Four questions about Xiaohongshu

This article analyzes the four major issues currently facing Xiaohongshu and their sources from four dimensions. We hope that this article can explain to readers the current development status and future direction of Xiaohongshu.

In the past two days, Xiaohongshu has published a lot of PR articles. Based on this trend, I have sorted out the general direction of communication:

From talking about buyer e-commerce in the middle of the year, talking about grass-planting around Double 11, to talking about products such as "search, grass-planting all over the region" at the business conference in recent days, as well as re-examining the value of the site and measures such as opening up the ecological plan next year, there is no doubt that it reveals the "anxiety of the platform."

What are you anxious about?

I asked some senior advertising bosses around me, and they said that Xiaohongshu has not figured out how to effectively make money with compound interest. A marketing leader of a home technology brand said that the platform's e-commerce genes are not strong, and the grass-planting is too obvious, which has a profound impact on the e-commerce closed loop.

A few years ago, a big V mentioned:

If consumer products want to break out of the circle, they first put out hundreds of questions and answers on a certain website, and then find a group of bloggers on Xiaohongshu to write some tweets. The anchor is too strong. Undoubtedly, Xiaohongshu can only focus on promoting products and become an intermediate link in the shopping process, affecting the development of B-end brands on the platform.

These problems cannot be denied, but I think there are four more important points than them.

1. Product Mentality Issues

What is Xiaohongshu? After summarizing the survey of different group samples, I received three different answers:

1. Buyer e-commerce

"Everyone who loves life can use Xiaohongshu. Individuals are the most dynamic e-commerce force of Xiaohongshu. No matter it is outfit sharing, maternal and child care, or outdoor travel, as long as you are an individual and have a product, you can do business here. It is an e-commerce platform for buyers."

2. Search Platform

“Before I buy something, I like to search on Xiaohongshu to see if there are any relevant guides or reviews. I think Xiaohongshu is a content search platform that provides information reference and has some value.

The reason I say this is because I find some businesses not so reliable. Once, I bought a side job course recommended by a blogger, but after listening to it, I found that the blogger’s so-called secret to making money from a side job was to sell the concept of "side job". Since then, I have never spent money on the Xiaohongshu platform."

3. Grass-growing community

Doing business is definitely inseparable from product promotion. In the past, users liked to build word-of-mouth on Baidu. Now young people are more interested in using Tik Tok, Weibo, and Xiaohongshu. We will invest some pictures and texts to build search reputation, so it can be regarded as a grass-planting platform.

Yes, you don’t have to be surprised. These three points are answers that are more widely recognized by the public. Of course, they are not accurate enough. If you think there is a problem with the answers, you can also do some sample research.

Frequent communication tactics will make people fall into a fog and not know what the platform actually belongs to. From an external perspective, this is the first thing to break through.

The marketing circle often talks about the "crowd penetration strategy". In the past 10 years, Xiaohongshu's grass-planting labels have already penetrated the post-90s generation like a container. The post-90s generation is about to enter the family stage. In the future, the main consumer groups will gradually be covered by the post-95s and post-00s.

From the perspective of consumers, what kind of new vision Xiaohongshu will build and what kind of mindset it will establish in the future are more important in the minds of the new generation of users than simply emphasizing the "buyer e-commerce" or "search" functions.

Weibo and Xiaohongshu are essentially very similar and are both short content platforms. However, Weibo’s only product is “hot search”, and even Douyin is currently unable to gain traction in the hot search arena.

What is Xiaohongshu? It needs a reason to anchor its position in the long term. Without this, it is very likely that its revenue will be slowly divided up by the WeChat ecosystem and the Douyin ecosystem in the future.

2. Algorithm-driven advertising efficiency

What? Doesn’t Xiaohongshu make money? Of course not.

The problem is that Xiaohongshu is not very satisfied with its current profit model. At the same time, it wants to make adjustments but cannot bring more monetization opportunities to brands.

Looking back, Xiaohongshu has undergone four major transformations in the 10 years since its establishment.

At first, as a content platform, it made money through advertising. Then, it gradually gave up the advertising business and turned to a retail model based on e-commerce. The third transformation was after Alibaba's investment, when it returned to the positioning of a content platform and developed in the direction of new retail. The most recent one is the people-oriented buyer e-commerce model.

Overall, although Xiaohongshu claims to offer a better life, it does not want to make money solely through advertising. In 2022, Xiaohongshu's revenue reached 30 billion, of which advertising revenue accounted for 80%.

This means that once the advertising market is turbulent, the platform's revenue source will be seriously affected. Although many adjustments were made last year, a feasible path has not yet been found. Therefore, Xiaohongshu must continue to explore and find a more stable and sustainable money-making model to cope with potential market fluctuations.

Let’s think about this: Why is this adjustment so difficult?

On the one hand, the problem lies in the algorithm.

Whether the platform can effectively match the content generated by experts and ordinary users with user interests is very critical. Data matching is not just a simple two-party issue, but involves more aspects. For example, can the algorithm accurately identify the user's preferences, purchasing habits, and the length of time they stay on the platform?

On the other hand, algorithm efficiency reflects the sophistication of the data architecture.

I don't quite understand this aspect, so I asked the data experts around me. They explained that data architecture involves the entire process of data collection, storage, processing, and analysis, which means that you have to design the database, data warehouse, and data lake, and you also have to figure out the methods and algorithms for data processing and analysis.

The algorithm you see is the most superficial layer.

The algorithm has been improving little by little along with the business. At first, most e-commerce platform data centers mainly collected data, which is what we often call "point embedding". Later, it evolved to more complex processing, such as tagging, focusing on the length of stay, and gradually evolved to advertising integration.

