A short video has recently been circulating online, alleging that Douyin E-commerce achieved RMB 2 trillion (USD 280 billion) in gross merchandise value (GMV) and generated RMB 400 billion (USD 56 billion) in ad revenue, accusing the platform of imposing significant financial burdens on merchants. Although the post was quickly removed, it left behind a storm of speculation. In response, Douyin has stepped forward to clarify that only a portion of the company’s ad revenue comes from its e-commerce operations.
So how did this misunderstanding arise, and what’s the truth?
At the heart of the issue are two significant misconceptions:
- First, ByteDance’s total domestic ad revenue is not the same as Douyin’s. According to 36Kr, ByteDance’s domestic ad revenue in 2023 exceeded RMB 400 billion, based on actual spending. However, Douyin’s share was only RMB 280 billion (USD 39.2 billion), or about 70% of the total.
- Second, Douyin’s ad revenue streams are more diverse than they might seem. Beyond e-commerce, the platform draws income from local services and other formats such as in-feed ads, splash ads, content placements, and challenge-based promotions. These layers make its revenue model far more intricate than a simple one-to-one link with e-commerce sales.
Douyin’s evolution reflects a familiar trajectory in the internet age. For platforms that amass significant traffic, advertising is often the first step in monetization. Douyin followed this playbook after its breakout moment during the 2018 Lunar New Year. As user numbers soared, Douyin became ByteDance’s largest ad revenue generator in China by 2019. Major e-commerce players like Taobao, JD.com, and Pinduoduo poured billions of RMB into the platform, relying on in-feed and splash ads to channel users to their sites.
Rumors swirled in 2019 about an alleged annual agreement between Douyin and Taobao worth RMB 7 billion (USD 980 million), including RMB 6 billion (USD 840 million) in ads and RMB 1 billion (USD 140 million) in commissions. Although Douyin denied the figures, Taobao reportedly spent tens of billions of RMB on the platform that year. Even before Douyin ventured into business segments like e-commerce and local services, its in-feed ad model was already a robust revenue engine.
Everything shifted in 2020 during the 618 shopping festival. That year, ByteDance officially established Douyin E-commerce as a standalone division. By October, Douyin had severed links to third-party platforms like Taobao, signaling its intent to create a closed-loop e-commerce ecosystem.
A ByteDance executive later explained during a 2021 internal meeting that owning its e-commerce operations was crucial for pushing ByteDance’s ad revenue ceiling higher. Merchants, eager for measurable sales growth, began investing heavily in ads, mirroring the models of Taobao and Pinduoduo, where visibility and search prominence hinge on ad spend.
Douyin’s approach is tailored to its content-driven ecosystem. Merchants rely on short video promotions and branded live streams to drive sales. Supporting this is Ocean Engine, an integrated advertising platform launched in December 2020 and fully operational by April 2021. Ocean Engine provides merchants and creators with tools to target audiences within Douyin’s ecosystem.
Most product-focused short videos and live streams are promoted through Ocean Engine. Commissions from live stream sales are directly tied to GMV, while ad revenue, though indirectly linked, tends to grow in tandem with merchants’ ad spending as their sales increase.
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In parallel, Douyin has ramped up its focus on local services, led by Pu Yanzi since 2022. Advertising for local services has emerged as a key priority in 2023, with Douyin’s local service advertising platform positioning itself as a competitor to Meituan. This segment offers a new growth frontier for Douyin’s ad revenue.
Douyin’s ad model is far from straightforward. It weaves together e-commerce, local services, and diverse ad formats into a multifaceted ecosystem. Misinterpretations, like those in the recent controversy, oversimplify this complexity. As Douyin evolves, its influence on the convergence of content, commerce, and advertising is expected to expand further.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Li Xiaoxia for 36Kr.