Even though it has earned $500 million, why is Xiaohongshu still not happy?

What are the pain points of Xiaohongshu's commercialization path, which seems to be a long-lasting success? Let's take a look at the author's analysis~

On December 25, 2023, Xiaohongshu was once again rumored to be going public on the Hong Kong Stock Exchange as early as 2024. However, before the news could fully ferment, Xiaohongshu denied the news as soon as possible that morning, saying that there was no plan to go public at present.

On the list of Shanghai unicorn companies, Xiaohongshu topped the list with a valuation of 100 billion yuan, far exceeding the second and third place Douyin and Mihoyo. Some things are often like this: when you first stay at the top of the list, everyone thinks you are great, but when you stay on the list for a long time but don’t go public, people will think something is wrong.

According to a recent Bloomberg report, Xiaohongshu is expected to record a net profit of US$500 million in 2023, far exceeding the company's forecast of less than US$50 million in profit at the beginning of the year. However, Xiaohongshu's valuation has not increased linearly with the increase in revenue. In last year's private equity market share sale, Xiaohongshu's valuation was fixed at US$16 billion, which was nearly US$10 billion lower than before.

On December 28, 2023, He Tong, the head of Xiaohongshu community content, resigned due to the lack of community growth. Internal sources pointed out that Xiaohongshu's growth this year did not meet expectations. After the number of daily active users exceeded 100 million at the beginning of the year, the company set a daily active user target of 140 million in 2023, but it has not yet been achieved.

What is so special about the buyer model currently promoted by Xiaohongshu? What are the differences between Zhang Xiaohui and Li Jiaqi, who became popular on Xiaohongshu? What are the pain points of Xiaohongshu's commercialization?

1. Xiaohongshu “turns from darkness to light”

Rather than saying that Xiaohongshu is a Buddhist, it is better to say that its founder Mao Wenchao has always been in a "want both" mentality. For a long time, Xiaohongshu has been trying to "have its cake and eat it too". This is no wonder, as the community is the foundation of Xiaohongshu's development.

"Although Xiaohongshu is aware of the necessity of commercialization, it has been cautious in its monetization path due to concerns that excessive commercialization will affect user experience and destroy the community atmosphere," said an industry insider.

In 2014, just one year after its establishment, Xiaohongshu launched its own e-commerce project "Welfare Club". The self-operated business is almost entering its tenth year. At the end of 2021, Xiaohongshu launched its own e-commerce business brand "Little Oasis" focusing on outdoor activities. As a result, in the second half of last year, Xiaohongshu announced the closure of Welfare Club and Little Oasis one after another.

According to Tianyancha data, Xiaohongshu has completed six rounds of financing so far, with a total financing amount of over US$900 million. After ten years of self-operation, it has made no splash. According to Caijing, Xiaohongshu achieved its GMV targets in both 2018 and 2019.

According to public data, Xiaohongshu's revenue in 2022 was approximately 30 billion yuan, of which advertising revenue accounted for 80% and the remaining 20% ​​was e-commerce revenue; in the 2023 data, the proportion of Xiaohongshu's advertising revenue decreased slightly, but still accounted for as much as 70% to 80%.

Such results are unlikely to satisfy the investors who continue to invest.

Xiaohongshu has learned from its mistakes and decided to start commercialization head-on. This time, Xiaohongshu is targeting the "buyer e-commerce" sector. As a market that already attracts many buyers, Xiaohongshu obviously wants to play to its strengths and avoid its weaknesses.

In the view of Xiaohongshu COO Conan, "buyer" can be any individual including the manager, merchant creator, etc. Buyers select products that match their own labels and fan tone, and finally sell the goods through live broadcasts or pictures and texts.

"Individuals are the most dynamic e-commerce force of Xiaohongshu." This idea is actually quite similar to the model of the Up masters of Bilibili. Compared with marketing that relies solely on low prices and high volume, most of the fans of Xiaohongshu are based on the daily push of bloggers, and they understand their personality, consumption concepts, and lifestyles, and pay for them with a sense of identity.

"I just like to buy from Zhang Xiaohui. I trust everything that Xiaohui recommends unconditionally and never make mistakes."

"It's really comfortable to watch Dong Jie's live broadcast. It feels like she's telling a story in a leisurely manner, and it's like chatting with an old friend."

