Brands can’t figure out Xiaohongshu’s traffic “intentions”

Xiaohongshu is accelerating its commercialization, its valuation is fluctuating, and its top management is changing. However, it is facing challenges such as traffic black box and declining influencer traffic, and needs to balance commercialization and user experience. Read this article to learn more.

Introduction: Data infrastructure is like a "black box", and Xiaohongshu still needs to work harder on commercialization.

Xiaohongshu’s commercialization process is becoming more urgent.

In the capital market, Xiaohongshu's valuation is fluctuating dramatically. In 2021, Xiaohongshu received a total of US$500 million in financing from investors such as Alibaba and Tencent, with a valuation of approximately US$20 billion. However, according to multiple media reports, in last year's private equity market share sales, Xiaohongshu's valuation has dropped to US$10 billion to US$16 billion.

According to the latest media reports in April, Xiaohongshu has started a new round of financing with a valuation of US$20 billion.

Inside Xiaohongshu, a high-level reshuffle focusing on commercialization is still going on. In January this year, Wu Yingbing, the former head of Didi’s supply and demand strategy, joined Xiaohongshu. He was previously responsible for part of Didi’s e-commerce business. In March, market sources said that Ye Heng, the former head of Kuaishou’s e-commerce products and a colleague of Wang Jianwei for many years, resigned and joined Xiaohongshu.

It seems that he will be the number one position for Xiaohongshu's e-commerce C-end products. In April, Zhao Weichen, former secretary of the board and general manager of the corporate development and investor relations department of Yika Technology, was revealed to have joined Xiaohongshu as the person in charge of commercialization in the Internet industry;

In recent years, when it comes to brands, Xiaohongshu has repeatedly emphasized its marketing methodology: "K (KOL, expert) F (Feeds, information flow) S (Search)", that is, to find KOLs to generate high-quality notes, amplify high-quality content through information flow advertising, and use positional searches to accurately cover the decision-making fields of target users.

However, if Xiaohongshu, which is known for its grass-planting mentality, wants to move towards commercialization, it must also take into account user experience to ensure that its original community ecology is not affected. Therefore, the status of Xiaohongshu can be summarized in one sentence: running in embarrassment.

Xiaohongshu's predicament was passed on to the brand side, and the brand side also responded with "budgetary constraints". But in any case, Xiaohongshu has been running faster since 2023, so fast that brands and agency operators have not yet figured out its "traffic black box".

1. Traffic injection: Traffic black box

Several agents told Yilan Business that although some brands are cutting their budgets for influencer marketing, they are looking forward to the effect of Xiaohongshu's traffic investment. However, the implementation of Xiaohongshu's "KFS" marketing methodology is still questionable.

"F" information flow ads refer to ads that users passively see. In this dimension, the accuracy of the audience is directly linked to the effectiveness of the ad. If the accuracy of the information flow ad is low, it will make the ad seem like a waste of money.

But at present, the platform's traffic algorithm is still a black box.

"The overall operation process of the Juguang platform is relatively simple and clear, but its data calculation logic is sometimes confusing. For example, after I modified a certain traffic investment plan, there was no volume, but I was able to get it out again by rebuilding the plan in exactly the same way; the audit is sometimes very mysterious, and there is no content that will not be reviewed but it will still be rejected. In addition, the audit is very slow during the promotion period; and there are some small problems here and there, such as searching for my notes under keywords that are not my keywords." Danny, the traffic investment specialist of Xiaohongshu of a leading new tea brand, told Yilan Business.

In other words, Xiaohongshu's data infrastructure needs to be more stable.

The search ads represented by "S" are a budget that brands are more willing to spend. After all, search follows the logic of "actively attack when there is demand."

However, the grass-planting attribute of Xiaohongshu itself forms a contradiction with commercial advertising: consumers hope to get sincere sharing of good things through search, rather than content promotion with links.

So, how many orders are completed through search ads? It is still impossible to measure. This is because many users turn around and place orders on other platforms after reading their favorite content. Xiaohongshu is just an intermediary and cannot accumulate effective internal data.

Xiaohongshu has also racked its brains for internal data accumulation. At the end of last year, Xiaohongshu proposed to build a "grass planting data alliance" with the aim of connecting the front-end grass planting link with the transaction conversion link of major platforms. According to official information, the alliance has five partners including JD.com, Vipshop, Dewu, Qunar, and Meituan, and more than 1,000 participating brands.

Even so, judging from the feedback from brands, Xiaohongshu still has a long way to go if it wants to achieve truly refined crowd asset accumulation like Taobao, Douyin, and Kuaishou.

2. Experts: “Freebies” from Collaboration with Brands

A product manager of a leading domestic beauty brand told Yilan Business that the influencer traffic on Xiaohongshu is decreasing too quickly.

Take a beauty expert with 150,000 fans as an example. In 2020, this expert achieved a peak of 77,000 likes, with an average of more than 5,000 likes per post. However, by 2023, the number of likes on daily posts did not even exceed 500.

At the same time, Xiaohongshu is often used as a "gift" for cooperation with other channels. Influencers of a certain scale prefer omni-channel layout. Many Douyin influencers have said to a brand, "If you quote the price for cooperation based on the data of the Douyin platform, we will give you Xiaohongshu as a gift."

