From viral videos to dining and trips: Douyin takes a bite out of Meituan’s business

ByteDance’s star short-video platform Douyin has gone from strength to strength, spreading among Chinese internet users like wildfire since its launch in 2016. The app’s user base of over 600 million users spans generations and geographies, engaging everyone from young affluent urbanites to small-town laborers and grandparents. The app has captured the attention of people across China, and now it’s evolving in a new way to not only bring entertainment to them through their screens, but also take people to where they can be entertained.

Thanks to its wide reach and stickiness, Douyin quickly established itself as an engine for advertising revenue, partnering with top local and foreign brands across consumer product categories. According to Reuters, ByteDance generated over RMB 180 billion (USD 27.2 billion) in advertising revenue last year in China, second only to Alibaba, with Douyin accounting for around 60% of this revenue.

The same sources said that Douyin’s e-commerce was projected to process around RMB 150 billion in gross merchandise value in 2020. Yet, the next step of evolution for fast-growing Douyin in 2021 seems to be on-demand services, where it will compete directly against sector incumbents like Meituan and Ele.me. These two companies together shared an astonishing 94% market share in the local life services market in 2019, according to a report by EqualOcean.

Douyin wants a slice of this market. After piloting life services in select cities last year, ByteDance’s founder and global CEO Zhang Yiming committed more resources to the cause, allocating 10,000 employees to venture into the new vertical in late 2020.

The scale of Douyin’s offerings has ramped up significantly since the beginning of this year, thanks to countless offline agents who have been onboarding merchants to the platform. For instance, users can now order meals and book hotel stays in over 300 cities in China through Douyin, which was unthinkable until a few months ago.

Douyin offers promotions for restaurants, tourism experiences, and lodging via short videos, displayed within the local services tab of the app. Merchant pages are available via scannable QR codes popping up on the tables of restaurants and front desks of hotels across the country. And Douyin is internally testing a map feature powered by AutoNavi, allowing users to view nearby businesses. 

As things go, when browsing for the next short video on Douyin, chances are you might be tempted by a new dining experience or hotel stay.

Aggressively onboarding merchants

Although restaurants and other vendors learned to rely on portals like Meituan during the pandemic, several merchants have complained about the high take rate of these platforms, which shaved away at margins that were already thin.

Meituan’s current commission fees, ranging between 10% and 26%, could push merchants who have struggled through a difficult 2020 to try new entrants like Douyin, which instead charges business operators a one-time registration fee of RMB 600 (USD 91). Cash-rich ByteDance has leveraged a no-commission structure with merchants in an attempt to onboard restaurants as offline consumption regains some share of China’s consumer spending post-pandemic.

For many dining and entertainment venues, the allure of Douyin’s user base is enough to sign up, as 60.7% of Douyin’s users are urban young people in their twenties who spend more on recreational activities. 

Douyin is also working to create a smoother user experience for users and merchants on its ecosystem. Douyin Pay, the platform’s recently released payment function, which made its mainstream debut during China’s Spring Festival Gala, aims to streamline an experience where users can book a service and pay it directly on the app.

However, the short-video app still lacks some functionalities for a complete closed-loop user experience in higher frequency categories like food delivery. Douyin cannot count on a vast fleet of millions of delivery riders like other food delivery players, and currently relies on client restaurants’ own logistics services or third-party providers like Shentong, Yuantong, and SF Express for food delivery.

Power in the video

Compared with Meituan, where content mainly consists of text and images, Douyin’s main medium—video—can better engage consumers with more vivid product advertisements, for both restaurant meals and hotel stays.

The authentic sights and sounds of freshly prepared food could bring new vitality to the staleness of traditional food delivery apps. Platforms like Taobao Live and Douyin’s rival Kuaishou have already shown that live video can gain consumers’ trust and facilitate greater conversion rates. Food content is already hugely popular on Douyin and ranks among the top categories on the platform.

The viral nature of content on Douyin draws users to the app. Over 600 million Chinese open Douyin every day, spending an average of 105 minutes on the app, far outpacing Meituan’s less than 70 million daily active users. Douyin hopes to direct some of its users to local spots, and augment the natural foot traffic that entertainment venues typically rely on. 

Douyin’s promotions also come in more creative forms, with the intention of achieving virality. Starbucks runs a “hidden menu,” with exclusive items that could only be found on Douyin, and popular bubble tea brand CoCo followed suit by selling a special edition beverage that is only known to users of the short-video app. Hotpot chain Haidilao has used Douyin to create an aura of exclusivity. Diners could receive a free toy gift upon request, but the promotion was only announced on Douyin. 

