To monetize traffic, Xiaohongshu and Douyin compete for offline merchants

This year, Internet companies in different fields began to compete to enter the local life service track, that is, the offline track, in order to monetize traffic. So what changes have the local life service market experienced due to the entry of new players and what are the relatively efficient traffic monetization paths? Interested friends can read on.

Since the beginning of this year, the pressure to monetize traffic has forced Internet companies from different fields to squeeze into the local life service track and begin to accelerate their layout.

In addition to Douyin, which continues to expand its categories, AutoNavi, which has acquired word-of-mouth, and Kuaishou, which is exploring opening multiple cities, there is also Kuaituan, which has started recruiting service providers, Video Account, which is testing local life components, and Xiaohongshu, which is trying to combine "planting grass" and "pulling grass" into one.

Nowadays, when Chinese consumers enter an offline store, they often ask, "Which store has the group purchase packages?" and then add, "Who has the cheapest price?"

Just last month, a Shanghai user discovered that the coffee shop she frequented had a promotional poster for Xiaohongshu on the bar counter. "The clerk said at the time that the promotion would last until the end of May, and that group purchases could be placed on Xiaohongshu." Before that, the only group purchase platforms she was familiar with were Meituan, Ele.me, and "TikTok, which she has used more frequently in the past two years."

At the Douyin Life Service Ecosystem Partner Conference held in April this year, Zhu Shiyu, president of Douyin Life Service, mentioned that many people's first reaction to Douyin Life Service is that it is equivalent to running into an existing market to grab business, but in his opinion, it is not. "Life service is a vast market worth more than 10 trillion yuan, and the proportion that is actually completed online is actually very small, and it is far from the stage of existing market competition."

However, it is inevitable for the up-and-coming to cross the river by feeling the way of the predecessors. For Meituan, which has been working hard for a long time, proximity equals threat. A local life service provider told the power plant that Meituan waived the merchant pass fee for some cities and categories, and even reduced the commission rate in cooperation with some head customers to defend against the fierce attack of Douyin.

The market is changing due to the entry of new players, and in this process, the latter are also looking for and verifying relatively efficient traffic monetization paths. Competition is no longer irrational, and all participants hope to get a bigger piece of the pie while maintaining their existing interests.

1. Rushing into a market full of gold

More than 370 cities, more than 2 million partner stores, a 163% year-on-year increase in the number of influencers, and a more than 7-fold increase in GMV (Gross Merchandise Volume) - this is the answer sheet for Douyin's life service business as of the end of last year.

The power plant noted that since the beginning of the year, Douyin Life Services has successively opened multiple categories such as bathing, home furnishings, building materials, auto repair, and fruits. Categories including dentistry, early childhood education, and housekeeping are also being prepared and promoted.

A local life service provider said that this means that more offline stores will be "moved" to Douyin in a short period of time. "Their BD (Business Development) will be more difficult now because they are responsible for opening new stores, requiring 30 to 50 stores a month, which is very tiring."

Just as ByteDance has incubated a series of businesses in a "miracle-making" way, the general impression left on the outside world by Douyin's life service is "powerful".

The power plant learned that Douyin's life service GMV in 2022 is close to 80 billion yuan, and the GMV target for 2023 is 250 billion yuan, more than three times that of the previous year. Among them, the GMV targets for the two major segments of takeaway and in-store are 50 billion yuan and 200 billion yuan respectively.

The power plant sought confirmation from Douyin, but no response was received as of press time. The low commission rate is one of the advantages that Douyin has in attracting merchants to join.

Before June 2022, Douyin implemented a commission-free policy, charging merchants only a 0.6% payment channel fee and no platform software service fee. Since June of that year, Douyin has adjusted the fee rate for its life service business, with an average rate of 3% and a maximum of no more than 8%.

In comparison, Meituan’s group buying commission is at least three percentage points higher. Taking Li Ren Group as an example, Douyin’s rate was 3.5% at that time, while Meituan’s rate was 8% in some cities. The aforementioned local life service provider said that in order to avoid the loss of merchants, Meituan waived the merchant pass fees for some categories in some cities.

The power plant found that when clicking on the store entry page of the Meituan App, in addition to the "Store Claim" showing free, the "In-store Comprehensive Merchants" column also has the words "free entry". The latter covers leisure and entertainment, beauty and medical beauty, education and maternal and child, marriage, home and life services, and is another major in-store scenario besides dine-in restaurants.

Not only that, Meituan even reduced the commission rate for a few of its top customers. "We mainly focus on the catering sector, and we lower the commission rate to attract these merchants who have moved to Douyin. In April, a number of merchants have already removed their Douyin stores," the insider said.

Compared with the accelerated Douyin, Xiaohongshu's pace is a little slower. At the end of April this year, Xiaohongshu launched its first group buying event in Shanghai, focusing on the coffee category, and some chain brands such as % Arabica Coffee covered stores across the country.

The second phase of group buying activities is mainly for tea drinks, and is open to Guangzhou merchants. At present, in addition to coffee, baking, and tea drinks, Xiaohongshu has also launched group buying activities for formal meals, and is continuously recruiting qualified merchants and store explorers.

However, there is no independent entrance to Xiaohongshu's group buying function. Apart from the event page posted by Xiaohongshu's official local life account "Tuposhu", users can only enter through the group buying link displayed below the merchant account homepage and the expert notes.

A merchant who participated in the group buying activity revealed to the power plant that the purchase volume on the first day of the activity was large, but the subsequent effect was average. The platform mainly played a role in attracting traffic and did not bring more profits. "It was not profitable." However, in the view of the aforementioned local life service provider, this market is actually "full of gold."

