Anticipating TikTok's 2024 Surge - Shoppable Livestream and Ads Monetization

TikTok wrapped up 2023 on an impressive note, exceeding its eCommerce goals ahead of schedule and paving the way for further ambitious growth in 2024. If you haven't read my earlier piece, "The Phenomenal Rise of TikTok Shop," be sure to catch up on it.

As we step into 2024, TikTok has rolled out several updates that shed light on its strategic direction for the year.?What's changing, and why? What do these changes mean for the industry and the various players involved? After various in-depth conversations with stakeholders in the ecosystem, this article explores TikTok's business strategies, market approaches, and what we can expect in 2024. Let's go!

Understanding the 2023 Success - 100-fold Growth in Six Months

2023 marked a key milestone for TikTok Shop, characterized by explosive growth. Starting with a daily GMV of $300k in its May soft launch, it skyrocketed to a daily GMV of $33 million in just six months—a 110-fold increase! The growth highlights the platform's strong engagement capabilities and its seamless integration of shopping into the user experience.

Fueling Growth: The Subsidy Strategy and More

TikTok strategically invested in platform-sponsored subsidies, including product discounts and free shipping to lower the barrier for adoption and spur purchases. They also offered ad credits and rewards to encourage seller and creator participation, thus energizing a dynamic marketplace.

These subsidies were more than just financial outlays; they were part of a carefully crafted strategy to create value across the business which led to significant improvements across various metrics:

• Seller, buyer, and creator activation and engagement
• Boost in shoppable content creation and engagement
• Growth in key eCommerce metrics such as AOV, repeat purchase rate and overall GMV?

While the increase in key metrics is commendable, the crucial business value lies in:

• Deeper User Insights and Labeling: Gaining deeper insights into user interests and shopping behaviors, accurate user labeling is essential for effective monetization strategies.
• Success Stories and Endorsement: Leveraging success stories to attract established sellers and brands, showcasing the platform's efficacy in driving sales and engagement.
• Enhanced Monetization and Ad Solutions: Improving Return On Ad Spend (ROAS) with precise user data, thereby boosting ad revenue, particularly from well-established brands with significant advertising budgets.

TikTok's Rate Hike: A Bold Move Towards Sustainable Ecosystem Growth?

Among many new updates released in the beginning of 2024, TikTok's recent announcement of a referral fee increase has sparked significant discussion. Starting in July, the fee will rise from the current 2% + 30 cents per transaction to a range of 6%-8%, depending on product categories. But what does this significant hike really mean for the platform and its users?

Is This Just About Revenue?

At first glance, it might seem like TikTok is rushing to amp up its revenue streams after investing heavily in subsidies. But let's dig deeper. Could this be a strategic move signaling TikTok's transition from its initial activation goals to a broader vision of scaling and monetization?

What's the Goal Here?? TikTok seems to be strategically refining its seller base, aiming to attract more professional sellers and established brands.

Currently, the platform is dominated by SMBs/mom-and-pop shops that often lack strong control over their supply chain, product quality, and pricing. This lack of control can lead to compliance issues and a tendency to sell similar products, creating a price war that sacrifices user experience. Today, heavily discounted products are more likely to be featured.?

Implications for Different Stakeholders

• Cross-border Sellers: SMBs with weaker supply chains, products, or brand power may struggle due to increased costs like free sampling, 20% commission rates for affiliate content creators, and platform referral fees. This might lead to their gradual exit from the platform. However, TikTok will continue growing its first-party (1P) solution, leveraging data insights to efficiently source products, manage product quality, compliance, and risk control, aligning with models used by companies like Shein, Temu, and Amazon.
• Local Sellers and Brands: TikTok is expected to offer more support and incentives for local sellers and brands to launch their businesses on the platform. However, the onboarding process, especially for those new to social commerce compared to their more experienced cross-border counterparts, will require time and education.
• Creators: Content creators might see changes in commission rates, particularly from SMBs. Over time, they may find more collaboration opportunities with professional sellers and established brands.
• Buyers: As costs increase for all parties involved, buyers might witness a rise in prices for existing products or the introduction of new products with higher profit margins.

What to Expect in 2024?

In addition to TikTok's focus on attracting more professional sellers and local brands, two pivotal business strategies are crucial to its growth trajectory:

The Rise of Shoppable Livestreams

In 2023, TikTok's Gross Merchandise Value (GMV) was primarily driven by short videos, accounting for 70% of its total GMV, with livestreams contributing less than 10%. This stands in stark contrast to the Chinese market, where livestream shopping has surpassed $200 billion in GMV. Recognizing this untapped potential, TikTok is gearing up to significantly boost its livestream offerings.

• Harnessing Real-Time Engagement - TikTok's plan is to tap into the power of real-time engagement and instant purchasing. By enhancing the livestream experience, the platform aims to make shopping interactive, immersive, and immediate. This approach is expected to not only attract a broader audience but also to deepen user engagement, driving up sales and transforming the way users shop online.
• Targeting 40% GMV from Livestreams - The goal is ambitious yet attainable: TikTok aims to elevate livestream-generated GMV to 40%. To achieve this, the platform will likely introduce innovative features, incentivize creators, and offer exclusive deals during livestreams, making them a must-attend event for users.

Expanding Monetization through Ad Solutions

• As TikTok continues to mature, the platform is witnessing more precise user labeling and an influx of major brands. This evolution is expected to trigger a significant surge in advertising expenditures, with a focus on achieving higher Return On Ad Spend (ROAS). The influx of advertising dollars, coupled with TikTok's growing ability to target users more effectively, is poised to propel the GMV even higher. This strategy not only augments TikTok's revenue but also solidifies its position as a formidable player in the digital advertising space, balancing user-centric content with monetization opportunities.

Challenges for Brands

Brands are feeling the pressure in this dynamic space. The challenge? Balancing the desire to capitalize on this lucrative platform while maintaining brand integrity and value.

• A key concern for brands is the association with potential low-quality products or inappropriate items. TikTok Shop has earned a perception for being a hub for sales, deals, and discounts, which creates a dilemma for brands, especially those that prioritize maintaining their premium status and brand value. For these brands, being featured in an environment perceived as discount-driven can be off-putting. They are particularly wary of being juxtaposed against low-priced items or, worse, counterfeit versions of their own products.
• This complexity extends to organizational structure as well. Larger organizations often have separate departments for creative, media, and commerce, each with its own metrics, incentives, and budgets. This can make adopting a cohesive social commerce strategy challenging. On the other hand, in smaller brands where roles are more fluid, this fragmentation might be less of an issue.

Interestingly, the hesitancy brands show towards TikTok Shop echoes the early skepticism about advertising on platforms like Amazon. It's a game of 'wait and see,' with brands observing each other, contemplating who will take the plunge first. This sense of FOMO is palpable. Brands are keenly aware of the opportunities TikTok Shop presents, yet are cautious, waiting for a successful precedent to follow.

In summary, TikTok's journey in the eCommerce landscape is a blend of strategic foresight, user-centric innovation, and data-driven decision-making. The platform's growth in 2023 has set a solid foundation for the ambitious goals of 2024, focusing on optimizing its eCommerce ecosystem, refining its seller and creator base, and stepping into a more robust monetization phase. The rate hike, while potentially challenging for smaller sellers, is a strategic move to elevate the platform's quality and appeal to established brands.