Big brands aside, local restaurants and other entertainment venues are also recognizing Douyin’s potential to lure customers, aided by ByteDance’s powerful content recommendation algorithms.

A restaurant in Hunan province, hard hit by the pandemic, leaned on the short video platforms to drum up traffic by launching an official account in January 2019, where it posts cooking tutorial videos featuring salty, fragrant, spicy, and sour flavors, narrated in the local dialect. The restaurant has managed to gain 60,000 followers, and some of them have translated into real customers. Around 50% of the restaurant’s patrons are drawn in after they encounter its clips on Douyin, generating an average daily turnover of RMB 1,250 (USD 193.14) for its owner. 

Auntie Guo, the owner of a humble food stall in Nanjing, became a celebrity in 2018 after a video of her serving children oversized portions of food went viral. The notoriety has resulted in a boon for her business, as customers queue for hours for her steamed buns. Building on her success, she now operates a restaurant chain spanning several cities.

Pushing targeted services

ByteDance expects that its ability to push targeted services will take the company a step ahead of its rivals. Meituan might know what you like based on actual transactions, but Douyin has the ability to obtain more granular data based on social activity and engagement with videos, not just from the cash you spend on the app. 

The richer insights gained from Douyin user behavioral data could provide merchants with information for precise, targeted promotions. Equipped with similar tools as TikTok Creator Marketplace and TikTok for Business in overseas markets, merchants can use Douyin to drive their online traffic and convert it into real business transactions.

Douyin business accounts give merchants the coveted blue checkmark and allow them to run promotions, customize branding, and track engagement and sales traffic. The app also offers educational resources like Qiming College to give merchants an understanding of how to use the digital tools at their disposal. 

Douyin has also broader ambitions in the online-to-offline space in the tourism industry. Its travel ticket reservation function and hotel booking service, launched in March, comes as domestic tourism is surging to near pre-pandemic levels. The upcoming five-day Labor Day holiday in China, from May 1 to May 5, will serve as the latest litmus test of the industry’s recovery.

Just by searching for the holiday on Douyin, users can find countless promotions for accommodation and tourist attractions in cities across the country, while the hashtag for the May holiday appears in over 1.57 billion posts. Leading up to the week of rest, Douyin launched a competition, where livestream hosts can compete to pitch the audience the most memorable holiday experience, explaining potential itineraries day by day. The event, called May Holiday Travel Competition, has over 2 million users tuned in at any time, with the event constantly streaming. 

Hotels are getting in on the act as well, eager to embrace the rebound in domestic travel. The Ritz Carlton in Beijing offered 5% to 7% off for stays during the May holiday, while the Intercontinental in Beijing and the Banyan Tree Shanghai on the Bund also launched special promotions exclusively on Douyin, with over 30% discounts on reservations. At the time of writing, these promotions were no longer available, suggesting they may have sold out. 

While Douyin is looking to make a big impact in the tourism sector, its no-commission approach prompts concerns about the foray’s financial sustainability, even when its fee structure is likely to adjust as the scale of business increases.

Douyin isn’t alone in eyeing an opportunity in the expanding on-demand services space, as China’s offline consumption market has plenty of room for growth, even for multiple players. From 2014 to 2018, its market value has been expanding at a compound annual growth rate of 41.3%. Its total value is expected to exceed RMB 2.8 trillion (USD 430 billion) by 2024, according to data from Leadleo Research.

Kuaishou, with its more than 250 million daily active users and a strong record of e-commerce conversions, is also bolstering its own on-demand service offerings. It launched a new page on its app in late 2020, offering services in four main categories: food, travel, shopping, and entertainment. Last week, at Kuaishou’s 2021 Guanghe Creator Conference in Guangzhou, senior vice president Yan Qiang emphasized the firm’s commitment to expanding into offline consumption.

As for Meituan, its founder, Wang Xing, told investors during a recent earnings call that the company is still aiming for 100 million daily orders by 2025, a significant leap from the daily mark of 36 million in the latest quarter. Yet, this was before the company became the latest target of China’s antitrust enforcement campaign this week, which could harm Meituan’s stability and financial health, and Douyin could well benefit from it.

Douyin has been exploring monetization methods for a while already. Yet, perhaps, the right formula is doubling down on high-frequency, on-demand services to complement its ultra-sticky short video app. With Douyin Pay lubricating the user experience, does ByteDance have what it takes to seriously encroach on Meituan’s stronghold?