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Little Red Book tells influencers it’s time to pay up

Written by Nikkei Asia Published on   4 mins read

Chinese unicorns no longer immune to fundraising challenges.

E-commerce unicorn Little Red Book will start collecting a percentage of any fees paid to influencers to push individual brands on its popular shopping app as the company strives to make a profit.

The change, to be implemented next month, is an attempt by Little Red Book to better monetize its 300 million customers who were previously allowed to accept payment to market different products without passing on anything to the app’s owners.

While Little Red Book is yet to disclose what percentage of the influencer’s fees it will charge, Crystal, a Shanghai-based fashion blogger who counts Nike and French cosmetic brand Guerlain among her clients, told the Nikkei Asian Review that she will stay with the platform despite the fact that she will earn less money.

“I think it is reasonable for Little Red Book as a platform operator to get their share of the business,” Crystal said. “Which platforms do not charge a fee these days?”

Shanghai-based Little Red Book joins a growing list of unicorns in Asia and the U.S. that are coming under increasing pressure to focus less on expansion and show a path to profitability.

“The capital markets have shifted, and are now preferring more robust profitability and clearer business models,” said Brock Silvers, managing director of Adamas Asset Management in Hong Kong. “Chinese firms are responding to this change by moving forward their monetization plans.”

Industry players say the near-collapse of US office-sharing giant WeWork, which is now 80% owned by SoftBank‘s Vision Fund, has served as a wake-up call for investors who were previously happy to see burn cash in order to attract more customers.

Other examples include India-based hospitality chain OYO, often referred to as the “WeWork of hospitality,” where senior executive Sam Shih recently admitted that its senior backer, Japan’s SoftBank, was starting to pay closer attention to the company’s balance sheet. According to Shih, Oyo has pledged to “avoid making the same mistake as WeWork.”

Gojek, an Indonesian ride-hailing decacorn backed by Chinese entertainment heavyweight Tencent Holdings, also announced last week that it will shut down most of its side offerings in an attempt to control costs.

In China, once the most active tech hub in the world, sluggish economic growth and less money available for fundraising means that the pressure on startups to show they can make money is even greater.

“Too many unicorns haven’t figured out how to monetize their offerings,” said Shaun Rein, managing director of Shanghai-based consultancy China Market Research.

With the weak economy and several highflying unicorn blowups, Rein said investors “are looking to back companies that have revenue models and plans to break even in the fairly near term,” he said.

In the 11 months to the end of November, there were only 7,833 investment deals in Chinese startups, according to market intelligence company Zero2IPO, a fall of 30% compared to the same period last year.

Although the amount of money pumped into Chinese startups reached RMB 725.8 billion (USD 104 billion) during that period, that’s still around 20% less compared to 2018.

The difficulty in attracting new investors already pushed Chinese e-commerce startup Taojiji to declare bankruptcy this month.

Seen as a challenger to Nasdaq-listed Pinduoduo, Taojiji previously won the backing of A-list investors, including Tiger Global and DST Global.

“For companies which were able to raise a significant amount of capital with an inflated valuation in the past two or three years, they will definitely see a lot more challenges,” Zhao Chen, a managing partner who works at the Beijing office of Silicon Valley startup incubator Plug and Play, told the Nikkei Asian Review.

“Investors now are more cautious [and are] giving reasonable valuations based on revenue, earnings, and profits of the business,” Zhao said, adding that the fundraising challenge facing Chinese startups is expected to continue into the first half of next year, if not longer.

Even Beijing-based ByteDance — at USD 75 billion it is the world’s most valuable startup according to CB Insights — last month began integrating e-commerce into its hugely popular short video app TikTok by allowing video creators to direct viewers to shopping websites.

While it remains unclear how TikTok plans to cash in on the new service, which is still under testing, the move is widely seen as a milestone for TikTok’s commercialization efforts.

While ByteDance did not respond to questions on how the new service would help to monetize its huge user base — which has surpassed 1 billion downloads worldwide — the company said in an email that it was “experimenting with new ways to improve the app experience for our users.”

Douyin, the Chinese version of TikTok, last year launched similar services in its home market, along with its smaller rival Kuaishou.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.


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