There are many comments like this on the Internet. It can be seen that many people pay more attention to the blogger's personal endorsement, and the value of the product is secondary.

From Conan’s perspective, everything can be planted and everyone is a buyer.

The threshold to become a buyer is not high. You only need to meet the requirements of real-name authentication, be over 18 years old, and have more than 1,000 fans to open a buyer cooperation. The data also confirms Conan's statement. According to the official data of Xiaohongshu, during the Double 11 period in 2023, the number of buyers on the platform was 3.3 times that of the same period last year, the GMV of buyers' live broadcasts was 3.5 times that of the same period last year, the GMV of store broadcasts increased by 6.9 times year-on-year, and the overall GMV of live broadcasts increased by 4.2 times.

In addition to the surge in numbers, the platform also gave birth to top anchors such as Gigi Leung and Dong Jie, bringing huge traffic and long-tail effects.

Everything seems to be on the right track, but there are still stormy waves on the track.

2. Zhang Xiaohui is not Li Jiaqi

Gigi Leung is the first buyer on Xiaohongshu to achieve a GMV of over 100 million yuan.

When Zhang Xiaohui joined Xiaohongshu, she was a host with a unique label. Her socialite temperament, profound knowledge, discerning vision, and rich experience constituted her socialite tone. But as a socialite, she is down-to-earth. She would share her daily life such as eating snacks, which seemed a bit cute and resonant.

It can be said that Gigi Leung's existence perfectly fits the characteristics of the consumer group of the Xiaohongshu platform: they pursue a high-quality life, but do not want to lose the sense of fireworks.

The cultured and profound live broadcasting style enables Zhang Xiaohui to be the Dong Yuhui of the beauty industry to a certain extent, telling the audience about the history of art and exporting emotional value. At the moment when Xiaohongshu is transforming into a commercial platform, Zhang Xiaohui is undoubtedly the most suitable benchmark candidate.

After Zhang Xiaohui, a group of "sister-style" anchors emerged on Xiaohongshu, including Dong Jie, Yi Nengjing, Zhang Li, etc. However, Zhang Xiaohui's success is undoubtedly a victory for herself, but it is not perfect for Xiaohongshu.

The reason is simple: Zhang Xiaohui is not Li Jiaqi, and Xiaohongshu is not Taobao. The connection between Zhang Xiaohui and Xiaohongshu is far less than the connection between Li Jiaqi and MeiOne.

Zhang Xiaohui is not a real anchor, and she only has two live broadcasts every year. According to her, she only shares products that she has used and is satisfied with. In order to take a differentiated route, most of these products are not common mass brands on the market, but overseas niche or big-name niche verticals, and there are also some new domestic brands. In this way, Zhang Xiaohui's product selection battle line will be very long. For example, for the live broadcast of Double 11 in 2023, Zhang Xiaohui's team will take two and a half months to select products.

"I have shopped and visited stores all over the world. I have checked the formulas, ingredients and prices for everyone. Whether you are 17 or 70, you can buy something suitable for yourself at 'Rose is Rose'." This statement by Gigi Leung, who was born in an upper-class family and wore Chanel at the age of 6, is convincing, but it also clearly reveals one thing: Gigi Leung values ​​her own private domain more, and Xiaohongshu is more of a promotional platform for her.

Most of the time, Gigi Leung communicates with readers on her WeChat public account. She also has her own private shopping app called "Rose is Rose", which also has exclusive member discounts.

Although Xiaohongshu spreads the message that everyone can be a buyer, in fact this is not very realistic.

There are good and bad buyers. In addition to her unique and artistic live streaming style, Zhang Xiaohui's popularity is also due to her "not stepping on bad products", which is also the highest evaluation of a buyer. If everyone becomes a so-called buyer, Xiaohongshu's "advertising rate" will soar, which will further erode the community's ecological environment, and negative feedback from users will follow.

In other words, Xiaohongshu is not indispensable to Veronica Yip; on the contrary, if Xiaohongshu loses Veronica Yip's golden signboard, its appeal is likely to decline.

Leaving aside Zhang Xiaohui, from the perspective of the buyer business model, Xiaohongshu's business model is indeed changing, but there are really not many barriers. In addition, Xiaohongshu also has to face the embarrassment of "the previous generation plants the trees, and the next generation enjoys the shade".

