TikTok’s interest in e-commerce is bound to have a battle with Shopee

TikTok's e-commerce interest may compete with Shopee

At the time when the situation in the world was settled and various forces were preparing to “divide the feudal lords”, there would often be “rising stars” who would emerge and push for a redistribution of the power structure.

Source: Blue Ocean Yiguan Network

Author: Yiguan Analysis Team

First image: Authorized under the CC0 license

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This “rising star” has a unique bone structure, unique martial arts routines, and little apprenticeship relationship with the existing bigwigs in the world. However, he can often accumulate strength in a short period of time with just three punches and two hands, challenge the dominance of the world’s top martial arts masters, and even shake up the entire power structure of the world.

After the martial arts world was shocked, they could only accept his existence and reluctantly admit the territory he occupied.

This scene from martial arts novels has occurred in the cross-border e-commerce market in recent years.

For example, in the North American market, after more than ten years of fighting and competition, the pattern of platforms such as Amazon, eBay, Walmart, and SHEIN has been basically determined.

Suddenly, Temu emerged, stirred up a pool of spring water, and changed the market structure at a visible rate of growth (with over 70 million app visits in February this year).

In the Southeast Asian market, Shopee and Lazada have been vying for years, occupying the first and second positions respectively.

However, their dominant positions are being challenged and threatened by newcomers, and the challenger is TikTok.

Image/Shopee Malaysia Station

TikTok’s challenge to Shopee is mainly manifested in three aspects:

1. After consumers place orders on TikTok, their shopping expenses on platforms such as Shopee begin to decrease;

2. TikTok’s GMV soars, narrowing the gap significantly with Shopee and Lazada;

3. TikTok’s interest-based e-commerce challenges Shopee and Lazada’s search-based e-commerce.

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1

TikTok “steals” orders from Shopee

Shopee and Lazada’s market share, even offline physical stores’ market share, is being taken away by TikTok Shop.

This phenomenon is particularly evident in Indonesia, Thailand, and the Philippines.

According to a survey by online retail insight company Cube Asia, consumers in these three countries have reduced their spending on Shopee, Lazada, and offline stores after buying things on TikTok Shop.

The spending reduction is the highest on Shopee, reaching 51%, followed by Lazada (-45%) and offline stores (-38%).

There are two reasons for this phenomenon:

1. Cheaper prices: Many products on TikTok Shop are priced cheaper than on Shopee. For example, a 27-roll pack of Nomieo toilet paper is priced at SGD 5.80 on TikTok, while it costs around SGD 16.80 on Shopee;

2. Lower level of competition: The competitive landscape changes greatly in TikTok’s live streaming and video scenes, with almost only the seller’s own products displayed on the screen. On the Shopee platform, a large number of similar products are listed on one page, making the competition very intense. Normally, consumers who buy a product on TikTok will not buy the same product on Shopee in the short term.

Figure / Shopee Product Page

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2

TikTok narrows the gap with Shopee in terms of e-commerce GMV

According to research institutions, by 2023, TikTok’s e-commerce GMV in Southeast Asia will be significantly reduced and reach 20% of Shopee’s (Blue Lotus Research Institute).

In 2022, TikTok Shop’s GMV in Southeast Asia increased by more than four times, reaching 4.4 billion US dollars, and is expected to exceed 12 billion US dollars in 2023.

So, what about the size of Shopee and Lazada?

Shopee’s GMV in 2022 is 73.5 billion US dollars, while Lazada’s is 21 billion US dollars (as of September 2021).

In the Vietnamese market, TikTok’s “attack” on Shopee and Lazada is also very fierce.

In the first quarter of this year, TikTok’s penetration rate in Vietnam has exceeded 25%, with a GMV of more than 250 million US dollars, accounting for 15.5% of the country’s e-commerce GMV during the same period, constantly approaching Shopee’s 63.1% and Lazada’s 19.1% market share.

Figure / Penetration rate of various platforms in Vietnam, source: MMA

Of course, TikTok Shop has a gap in terms of size compared to both, especially with Shopee. However, given its explosive growth rate, it will inevitably erode their market share.

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3

TikTok’s interest-based e-commerce

Will inevitably compete with Shopee’s search-based e-commerce

TikTok Shop is taking the route of “interest-based e-commerce”, where consumers are unknowingly influenced to make purchases while watching videos or live streams.

Actually, any consumer behavior depends on three basic decision elements: demand, touchpoints (purchase channels), and trust.