Some brands believe that because of the grass-growing nature of Xiaohongshu, they cannot directly measure the ROI of their cooperation with influencers on Xiaohongshu, while on platforms such as Douyin, such numerical quantitative analysis is more convenient. "We cannot estimate how much sales we can get from spending 100,000 yuan on Xiaohongshu."

During major promotional events such as 618 and Double 11, Xiaohongshu's competitiveness has become increasingly limited.

Tingting is responsible for the clothing brand connection of a certain operating company of Xiaohongshu. In her opinion, in the past, during such major promotional events, brands would allocate a large budget to influencers, but this budget is shrinking year by year.

"The main battlefield for big promotions is still on Taobao and Douyin. More users come to Xiaohongshu to promote products, but the traffic of influencers has declined, and brands will definitely cut their budgets. The early batch of bloggers who started with traffic used to have cooperation volumes of hundreds of thousands, but that has also shrunk," said Tingting.

A research report released by GF Securities in February 2024 shows that 80% of Xiaohongshu's revenue in 2022 came from advertising business, and the rest was mostly from e-commerce business; the proportion of advertising revenue decreased slightly in 2023, but still accounted for nearly 80% of total revenue.

On the community content side, Xiaohongshu’s influencer traffic is peaking, and brand budgets are shrinking. On the live e-commerce side, Xiaohongshu also needs a top anchor who can be “controlled”.

The buyer e-commerce model positioned by Xiaohongshu is a model that conforms to the characteristics of its platform. Specifically, buyers include managers, merchants, creators and other groups. They will select products that meet their own characteristics and fans' needs in various ways, and then drive product sales through content marketing. In the past year, Xiaohongshu has also incubated top anchors with platform characteristics such as Dong Jie, Zhang Xiaohui, and Yi Nengjing, which has indeed brought considerable growth to Xiaohongshu's e-commerce business.

However, due to the characteristics of buyer e-commerce itself, the degree of binding between buyers and platforms is extremely low.

Take Veronica Yip as an example. Veronica Yip is the first buyer of Xiaohongshu whose GMV exceeded 100 million. In 2023, she only live-streamed twice.

According to Zhang Xiaohui, she only shares products that she has used and is satisfied with. Many of these products are overseas niche or big-name niche verticals, and there are also some new domestic brands. Therefore, Zhang Xiaohui's product selection battle line is relatively long. For example, for the live broadcast of Double 11 in 2023, Zhang Xiaohui's team spent two and a half months on product selection.

For Xiaohongshu, this means that the top anchors on the platform have more limited opportunities to achieve explosive growth in their live broadcasts. On the one hand, the size of the product selection team of buyer anchors is still limited, and they cannot maintain the same fast pace as super anchors such as Li Jiaqi and Dong Yuhui to bring goods. On the other hand, buyers are not anchors exclusive to Xiaohongshu, nor do they have to follow the marketing rhythm of Xiaohongshu. They can even go to other platforms to bring goods at any time.

Just today, Yilan Business learned from the "Rose is Rose" Taobao live broadcast room that on May 26, Gigi Lai will make her Taobao debut in the live broadcast room.

3. E-commerce: The platform is still immature

"As a senior user of Xiaohongshu, I have only placed an order on Xiaohongshu once."

This is not just a sentiment expressed by a certain Xiaohongshu user to Yilan Business. There are two reasons for this behavior of users: Xiaohongshu, as an e-commerce platform, does not provide a good enough consumer experience; and they use Xiaohongshu as a platform to promote products and do not develop a consumption habit on this platform.

Liu Qiangdong, founder of JD.com, once said that the essence of all businesses in the world is: lowest cost, highest efficiency, and best user experience. This is especially true for e-commerce.

If Xiaohongshu wants to get a share of the e-commerce business, it must have a supporting supply chain, payment, logistics, and after-sales system, because every link here is related to the user's ultimate experience.

A consumer told Yilan Business that if he wanted to return a product on Xiaohongshu, he had to communicate with the merchant himself. In fact, such a return function is already a fully mature function on e-commerce platforms such as the shelf and even Douyin.

The embarrassing thing is that if you want to improve the e-commerce business, you need a lot of capital investment. Whether it is Taobao or JD.com, they consumed a lot of money in the early e-commerce layout stage. In contrast, Xiaohongshu is not rich. Qichacha shows that Xiaohongshu’s latest round of financing took place in November 2021, when it received a total of US$500 million in financing in the E round, but more than two years have passed. Moreover, Xiaohongshu’s IPO is still only in the rumor stage.

In Yilan Business's view, the fundamental reason for Xiaohongshu's survival is not scale, but genes. Therefore, Xiaohongshu's road to commercialization needs to grasp the degree and direction.

Overall, there are two problems that Xiaohongshu needs to solve: establishing a closer cooperative relationship with top buyers and anchors; and accelerating the construction of internal data infrastructure and its integrity as an e-commerce platform.

Under the pressure of capital, Xiaohongshu has little time left. Xiaohongshu needs to prove itself as both a "shrewd businessman" and a trustworthy "sharer" as soon as possible within a limited time, which is not easy.

Author: Xue Xiang

WeChat public account: Yilan Business