Advertisers have clearly understood the power of social networks. Advertising spending continues to rise on social networks while it stagnates on other channels. Instagram, in particular, remains the Meta group’s primary source of revenue. Despite its popularity among the younger generation (45% of the audience is under 22), TikTok has not gained a foothold in advertising investment, as its “conversion power” has not been demonstrated. The launch of “Shop” in the US could change all that, as it allows users to buy from 200,000 merchants (90% of them Chinese, for the moment).
Contact IntoTheMinds for your marketing projects
If you only have 30 seconds
- TikTok’s strategic move is the first real step in the war to dethrone Instagram. With the digital advertising market growing at a slower pace, the battle for market share and advertiser budgets will be fierce.
- Shop” is, in fact, nothing more than the synchronization, on TikTok, of a Shopify store with a TikTok for Business account. ByteDdance, the parent company, learned from the failure of a similar initiative in the UK market. It has simplified the concept as much as possible to make it more accessible.
- The “Shop” tab has just been deployed throughout the US market (150 million active users). TikTok + users can purchase products directly in the app using payment methods such as credit card, Apple Pay or PayPal.
- Products will be proposed. TikTok has partnered with nearly 200,000 third-party merchantsfor this initiative, 90% based in China.
- TikTok aims to quadruple its e-commerce-related sales by the end of the year, with a target of over $20 billion.
- In response to TikTok’s initiative, Amazon has launched an ” Inspire ” featureto attract influencers. However, the rates proposed (between $25 and $50 per piece of content) have yet to attract the most followed stars on social networks.
Is TikTok entering a phase of greater maturity? Having talked to many media agency heads, TikTok represents only a tiny proportion of media investment. Brands still prefer Facebook and, above all, Instagram. They turned away from Twitter following Elon Musk’s takeover. Although not statistically significant, the bosses I interviewed estimated media investment on TikTok at 5% of that on Instagram. TikTok was, therefore, not “bankable”. So, the app had to develop a strategy to become one, and «Shop» is the first element.
By copying the way Instagram works, TikTok’s aim is clearly stated: to capture a share of Instagram’s advertising revenue.
TikTok’s Shop tab launched at Fashion Week
TikTok inaugurated its new “Shop” tab at Fashion Week in the United States. The launch was preceded by a test phase involving a few users, a simple and effective way of conducting market research in real-life conditions. The tests must have been conclusive since the tab was proposed to all 150 million American users in September 2023.
The Shop tab enables TikTok users to purchase products directly from the application.
A new version after a failure
Interestingly, “Shop” is being launched 1 year after “TikTok Shop” was declared a failure. This was a live sales project from which TikTok was supposed to earn a 5% commission. The TikTok Shop had been assessed in the UK but had failed to catch on. Deployment in France, Spain, Germany, Italy, and the United States was canceled.
The Shop tab should, therefore, be seen as a new attempt to penetrate the online sales market. This is a market that TikTok’s parent company, ByteDdance, masters well. Its other application, Douyin, is a big hit in China, selling over 10 billion products.
The Shop tab: minimum service but maximum efficiency
When innovating, it’s sometimes important to do just what is necessary. And that’s what TikTok has tried to do this time. Shop is now just a tab in the application that lets you link your Shopify and TikTok for business accounts. TikTok thus becomes an intermediary rather than an active vector for sales.
In its previous version, you had to do “lives” on TikTok and sell the items. It was a little like teleshopping with a TikTok twist. It was restrictive (you had to produce specific content), and the English influencers, who were the first to assess this format, quickly turned away.
With the Shop tab, all these constraints disappear. All you need is a Shopify store (a standard in e-commerce) and a TikTok for Business account, and all the products you want to sell will go on sale. To convince the 150 million American users, TikTok has partnered with 200,000 e-retailers. Most of them (90%) are Chinese. It will be possible to order discounted Chinese products from TikTok. The future of dropshipping just got a whole lot darker.
Competition and potential
As mentioned in the introduction, TikTok’s target is Instagram. TikTok can only become a medium worthy of interest in the eyes of advertisers if it can generate sales. And that’s exactly what’s been missing. By copying the way Instagram works, TikTok’s aim is clearly stated: to capture a share of Instagram’s advertising revenue. The Meta empire is still reeling after having sunk billions into the Metaverse adventure (the interest of which already made me wonder about it nearly 2 years ago).
The battle for market share will be bloody in a mature online advertising market.
What’s also interesting is that a reaction has come from Amazon, which has become a major player in online advertising (7% of 514 billion dollars by 2022). Amazon has launched its “Influencer” program, which proposes creating content on Amazon to sell products. This is the exact opposite of what its Chinese competitor has done. While TikTok has integrated the technology to sell online on its influencer platform, Amazon is trying to bring influencers to its e-commerce platform. I’m betting on the success of the 1st formula.
What’s clear is that this is a strategic move for TikTok that will trigger chain reactions. What’s at stake is the dominance of the digital advertising market. The latter is indeed growing, but not at the rate of previous years. In a mature market, the battle for market share will be bloody.
Posted in Innovation.
