TikTok Shop, a copycat for Southeast Asia

This article introduces the rapid development of TikTok Shop in the Southeast Asian market and the challenges it faces in the US market, and analyzes its growth strategies in different regions and the competitive and regulatory environment it faces.

Compared with TikTok's free rein in the global app market, TikTok Shop has a much harder road to go overseas. When setting up the e-commerce project, TikTok originally placed its first step in the United States. But due to the current situation, it had to turn to the United Kingdom and Indonesia.

Three years later, the UK market contributes less than 10% of TikTok's overall e-commerce, and the US market, which has invested heavily, also performs poorly. On the contrary, the Indonesian market has borne fruit. According to the "Southeast Asia E-commerce Outlook 2024" report released by Asian digital e-commerce agency TMO, in April 2024, TikTok Shop's revenue in Southeast Asia was approximately US$1.7 billion, of which Thailand and Indonesia were the two largest contributors.

Raising our perspective to the entire Southeast Asian market, this huge market with a population of 660 million has become the most important "showroom" for TikTok Shop: According to LatePost, as of the end of August 2024, TikTok Shop's GMV in Southeast Asia (excluding Tokopedia) has exceeded US$15 billion, and it is expected that by the end of the year, this figure will exceed the US$19 billion mark.

So the question is, can this successful example from Southeast Asia be promoted for cultivation in other regions?

01 Southeast Asian Experimental Field

In the golden decade of mobile Internet, Southeast Asia is the most promising testing ground for domestic investors.

The population here is large and dense. With a total population of 660 million, the population density is 153 people per square kilometer, which is more "crowded" than China. At the same time, the population structure is very young, with more than 50% under the age of 30. Young people who are willing to accept new things not only provide huge potential for this market, but also make excellent objects for shaping: some young people can't even use a computer, but they can already use their mobile phones to shop online.

Before the arrival of TikTok Shop, two local e-commerce giants had already been born here: Shopee and Lazada. Both are positioned as shelf e-commerce, but Lazada pays more attention to brands. In 2018, Lazada launched LazMall, which has now become the largest online brand mall in Southeast Asia. According to 36Kr, the sales of brand merchants on Lazada will be better. And big brands like Estee Lauder are only available on Lazada.

In the past, the market share of the two companies remained relatively stable until the emergence of TikTok Shop. Since entering the Indonesian market in 2021, TikTok Shop has accelerated all the way. In just one year, TikTok Shop has expanded its market to Thailand, Singapore, Vietnam, the Philippines, Malaysia and other countries. In 2022, TikTok Shop's GMV increased three times year-on-year. By 2024, this number was rewritten to four times, reaching 16.3 billion US dollars.

Judging from the results, TikTok Shop has almost replicated what Douyin e-commerce has done in China to Southeast Asia.

The Internet penetration rate in Southeast Asia is high, and the stickiness of netizens is higher than the world average. The Internet penetration rate in Southeast Asia is higher than the global average. According to Statista, as of July 22, the Internet penetration rates of major Southeast Asian countries such as Malaysia, Singapore, the Philippines, Thailand, Indonesia, Vietnam, Thailand, Malaysia, Singapore, Vietnam, and Indonesia reached 93.8%, 92%, 91%, 88.3%, 86%, and 76.5%, respectively, exceeding the world average. Among them, the average daily Internet usage time of Internet users in the Philippines exceeds 10 hours, and the daily Internet usage time of users in Malaysia and Thailand exceeds 9 hours, which is about 7 hours higher than the average daily usage time of Internet users worldwide.

TikTok Shop is not the only one that has thought of livestreaming e-commerce. In 2019, Lazada launched LazLive, one of the earliest livestreaming shopping platforms in Southeast Asia. Lazada also borrowed from the more mature livestreaming shopping model in China and combined it with local consumer preferences to launch creative games in the livestreaming room, thereby increasing the fun of livestreaming and consumer stickiness.

But Lazada still lacks TikTok. As of mid-2023, TikTok's total number of monthly active users in Southeast Asia reached 325 million. While having a huge traffic pool, there are also many young people who love to watch short videos and are highly receptive to new things, which can be said to be what most e-commerce platforms are eager to have.

With the invasion of TikTok Shop, live streaming e-commerce has gradually become a form of shopping pursued by Southeast Asian consumers in the past two years. According to a research report by Milieu Insight, in Southeast Asia, 82% of respondents have entered a live streaming room, 48% of users visit a live streaming room at least once a week, and 63% have purchased something in a live streaming room.

Tokopedia sellers have said that up to 80% of sales on the TikTok Shop platform come from live streaming. Compared with traditional online shopping methods, the real-time interactivity of live streaming has played an important role in stimulating consumer purchases.

