and scenario-based shopping experiences, and solving the problem of consuming a lot of traffic to convert business orders.

3. “Measure” the process of planting grass

In addition to adjusting its e-commerce positioning, Xiaohongshu also identified three major directions for commercialization next year at the 2025 WILL Business Conference held recently, including:

First, the industry has expanded from focusing on consumer products to meeting the needs of multiple industries; second, in terms of commercial product capabilities, more emphasis has been placed on optimization of grass-seeding delivery, post-investment measurement of grass-seeding, and direct delivery of customer business leads; third, the ecosystem has moved towards greater openness.

It is not difficult to see that Xiaohongshu's commercialization is further accelerating, and it has begun to try to make adaptive adjustments to the content side to further solve the problem of the difficulty in balancing business and content.

On the one hand, we need to further improve the "ecological infrastructure" and solve the problem of content and business being mutually constrained. From the earliest "cross-border e-commerce" to "buyer e-commerce", Xiaohongshu's commercialization has been tested within the scope of "small and beautiful", which is determined by the platform's "grass-planting gene".

But now, Xiaohongshu has established the demand expansion into multiple industries, which means that Xiaohongshu is beginning to move towards "big and complete", further supplementing Xiaohongshu's missing supply chain genes, and at the same time, it can also attract more small and medium-sized businesses to join.

According to data released by Xiaohongshu, in the first half of 2024, the number of small and medium-sized merchants on Xiaohongshu increased by 379% year-on-year, and the GMV of small and medium-sized merchants increased by 436% year-on-year.

Small and medium-sized businesses may not have much budget for advertising, but if they can get opportunities to display their products on platforms that match their tone, they will be able to break through the traffic bottleneck and find potential consumer groups that suit them. For Xiaohongshu, as the merchant pool continues to expand, its product richness and e-commerce operation system will become more mature, allowing commercialization to gradually get on the right track.

Secondly, we need to “measure” the promotion of content. Although Xiaohongshu has been promoting its e-commerce business in the past two years, its advertising business is actually the core business of the platform.

To this end, Xiaohongshu released the "AIPS Population Asset Model" at the 2025 WILL Business Conference, and for the first time fully released Xiaohongshu's measurement solution for planting grass, allowing brands to see the connection between planting grass and business growth.

Simply put, by connecting the data of the three major e-commerce platforms of Taobao, JD.com, and Vipshop, Xiaohongshu can "measure" the effect of grass-planting from two dimensions: the process and the results. This will effectively solve the problem that merchants in the past placed advertisements on Xiaohongshu but could not clearly understand the consumer decision-making chain.

Xiaohongshu CMO Zhiheng said, "It is not necessary to collect all the purchasing intentions and demands stimulated by grass-roots advertising. It is good enough to collect the data to help brands to do measurement and optimization." This also shows that Xiaohongshu will further deepen its "grass-roots ability" and enhance its advertising service capabilities.

Finally, embrace more platforms and give full play to the value of search. In the past, Xiaohongshu tried to build an e-commerce closed loop, but all attempts failed. Realizing this, Xiaohongshu began to try to "develop outwards", not only cooperating with other e-commerce platforms to "spill over traffic", but also further focusing on search to "ask for traffic" from the outside.

Recently, LatePost reported that Xiaohongshu plans to set up a strategic investment team, mainly investing in hard technology, especially AI applications. Combined with the previous news that Xiaohongshu has established a new application algorithm department, Xiaohongshu should further focus on the search field.

There are market rumors that Xiaohongshu's average daily search volume has reached about 600 million times, and its search volume is close to half of Baidu. "Xiaohongshu replaces Baidu" will not be just a joke. Next, it depends on how Xiaohongshu builds a better content ecology and supply chain system to take on external traffic.

Xiaohongshu has been on the road of commercialization for two years and has gained a lot. Compared with e-commerce platforms such as Taobao, JD.com, and Douyin, Xiaohongshu has no other reference objects. In order to tear a hole in the market dominated by giants and do a good job in the refined operation of the content ecology, Xiaohongshu can only do its own "homework".

Author | Kaikai