Deep dive: Exploring the opportunity of live shopping with TikTok

What is live shopping and how does it work?

Towards the end of 2021, TikTok launched a series of events that positioned the company as a competitor in the e-commerce space. These events hosted by TikTok fall under a flourishing digital experience called “live” or “social” shopping events. These live shopping events are commercial in spirit. The predominant focus of these events involves marketing and selling the products of both well-known and upcoming brands, but they also offer consumers the opportunity to enjoy the entertainment provided by musicians and other popular content creators.

Live Stream Shopping is already a huge part of Social Shopping culture in countries like China, where it is predicted that more than 320 million people will make at least one purchase from a livestream this year. Driven by Live Stream Shopping, consumer spending in social apps is due to hit $17.2B in 2025.

How does TikTok make money?

TikTok has experienced astonishing growth over the past five years since its conception, in terms of both monthly active users and revenue. Higher revenues give the business the opportunity to expand in new directions, and its experimentation as an e-commerce platform is one of these possible routes of expansion it has been exploring.

In an article published by GOBankingRates in April 2021, Lydia Kibet astutely described TikTok as still in its infancy. TikTok was founded in 2016, and when analyzing the data recording TikTok’s growth and commercial performance over the past few years, the app is clearly at a critical point in its development. Business of Apps states that in 2017, TikTok generated $67m. By 2020, this number had exploded to $1.9bn. In Q1 2018, TikTok had 85 million monthly active users. By Q1 2021, this number had also exploded to 1.2 billion.

There is no question that TikTok, when compared with its social media peers, is a relative infant, with Facebook and Instagram being 12 years and seven years older respectively. Nevertheless, the growth of both the platform’s user base and its revenues indicate that it is already reaching a milestone of maturity. The platform may hit a ceiling in terms of generating new, registered active users. To continue its commercial proliferation, TikTok may therefore need to find new ways of extracting value from both businesses and individual users – live shopping may prove to be one of these methods.

At present, TikTok has several revenue streams. One major stream of TikTok’s revenue includes advertising revenues, which the company raises by charging other businesses to place their ads in front of audiences at various points of peoples’ sessions within the app.

Another source of TikTok’s revenue comes from the sale of TikTok coins. TikTok coins are in-app currency individuals can buy using fiat currency. With these coins, users can buy gifts they can send to other users. Recipients of these gifts can then exchange them for fiat currency which they can then withdraw to bank accounts. TikTok probably keeps a small commission of these exchanges, and may make a margin on FX rates too.

TikTok’s venture into e-commerce yields the business with another source of income. An article published in November 2021 by What Is The Business Model Of explained that the commercial details of TikTok’s agreements with product suppliers, and with e-commerce platform providers that include Shopify, Square, and BigCommerce, “are still hazy considering [TikTok e-commerce and live shopping are] still in the rollout phase.” Nevertheless, they speculate that “one can assume that TikTok takes a percentage of the sales amount for acting as the affiliate.”

TikTok’s pivot into e-commerce would see it compete not only with the social media platforms Facebook, Instagram, and YouTube as a repository of user-generated content (platforms which all also make a large proportion of their revenue through selling ad space), but also with Amazon and eBay as a repository of for-sale first-hand goods. Under such a model, TikTok operates as an intermediary that connects buyers with suppliers that TikTok’s enormous vault of data enables to recommend as relevant for individual users, providing a bespoke digital shopping experience.

How does TikTok live shopping work?

Business Insider explained in a February 2021 article that, “its new livestreamed shopping feature is similar to traditional TV shopping channels,” Similar to shopping channels such as QVC, live shopping on TikTok offers users the opportunity to see products showcased by creators in real time. One obvious advantage to live shopping on TikTok rather than teleshopping is the sheer volume of users on the platform at any one time. On terrestrial television, advertisers must compete with television companies screening films and television shows. I’m sure few people would opt to watch product advertisements over Friends or Breaking Bad.

With one billion monthly active users, and with a format that favours short-form content, it is easier for content creators to place product adverts in front of browsers. Moreover, by selecting true brand advocates who are able to speak honestly and knowledgeable about a brand’s products or services brand will be able to engage with consumers in a much more meaningful way which will, in turn, boost customer satisfaction and loyalty. One of the major challenges TikTok has been working to solve over the past 18 months has been how to encourage these browsers to purchase after viewing a live shopping experience. To make live shopping as seamless as possible for the consumer, and from the brands’ perspectives, to reduce the risk of prospective customers bouncing between advert and checkout, TikTok has partnered with companies including Shopify, Square, and BigCommerce, enabling users to purchase products without leaving the app.

This is exactly how the TikTok for Business eCommerce team describes live shopping on its platform:

Provided brands are able to identify and match its users’ needs and interests with relevant products and services, TikTok live shopping will offer consumers an alternative channel for finding products they want and need. If executed well, TikTok will be able to combine insights about its users with insights about the brands it works with, to place live shopping experiences onto people’s feeds relevant to them.

Who benefits from TikTok live shopping?

If TikTok can implement and optimize its live shopping experiences effectively, it will benefit four main groups. First, the successful roll out of TikTok live shopping will benefit TikTok. As it gains traction, live shopping will provide the company with additional revenue by capturing a percentage of each sale. Second, live shopping will benefit content creators. The launch of TikTok live shopping provides content creators with opportunities they can leverage. Brands of all sizes are looking for ways to get their products in front of bigger audiences, and partnering with content creators who have already-vast followings is a great way for these brands to accomplish this.

Third, TikTok live shopping will be hugely beneficial to brands. There may be some initial friction here, as companies may believe their current marketing efforts are enough to acquire and retain customers. Companies that hold this view may consider any commission paid on sales they make through TikTok as eroding their margins. For live shopping to work to the benefit of brands, TikTok will therefore have to prove they can generate new business for the brands they partner with.

Finally and most importantly, for TikTok live shopping to prove successful, it will have to benefit individual users of the platform. While TikTok has become a go-to hub for users to discover exciting new products and services, this isn’t what it was originally designed for and TikTok’s decision-makers will have to consider very hard the likelihood that some of its users do not currently and may not ever want to use the platform as a shopping platform. That being said, consumers have always sought video reviews from creators, and live shopping takes this one step further. Followers are able to ask creators questions about the product, request opinions or different angles, and engage with both the creator and the brand in a much more deep and meaningful way. This has meant that returns are 50% lower when a product is bought off a live stream compared to traditional e-commerce channels.

That being said, for those who are open to the idea of using TikTok as a shopping platform, the company has work on its hands to make sure the products that do find their way onto people’s feeds are of genuine interest to them. Live shopping is an interesting venture TikTok has invested in, but its ultimate success hinges on whether users decide it benefits them.