In today’s Finshots, we talk about TikTok's attempt to make it big in the social commerce business.

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The Story

In 2021, a social commerce project codenamed Magellan XYZ emerged in Indonesia. And guess how it promised to sell products on the platform? Live streaming!

Influencers could simply go live and talk about brands. Maybe show a beauty product or a bag or sneakers. Users scrolling the app could stop, watch the live video, and if they liked the product, could simply click ‘buy’ and execute the transaction on the app. It was like HomeShop18, but in real-time on your phone instead of a recorded broadcast on the TV.

But guess who was behind Magellan XYZ?

TikTok!

Yup, the Chinese social media company had captured the world of short-form video and they wanted a piece of the e-commerce pie too. And Magellan XYZ was officially called TikTok Shop! It was the first TikTok Shop in the world. The company believed this live version of social commerce could shake up the status quo. Now if you’re wondering what social commerce is, it simply means buying stuff on social media. That’s it.

And there’s a reason why everyone’s eyeing social commerce. See, 4.5 billion people in the world use social media today. That’s over half the global population. And since they spend nearly 3 hours a day on it, it’s basically how they discover new products and brands on the internet. Also, people seem to trust influencers more than friends and family when it comes to product recommendations.

So it’s the perfect storm for social commerce.

Now if we’re being honest, this wasn’t TikTok’s first rodeo with social commerce.

Back in 2019, TikTok had dabbled with shopping features. Creators could talk about products in their videos. And add a link to buy it. But the difference was that it would take prospective shoppers outside the app. They would be directed to a different website to make the purchase. And that created some friction in the process. Also, another risk was that people might get distracted by shiny new things on the other website and not flip the app back to scroll on TikTok.

Then they began integrating with Shopify. If you were an entrepreneur who’d set up a store through Shopify in the US, you could feature your products on your TikTok account. If users liked what they saw, they’d be redirected to your Shopify page at the click of a button. But again, the problem here was that people would leave the TikTok app. Shopify’s social commerce sales would rise but TikTok could lose out on revenues.

So a couple of years ago TikTok decided that it needed full control over everything — the discovery, buying and payment. It would all happen within the app. This way TikTok would get paid a commission for the sale and pass on a cut to the influencers too. That’s how TikTok Shop was born. And because it seemed to be working in Indonesia and other parts of South East Asia, TikTok decided to expand.

Now there are no prizes for guessing which market it wants badly — the US!

Yup, TikTok has just officially launched its TikTok Shop. And it’s hell-bent on getting its 150 million monthly active US users to shop. After all, Americans probably have bigger pockets than their Asian counterparts. So that’s more money for TikTok too.

But the burning question is — can TikTok knock Amazon off its e-commerce perch and disrupt the market?

Well, let’s just say it’s not going to be easy.

For starters, social commerce experiments haven’t worked in a big way in the West yet. See, TikTok actually launched its live shopping feature in the UK last year. But apparently, it didn’t see much success. People didn’t seem to enjoy live shopping on a social media app. And maybe that’s why, in the US, even Instagram pulled the plug on its live shopping feature this year.

Secondly, Amazon isn’t going to roll over so easily. Just a while after TikTok Shop announced its grand entry to the US, Amazon announced that it was integrating directly with Instagram. That means if a user sees an ad while scrolling through photos on Instagram, they can just hit buy and purchase within the app itself. They won’t be redirected to Amazon. And that makes shopping more seamless.

And finally, there’s also the regulatory troubles TikTok will have to deal with. Lawmakers have already been crying for TikTok to be banned. They’re worried about its links with China. That the data of US users are being sent to the Chinese government. Now add a layer of shopping to it and you can imagine the worries will grow even more. Especially with all the sensitive payment information involved. And in the meanwhile, Indonesia has actually banned e-commerce transactions on social media. So TikTok Shop had to suspend operations. It wasn’t because of a link to China but there’s no saying what regulations can crop up.

So yeah, you see why most people are sceptical about TikTok Shop being a credible threat to Amazon. And guess we’ll just have to wait and see now.

Until then…

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