Recently, many merchants have come to ask when the Xiaohongshu cooperation interface will be launched, expressing a strong willingness to pay. "Merchants have very high expectations, and I feel that Xiaohongshu will not always be so slow, because the market will push it forward." After all, there are more and more platforms targeting the local life field.

Gaode has become the unified entrance for all of Alibaba's local life businesses; Kuaishou has carried out pilot projects in Shanghai, Qingdao, Harbin and Hangzhou; Pinduoduo's Kuaituantuan has started recruiting merchants in categories such as catering; and Video Account, which is known for its traffic, is currently testing the local life component. The person from the aforementioned local life service provider said, "It is expected to be fully launched in August."

Supply means traffic, and the competition between platforms is something that people in the game are happy to see happen. A local life practitioner believes that no one will reject new entrances because "businesses all hope to get more customers."

2. Platforms face up to their desire for monetization

As for platforms, in addition to Amap, which is a location-based tool, and Kuaituan, which has the attributes of social e-commerce group buying, Douyin, Kuaishou, Xiaohongshu, and even Video Account, are all content-based community platforms. Xiaohongshu, in particular, is good at seeding but difficult to keep transactions on the site - from cross-border e-commerce to introducing third-party merchants, to launching its own brands and opening offline experience stores, it has only tried a few and has been wavering.

In the past, platforms pursued rapid growth in terms of revenue scale, number of users, and usage time; but now, the growth curve is becoming flatter, and they need to face up to their desire for monetization, turn to refined operations, and firmly aim at profitability and high-quality development goals.

New businesses such as e-commerce and local life have played this role and become another growth curve with high hopes. A former Douyin employee once mentioned to the power plant that Douyin's layout of e-commerce and local life is equivalent to making full use of existing traffic, that is, selling advertisements in a more efficient way. When traffic is distributed to multiple scenarios, driven by user consumption behavior, advertising demand will naturally arise.

“Instead of being used as a traffic pool and directing traffic for others, why not do it yourself?”

One example is that in 2018, Douyin launched a plan to connect the shopping cart function. In addition to jumping to Taobao links, it also successively connected to platforms such as JD.com and Vipshop.

Today, third-party links are hard to find, and Douyin stores are the main battlefield for transactions. The same is true for Xiaohongshu, Kuaishou, and Video Accounts. It is far from enough to just plant grass. Only by combining planting grass and pulling grass can the platform value be increased while retaining the brand.

There are many categories of local life services, such as high-frequency catering and high-priced hotels and travel, which correspond to richer usage scenarios, more complete user portraits, and more room for improvement in usage time. "Big companies are not having a good time either. If there is an opportunity, they must make money quickly. In fact, there are only a few ways of commercialization that can be replicated: e-commerce, games, advertising, and local life." The aforementioned local life service provider added.

Wang Huiwen, co-founder of Meituan, who has now devoted himself to AI entrepreneurship, once classified the Internet industry using the "AB classification method". In a nutshell, Category A is supply and fulfillment online, such as video, live broadcast, games, etc.; Category B is supply and fulfillment offline, represented by the business models of Alibaba and JD.com.

Category B is further divided into B1 and B2. The former is physical e-commerce centered on SKU (stock keeping unit), and the latter is life service e-commerce centered on Location. Meituan belongs to the local life service e-commerce in B2, which is distinguished from non-local life service e-commerce such as Ctrip.

However, peaceful staggered competition is no longer possible at this stage. The boundaries between online and offline are no longer clear. Offline scenes crave the irrigation of online traffic, and online traffic urgently needs the extension of offline scenes.

The logical difference is that Meituan's idea is "people looking for stores" centered around geographic location, and content is generated after the experience is completed; the ideal link for platforms such as Douyin, Kuaishou, and Xiaohongshu is to drive transactions through content, and in the process enable users to develop the habit of active searching.

Among the two main scenarios of home delivery and store delivery, home delivery has higher requirements for contract fulfillment capabilities, and transportation resources such as riders are indispensable. Most content platforms that are well versed in advertising tend to explore group buying from home delivery. Even Douyin, which has tried the food delivery business, only uses third-party platforms to complete delivery in Beijing, Shanghai, and Chengdu. In the words of the aforementioned local life service provider: "First, we need to 'move' all the stores and increase the number of orders when the supply is sufficient. It is too early to talk about food delivery now."

Data from the third-party platform QuestMobile shows that in April 2023, the penetration rate of the local life comprehensive service industry (mainly group buying) is 38.4% and the penetration rate of food delivery services is 15.6%, which still has a lot of room for growth. In other words, the key to competition at this time is to find a differentiated route.

Taking Xiaohongshu as an example, the aforementioned local life practitioner analyzed that low-price group purchases that focus on hot products are not suitable because the tone is "mismatched". "Either distribute them in a targeted manner under the optimization of the algorithm, or consider the categories and means that match it. What your genes are, you have to do what you want, otherwise it will disrupt the original atmosphere and rhythm."

One possible result is that these platforms do not get transaction volume, but advertising and user awareness. Of course, the other side of "grabbing" is the inevitable "volume".

Even so, some people are still willing to do it. "They are willing to do it because they can make money. When the day comes when they go from making one dollar to losing one dollar, probably no one will say no, and they may have to change to another industry," said the aforementioned local life practitioner.

Author: He Chang

Source: WeChat public account "Power Plant (ID: wonder-capsule)"