On January 11, Xiaohongshu (Little Red Book or RED), a prominent Chinese social media platform, marked a significant shift in its business strategy by releasing its first annual e-commerce report.
The report revealed a staggering 500% year-over-year increase in the number of merchants, surpassing 100 million yuan in transaction volume, with those breaking the 10 million yuan threshold growing by 380%.
This surge underscores the platform’s rapid transformation into a bustling e-commerce hub.
In December 2023, Xiaohongshu’s COO, Conan, made a public statement that sharply contrasted his stance from five years ago when he firmly believed that Xiaohongshu should not venture into e-commerce.
“Back then, I viewed things from a community perspective. But now, I’m spearheading our e-commerce operations,” he said. This shift follows the platform’s strategic move to integrate its e-commerce and live-streaming businesses into a new transactional division, standing alongside the community and commercial departments.
Xiaohongshu has come a long way since its inception. Within six months of its launch, it introduced an overseas shopping-sharing community.
A year later, it launched an e-commerce platform called “Welfare Society.” By 2016, the platform expanded to include third-party platforms and brand merchants, experiencing rapid growth across various product categories.
However, the platform faced challenges in meeting its Gross Merchandise Volume (GMV) targets in 2018 and 2019.
Interestingly, during this period, its content community business thrived, with user numbers increasing by 100 million from January to July 2019. Consequently, Xiaohongshu shifted its focus to strengthening its community aspect, becoming a favored content community among younger demographics.
For Xiaohongshu, with a daily active user count surpassing 100 million in 2022 and advertising revenues accounting for 80% of total income, diving into e-commerce became an inevitable choice.
The platform’s primary user base has always been female, with women accounting for over 80% of its users as of 2021, and a significant 60% hailing from first and second-tier cities.
This demographic, known for its strong purchasing power and high consumer intent, gave birth to Xiaohongshu’s unique “planting grass” culture.
“Planting grass” refers to the practice of posting various forms of notes on the platform, recommending, sharing, and showcasing personal or brand experiences to influence user purchases. From a marketing standpoint, these recommendations and shares are akin to brand advertising, creating brand impressions in the consumer’s mind.
However, creating a brand impression and driving product purchases are two different challenges.
This disparity led to the “brand up, conversion down” phenomenon, where building brand impressions often requires positive language around beauty, advantages, and greatness, while actual product purchases are driven by discounts, price reductions, and limited-time offers.
In this marketing process, brand building and sales conversion are distinct, typically handled by offline malls, supermarkets, convenience stores, and online platforms like Pinduoduo, JD.com, and Taobao.
Xiaohongshu seemed to have solved this challenge by combining search functionality with buyer-driven sales.
Unlike traditional passive content consumption, searching indicates interest in a product, restaurant, or location. As such, search engine marketing has always been highly effective.
With 70% of its active monthly users engaging in search activities, Xiaohongshu focused on closing the loop from search to e-commerce.
The platform’s shift towards e-commerce is also evident in its move towards buyer-driven live-stream commerce.
For instance, in January 2023, Dong Jie’s live-stream debut on Xiaohongshu generated an estimated GMV of over 50 million yuan. Following her, “Chu Dai Fu” achieved fame with her first live-stream lasting nearly six hours and generating sales over 50 million yuan.
These events marked the entry of celebrities and buyers like “Yi Ke KK” and “Dang Ran Shi Dang” into the live-stream sales arena.
Data from August to November 2023 illustrates the platform’s e-commerce momentum, with two billion-level buyers, 21 million-level buyers, and 20 hundred-million-level buyers emerging within just three months.
During the 2023 Singles’ Day shopping festival, Xiaohongshu saw its e-commerce user count triple and order numbers nearly quadruple compared to the previous year.
The number of merchants participating in the event and the GMV from live streaming increased by over four times, highlighting the enormous potential of buyer-driven e-commerce on the platform.
In conclusion, Xiaohongshu’s strategic pivot towards commercialization, as evidenced by organizational restructuring, live-streaming trials, data collaboration, and open search fields, marks a new era for the platform.
By focusing on search conversion and live-streaming sales, Xiaohongshu caters to its core demographic’s shopping needs and cultivates shopping habits among a broader user base. This evolution from a community-focused platform to a dynamic e-commerce powerhouse underscores Xiaohongshu’s adaptability and growth in the digital era.