For example.

In the scenario of interest-based e-commerce, a Malaysian consumer has nothing to do, watching videos and live streaming on TikTok. At this time, TikTok is the touchpoint (purchase channel). She keeps scrolling and sees a very nice skirt on a certain video or live streaming, thinks it would look good on her, and wants to buy one. This is when the demand arises. Then, she sees that the video blogger, anchor, or small shop has a good number of fans and popularity, which creates trust, and then she places an order.

The scenario where TikTok Shop unconsciously makes consumers place orders is very different from the scenarios of Shopee and Lazada.

TikTok Shop’s decision sequence for interest-based e-commerce is: touchpoint (purchase channel), demand, trust, while Shopee and Lazada’s sequence for “search e-commerce” scenario is: demand, touchpoints (purchase channels), trust.

For example, when summer comes, a Malaysian consumer feels that his shirt is damaged, so he has the demand to buy a new shirt. Then, he searches on Shopee. Shopee is the touchpoint, and when he sees a store with a high rating, he develops trust and places an order.

Therefore, generally speaking, the consumer scenario of TikTok Shop is similar to the scenario of browsing a physical store in a mall. We may not have a direct demand, but when browsing in a mall, we may discover something interesting and then create a demand.

Therefore, the rise of TikTok Shop has awakened consumers’ “interest” and stimulated their “demand”, causing them to unknowingly purchase some of the products in advance.

In this sense, the rise of TikTok Shop will inevitably erode some of the market share of Shopee and Lazada’s search-based e-commerce.

On the seller side, this trend is also evident, with more and more local retailers becoming TikTok Shop sellers.

According to Apptopia data, the TikTok Shop Seller Center’s seller-side app has seen a geometric increase in downloads in Indonesia, especially reaching a peak in February 2023.

Indonesia is the most active market for TikTok in Southeast Asia.

Of course, Shopee is still the largest e-commerce platform in Southeast Asia. In the past three months, Shopee has a traffic share of 30%-50% in Southeast Asia, while Lazada has a traffic share of 10%-30%, ranking second.

In the short term, TikTok will not fundamentally change the e-commerce landscape in Southeast Asia.

Some Shopee sellers revealed that their order volume remained stable and did not differ significantly from their expectations.

Some Shopee sellers have also started to lay out TikTok. These sellers have reported that their order volume has increased by about 20% after adding this channel.

At the same time, the popularity of TikTok is not only due to the attraction of interest-based e-commerce, but also to TikTok’s large subsidies. It is estimated that TikTok subsidizes at least 600-800 million US dollars every year, making the prices of goods lower.

Some industry insiders believe that this is unsustainable.

However, given that ByteDance’s subsidies for today’s headlines and Douyin have played a supporting role in China, TikTok’s early subsidies can still cultivate consumers’ transaction habits and eventually settle in the platform ecosystem.

However, ultimately, TikTok’s potential is huge.

According to research firm Insider Intelligence, as of May, the number of TikTok users in Southeast Asia alone has reached 135 million.

Among them, the number of TikTok users in the Indonesian market is second only to the United States, reaching about 113 million, which means that four out of ten Indonesians are TikTok users.

At first, TikTok focused solely on creating content and generating traffic, taking entertaining the masses as its responsibility. It wasn’t until 2021 that it began to launch e-commerce businesses.

The path of TikTok’s domestic version, Douyin, is similar. It first focused on creating content and became an independent traffic portal, and then launched e-commerce businesses, achieving a GMV of 1 trillion yuan within two years.

“Alibaba took 10 years to achieve trillion-level GMV, JD took 14 years, and Pinduoduo, which does not follow the routine, took 5 years.” ByteDance has already gone through several cycles in the e-commerce business, accumulating a lot of experience and building up tremendous momentum for Douyin and TikTok.

Douyin is limited to China, while TikTok is global, with even higher potential than Douyin.

Therefore, although TikTok is a “latecomer” in the Southeast Asian e-commerce market, with its increasingly dominant position as a traffic portal and the huge driving force of interest-based e-commerce, TikTok is expected to influence the entire Southeast Asian e-commerce landscape in the foreseeable future.

Note: This article is by the Eguan Analysis Group and was published on the public account of Blue Ocean Eguan Network. The article does not represent the position of Cross-Border Guide’s observation and is for readers’ learning and communication only. If you need to reprint it, please contact Blue Ocean Eguan Network.

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