In order to make its e-commerce ecosystem more complete, last year, TikTok Shop also completed the shelf e-commerce of "people looking for goods", entering an era of growth on two legs.

TikTok Shop's combination of short videos, live broadcasts, display windows, and shopping malls has been launched in Southeast Asia, completing the construction of "people, goods, and venues". Just like in China, short videos are used for content marketing, live broadcasts stimulate consumers' impulse shopping needs, and shopping malls are used to form product supermarkets. TikTok Shop has achieved a seamless connection of "watching videos-being recommended-ordering".

At the same time, compared with its two predecessors who reduced costs and increased efficiency in order to make profits, TikTok Shop, which has sufficient ammunition, has invested far more in marketing than its competitors. Some analysts estimate that TikTok Shop's annual incentives cost between 600 million and 800 million US dollars. In 2024, TikTok Shop also increased its localization investment in Southeast Asia. For example, it has added operation centers in key markets such as Vietnam, Thailand and Indonesia, and cooperated with well-known local KOLs to launch a series of marketing activities that are in line with local culture.

In terms of compliance, TikTok Shop has also explored a new path. Indonesia is the largest e-commerce market in Southeast Asia, and Indonesian customs is one of the most stringent customs in Southeast Asia. Last September, TikTok Shop was banned from e-commerce business by the Indonesian government. Two months later, it acquired Indonesia's local e-commerce platform Tokopedia and merged it into Shop Tokopedia, becoming the second largest e-commerce platform in Indonesia.

Can TikTok Shop follow the path of Southeast Asia in the US?

02 TikTok Shop, Acceleration in the US

Not long ago, TikTok Shop shared the situation of the US market: the number of daily paying users in the US has increased three times in the past year. As of Q3 2024, the GMV of TikTok Shop's US content market increased by 37% month-on-month, and the number of short video sales products in the US increased by 47% month-on-month. In Q3 2024, the US region incubated 3 million-dollar live broadcast rooms and 37 hundred thousand-dollar live broadcast rooms.

Growth in the United States also relies on past experience: TikTok's content field and subsidies.

Let’s talk about the content market first. Public data shows that TikTok has 170 million monthly active users in the U.S., accounting for half of the U.S. population. Although the U.S. population is not as young as Southeast Asia, TikTok’s users are almost all teenagers, and this year the platform has become an important window for canvassing votes in the U.S. election. Therefore, similar to the situation in Southeast Asia, TikTok covers a fairly young user group, who are happy to choose new consumption channels and spend more time on the Internet: its U.S. users use it for an average of 2 hours a day, far exceeding traditional e-commerce platforms in terms of traffic activity.

A survey data from Morning Consult, an international information consulting company, pointed out that as many as 64% of millennials and 76% of Generation Z users are already active in TikTok Shop. Among them, 40% of Generation Z users have purchased goods on TikTok Shop, followed by millennials, accounting for 37%.

As for subsidies, this year TikTok Shop has led new merchants to complete a quick start through the "New Merchant Startup Plan", and provided exclusive benefits such as commission reduction to support the development of new merchants, and also supported top cases through the "100 million yuan club". As a result, in Q3 this year, the GMV of top merchants increased by 25% month-on-month, and the GMV of top merchants on Super Product Day increased by 6 times, and nearly 80 merchants achieved the goal.

Perhaps to ease regulatory pressure, TikTok chose to cooperate with Amazon. Users will see Amazon's product recommendations in TikTok's "For You" channel, and can link their TikTok account with their Amazon account through settings, and then they can directly purchase Amazon products on this short video platform.

However, compared with Southeast Asia, TikTok Shop still has to face the behemoth Amazon in the US. Today, Temu and Shein together only account for 2% of the US e-commerce market, while Amazon accounts for 36%. In the past 18 years, Amazon has invested more than $100 billion and established 185 distribution centers around the world, which enables Amazon to achieve same-day or next-day delivery of more than half of its orders.

At the same time, similar to TikTok Shop attracting American merchants, Amazon also tried to defeat magic with magic. In June this year, Amazon held an internal closed-door meeting in Shenzhen, announcing that it would open an entrance to the "low-price store" on the main site, focusing on white-label low-priced fashionable home living products, and would deliver them within 9 to 11 days.

At the regulatory level, the current situation is more due to the shift in focus brought about by the election. If TikTok Shop wants to replicate the experience of Southeast Asia, it will face great resistance.

Author: Lu Fei This article is written by the author of Operation Party [Bohu Finance], WeChat public account: [Bohu Finance], original/authorized to be published in Operation Party, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.