At present, due to the continuous growth of data types and quantities, and the changing needs of users, the past methods may no longer be applicable. No matter what products Xiaohongshu launches (Lingxi, Zongcao Quanyuda, and Search Direct), they are closely related to the optimization of data architecture.

This question directly affects the brand's return on investment (ROI).

In other words, if Xiaohongshu's algorithm is accurate enough, those brands that have been promoting products on the platform for a long time may not feel that the effect is not obvious. Therefore, whether the algorithm architecture has a God's perspective and whether it can lay a solid foundation like Alibaba and Douyin will directly affect the efficiency of Xiaohongshu's money-making driven by technology.

3. Brand owners’ understanding of Xiaohongshu

The key to making a platform make money without relying on advertising is to deepen brand awareness and let the brand understand that in addition to product promotion, it can achieve the trinity of product, effectiveness and sales.

This problem can be solved from the perspective of advertising. Many businesses, especially leaders in the marketing and branding departments, do not understand Xiaohongshu and do not know how to use the platform effectively.

For example:

If a brand plans to invest 1 million yuan in Xiaohongshu in a certain quarter, what would the second party suggest? I have participated in many Xiaohongshu projects this year and have seen many second party proposals. They suggest that this budget should be allocated to bloggers and KOCs of different levels.

Specifically, 600,000 yuan is used to cooperate with mid-level influencers, 100,000 yuan is used to promote amateurs, and the remaining 300,000 yuan is used to promote the products of several top bloggers. This unchanging strategy is widely used and is not the best choice for both brands and platforms.

Why? There are two reasons:

First, the profit model of the agency mostly relies on the price difference of middlemen, and they tend to complete the task quickly. This is a traditional way of brand promotion. As long as the established reading volume is achieved and the key KPI is met, they can get the money and the delivery will be fast.

The delivery of information flow within the site is different, involving the ratio of consumption to return on investment (ROI); if the ratio is not high, the profit earned will be small, then the income of the agency will be affected, which will undoubtedly affect the interests. Therefore, it is more inclined to achieve goals quickly and make profits.

Secondly, due to the influence of external information, many brands only know that Xiaohongshu is a platform for planting grass, so they do not have much expectation of achieving conversion on Xiaohongshu.

For brands, as long as they can increase exposure in Xiaohongshu’s information flow and search, they think it is enough. As for the actual conversion rate, it depends more on platforms such as Tmall, JD.com, and Douyin. This perception limits the brand’s deeper marketing potential on Xiaohongshu.

What problems does this cause?

Because the focus is on voice and readership, promotion often only remains on the surface and fails to truly enhance brand influence.

Secondly, they rely too much on short-term and superficial promotion methods. They seem to be concerned about whether the promotional content really meets the actual interests of users, but in fact, they only recognize it superficially and ignore the user experience.

Furthermore, the method may bring high exposure, but because the content does not match user needs, the actual purchase conversion rate is very low, and the invested funds and resources are not effectively utilized.

Finally, if most brands adopt the same strategy, even if Xiaohongshu tells more stories, the final means of monetization will still be advertising, and the platform's value and attractiveness to users will become lower and lower.

It is worth mentioning that major platforms are constantly coming up with new concepts, but most merchants are completely unaware of them. These need to be transmitted by the second party, and they do not have the energy to do it.

In other words, the platform's commercialization team needs to train a group of service providers and tell them how to plant and remove brands, how to make good use of the platform, and carry out effective promotion, not just limited to laying out content.

IV. Issues on the Regulation of Trading Trust Fields

Xiaohongshu has been working hard to develop the buyer e-commerce model. I believe that in order to make this model an important part of revenue, the platform, bloggers and KOCs must work together to build a trustworthy environment.

I had a personal experience recently. I was very interested in a certain brand of shoes, and I searched and compared them on Douyin, Taobao, and Xiaohongshu. Finally, I chose to buy it on the Douyin App.

During the process, I found that the content of the Xiaohongshu platform was rather chaotic. There were many small accounts with only dozens or hundreds of fans, which posted various advertisements interspersed in pictures and texts. This situation not only affected the shopping experience, but also affected the overall credibility of the platform.

Let us think about a question: Why does the content of ordinary users (amateurs) have a greater impact than the content of bloggers?

Looking back 20 years ago, people had a lot of trust in authoritative media. For example, if a brand was featured on CCTV, it would be considered very reliable. With the rise of the Internet, people began to trust the reports of the four major portals, newspapers and magazines, but in essence, it was still a trust in authority.

Later, people began to believe what experts and big Vs said, thinking that what they said must be correct, but as time went on, people gradually realized that bloggers' content was becoming more and more commercialized, and more information was needed for comparison.

Douyin, Tmall, and JD.com have done relatively well in building transaction trust, mainly because they are very good at using the "goods" in the "people, goods, and place" model to strengthen user trust.

For example, it provides services such as no-reason return, instant return, and refund without return. Therefore, when Xiaohongshu emphasizes people-oriented and buyer management, the key question is: how to build a trustworthy trading environment with "people" as the prerequisite?

I think there are three points:

First, we will continue to rectify and strengthen content supervision to ensure that the content on the platform is authentic and reliable.

Secondly, reshape marketing values ​​to allow those who create good content to get more exposure. It is not limited to fully understanding Xiaohongshu in a few minutes and using one set of methods to bring huge traffic.

Finally, we should encourage creators to produce content carefully and let them understand that carefully produced content can bring better results and returns than casually released content.

In summary

There is still greater room for growth in the content market. Xiaohongshu, like a large MCN, still has a long way to go in terms of splitting its single advertising revenue into diversified business components.

Author: Wang Zhiyuan

WeChat public account: Wang Zhiyuan (ID: Z201440)