How does the misunderstanding of "Douyin E-commerce with 2 trillion GMV and 400 billion advertising fees" arise?

Recently, a self-media on a short-video platform claimed that "TikTok E-commerce has a GMV of 2 trillion and an advertising fee of 400 billion", inferring that the platform "taxes" merchants heavily. Although this self-media content was quickly deleted, it still caused a considerable public outcry. The vice president of TikTok Group personally came forward to refute the rumors: "The actual situation is that only a part of TikTok's advertising revenue comes from the e-commerce business."

So, how did the misunderstanding arise? And what is the real situation?

There are two layers of misunderstandings here.

First, ByteDance's domestic advertising revenue is not exactly equal to TikTok's advertising revenue.

According to the information obtained by 36Kr, ByteDance's domestic advertising revenue in 2023 exceeded 400 billion (consumption caliber. Note: The amount that merchants recharge in the advertising account is the flow caliber, and the actual amount spent is the consumption caliber. The following data are all in this caliber), while TikTok's advertising revenue in 2023 was more than 280 billion, accounting for only 70% of ByteDance's domestic advertising revenue.

Secondly, TikTok's advertising composition is diverse, not only including TikTok E-commerce advertising revenue, but also TikTok Life Services advertising revenue. In addition to the advertising revenue brought by these "transactional" businesses, it also includes non-e-commerce information flow advertising, brand splash screen advertising, content placement advertising, challenge and topic advertising, etc.

In the Internet world, after an Internet enterprise completes traffic aggregation, the first step of commercialization is often advertising. ByteDance is no exception.

Since its explosion during the Spring Festival in 2018, along with the rapid growth of TikTok's users, TikTok has become the advertising "cash cow" of ByteDance in China in 2019. At that time, e-commerce platforms such as Taobao, JD.com, and Pinduoduo were all TikTok's advertising clients. They guided users to place orders on their own platforms by placing information flow and splash screen advertisements on TikTok.

There was a rumor at that time that in 2019, TikTok and Taobao signed an annual framework agreement of 7 billion, including 6 billion in advertising and 1 billion in commissions. And there were news indicating that the amount of the 2020 New Year framework might be around 20 billion, three times that of the previous one. Finally, these numbers were all denied by TikTok, but it is certain that Taobao's advertising investment on TikTok in 2019 was as high as several billion yuan.

In other words, before the emergence of these "transactional" businesses such as e-commerce and life services, the information flow advertising business relying on the short-video model has already been the main source of income for TikTok.

The turning point occurred in 2020.

In this year's 618, ByteDance established the TikTok E-commerce first-level department. In October of the same year, TikTok announced the cut-off of third-party external links such as Taobao in TikTok live broadcast rooms, which was regarded as a signal that TikTok was accelerating the construction of its own e-commerce closed loop.

As the senior management of ByteDance's commercialization said in an internal meeting in 2021: Building its own e-commerce business is an important way to push up the ceiling of ByteDance's commercial advertising revenue. Because the advertising fees of merchants can be more directly linked to sales. As TikTok tilts a lot of traffic to the e-commerce business, they are willing to spend money on advertising on TikTok to obtain a definite increase in sales. This is the same commercialization logic as Taotian and Pinduoduo.

On these shelf e-commerce platforms, merchants need to pay for advertising promotion within the station to obtain more recommendations or a higher search ranking to attract users to click on the product links and thereby achieve sales conversion. Only on TikTok, in the content e-commerce dominated by live broadcasts and short videos, if merchants want to sell more goods, they will invest in short-video slices for carrying goods and brand live broadcast rooms.

JuLiang QianChuan is the advertising platform of TikTok E-commerce. It was released on December 29, 2020, and officially launched on April 9, 2021, mainly providing merchants and talents with an integrated marketing solution for TikTok E-commerce. Most of the short-video information flow with carrying goods, the information flow push of the live broadcast rooms of merchants/talents carrying goods, and the information flow advertisements of product cards that users encounter when browsing TikTok are mostly placed through JuLiang QianChuan.

For e-commerce platforms, the commission income is linked to the GMV live broadcast. Although the advertising revenue is not directly related to the GMV, they influence each other. Merchants place advertisements to sell more goods, and the rapid growth of sales will also boost their willingness to place advertisements.

After Pu Yanzi became the person in charge of TikTok Life Services last year, this year's advertising business has also become the focus of TikTok Life Services, and JuLiang Local Push is the advertising platform for TikTok Life Services. Referring to Meituan, life services also carry the new incremental imagination space for TikTok's advertising revenue.