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As the short-video wave crests, ByteDance accelerates monetization through new verticals

Written by Simone Martin, AJ Cortese Published on     4 mins read

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A slowdown in short-video growth triggers ByteDance’s search for other monetization methods in e-commerce, on-demand services, and healthcare.

As incoming CEO Liang Rubo prepares to take full control of ByteDance, he is already facing significant challenges. Liang will have to deal with Chinese government officials before taking ByteDance public and he must formulate new monetization strategies beyond advertising, as short-video smash hits TikTok and Douyin face slowing growth.

TikTok was the world’s most downloaded non-game app in June with 65 million installations, but it has also experienced a steady drop in downloads globally, diving 25% year-on-year, according to Sensor Tower. This comes as the app faces a permanent ban in India, while in the US and Europe, TikTok has also been probed over its management policies related to user information, especially that of minors.

Liang will have to find new ways to draw revenue from the company’s pool of more than 1 billion users by transforming their attention into spending habits. He will accomplish this by continually upgrading ByteDance’s new verticals, including on-demand services, e-commerce, healthcare, and edtech.

Read more: Meet Liang Rubo, the “executor” and former roommate of Zhang Yiming who’s ready to take over at ByteDance

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Challenging Meituan

From late 2020, Douyin began integrating life services for dining and entertainment, encroaching on Meituan’s core business. On July 14, the company started testing a food delivery applet within Douyin that allows customers in tier-1 and tier-2 cities in China to order food. F&B merchants on Douyin could use the new offering to spur sales through the app, but they are responsible for making the actual deliveries, as Douyin only functions as a platform to receive and relay orders.

ByteDance also has broader ambitions for Douyin’s place in the tourism industry. The company introduced a travel ticket reservation function and hotel booking service in March to capitalize on China’s surging domestic tourism demand in 2021 after the COVID crisis. Notable hotels such as The Ritz Carlton in Beijing and the Banyan Tree Shanghai on the Bund joined up and offered discounts of up to 30% during the most recent five-day Labor Holiday in May. Yet harder pushes into Meituan’s operational territory will be needed for Douyin to establish recognition in this arena.

Along with these recently established verticals, ByteDance released its own e-wallet, Douyin Pay, in February, to make purchases within its apps as easy as a few flicks of the finger. The company gave away RMB 1.2 billion (USD 185 million) in red packets to shore up user transactions shortly after it went live. Arguably, the wallet isn’t meant to challenge the duopolistic dominance of Alipay and WeChat Pay in China; rather, it is meant to keep users within ByteDance’s ecosystem and turn captivated attention into sales, encouraging viewers to buy products promoted via short videos or in livestreams sessions.

It’s clear that ByteDance is expanding quickly, integrating new features into its already popular platforms to compete with well-established players. It remains to be seen if this branching out will pay off. For now, the company has set a gross merchandise value target of RMB 6 billion (USD 928 million) for its on-demand services business for 2021, according to an internal company report obtained by Tech Planet.

E-commerce and livestreaming

This year, ByteDance established an e-commerce business unit to oversee its online shopping ambitions. The company launched a flagship store feature that allows brands to set up their sales portal on Douyin. In all, ByteDance generated USD 26 billion in e-commerce GMV in 2020, and has the ambitious goal to hit USD 185 billion by 2022.

Douyin tried to leave a strong impression during this year’s 618 online shopping festival, offering merchants a deluge of subsidies of between 15% to 30% during the pre-sale period. The move brought a 290% increase in participating merchants compared to last year, although the exact number of merchants was not released. What’s more, shopping livestreams on Douyin during the 25-day festival period attracted over 37.2 billion views.

Beyond China, ByteDance has been ramping up its e-commerce capabilities since March 2020, when it partnered with Walmart in the US to sell fashion items through livestreams by the big-box retailer. The firm also introduced a TikTok Shop feature in Indonesia in mid-April, and signed another partnership with JD.id, allowing the e-commerce platform to organize livestream sessions to showcase its products on TikTok. In the UK, ByteDance has begun educating merchants on using TikTok to generate online sales to eat into transactions that would otherwise take place on, for example, Instagram, which launched Instagram Shop in July 2020.

Read more: Chinese seniors flock to shop on short-video apps

Healthcare and edtech verticals

ByteDance has also been investing heavily in other verticals unrelated to entertainment and e-commerce, with investments in over 21 companies and seven takeovers by the end of 2020.

The company’s first efforts in the medtech sector started almost a year ago when it introduced patient platform Xiangyu. The platform was then integrated into Xiaohe Medical, an online health app launched in November 2020 that has amassed over 200,000 downloads to date. It provides patients with a variety of services, including online consultations with doctors and sales of medicines, both OTC and prescriptions. Xiaohe’s ability to connect users with healthcare resources—and sell products and services—bodes well for the platform’s monetization potential.

While healthcare seems a promising front for new revenues, the company is also expanding into edtech. ByteDance announced in October 2020 the creation of an independent brand named Dali Education, which will cover all of its existing education businesses. Previously, ByteDance acquired Qingbei, an online platform targeting K–12 learners, and Open Language, a platform featuring pre-recorded videos for adults to learn intercultural skills and improve their English in the workplace.

With offerings ranging from e-commerce to healthcare, it seems that no sector is off limits for ByteDance, which hit a USD 425 billion valuation on the gray market in June. Zhang Yiming, the company’s founder—who’s now taking a more strategic advisory role behind the scenes—is undoubtedly focusing on uncovering the best strategy to monetize the vast user pool his company has built, while incoming CEO Liang will seek to steer the ship in the right direction.

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