Gintoki, the person in charge of Xiaohongshu live streaming, has made a key interpretation of the platform's support policy. He said that in the future, Xiaohongshu will launch special plans such as the buyer center to help buyers grow and select products and link with merchants. But who can guarantee that buyers who thrive in such a "Huangpu Military Academy" will be loyal to the end? Fu Peng, the former assistant of Li Jiaqi, joined Xiaohongshu to promote products after he went solo in October 2020, but switched to Douyin after only three months.

3. Confusion after the 0.5 stage

In addition to the potential "defection" of the anchors, Xiaohongshu also needs to face the possible "bridge-breaking" of brands.

The buyer store model is more suitable for high-profit, high-gross-margin products. These products are usually niche, less well-known, and some are non-standard products.

One of the domestic skincare brands recommended by Zhang Xiaohui, Beast of the East, is one of the brands that has been deeply influenced by the dividends of Xiaohongshu. According to its founder He Yi, Xiaohongshu is a platform that provides great support to brands in the 0 to 0.5 stage. Brands do not position their live broadcasts on Xiaohongshu as a simple hypermarket, but more as a place for in-depth communication with users about brand concepts.

However, building brand awareness on Xiaohongshu does not mean that the brand will continue to do so. At this stage, more brands, like the Beast from the East, regard Xiaohongshu as the main battlefield for brands to go from 0 to 0.5, but this main battlefield serves more as a springboard.

After the brand really grows to the 0.5 stage, the new vision of becoming bigger and stronger will make the brand no longer obsessed with the past sweet period with Xiaohongshu. The multi-channel symbiotic model is undoubtedly safer for the brand.

From a pure purchasing perspective, once consumers have determined what they want to buy, unless Xiaohongshu has a clear price advantage, most consumers still prefer to buy on platforms such as Taobao, JD.com, and Pinduoduo.

As for why famous brands don’t put in a lot of effort on Xiaohongshu, the answer is obvious. Having already passed the 0.5 stage and even reached the 5.0 stage with hundreds of millions of fans, why do they need to compete for new consumers on the same starting line?

If you can't beat them, join them.

Looking up to Taobao and Pinduoduo, Xiaohongshu once again made concessions and gave up the closed-loop transaction model it once longed for.

Now on Xiaohongshu, users can use the "Search Direct" function to directly jump to the product purchase page of stores on Taobao, JD.com and other platforms when searching for related products. Xiaohongshu chose to give up part of its profits in the form of cooperation in order to achieve higher GMV.

Bilibili also chose to cooperate. The so-called open-loop e-commerce refers to a traffic diversion e-commerce model that can jump to e-commerce platforms to complete transactions. In this model, users can be attracted by the products on Bilibili and then go to major e-commerce platforms to buy them.

In addition, Bilibili has formed a "cooperation" mechanism with almost all top e-commerce companies. First, it used the "Spark Plan" to open up the data channel between Up hosts' content and Taobao link purchases; then it cooperated with JD Alliance on the "Jinghuo Plan."

In 2023, Pinduoduo became the largest sponsor of Bilibili, and netizens even jokingly called it "single-handedly supporting half of the Up masters on the site." Many Up masters' videos will insert customized, pop-up and blue link ads of Pinduoduo's 10 billion yuan subsidy, and similar phenomena also appear in many push notifications of WeChat public accounts.

Such cooperation is a roundabout way for Xiaohongshu and Bilibili. The "large open-loop" e-commerce model can quickly establish the consumer mindset of platform customers and realize monetization in a more efficient way, but it cannot seize the final pricing power and is still largely making wedding clothes for others.

The cooperation with Xiaohongshu is full of compromise and insincerity.

Whether it is anchors or buyers, the platform value of Xiaohongshu is not indestructible. Today's e-commerce platforms are no longer as popular as they were ten years ago. The extreme internal competition makes every company feel like an enemy is at the gate.

Behind Xiaohongshu, all investors are following closely, and the longest of them has been waiting for 10 years. It would be a lie to say that they are not in a hurry.

Xiaohongshu is making progress, but perhaps the pace needs to be faster, even faster.

Author: Koala is a Deer WeChat Official Account: New Retail Business Review