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Weibo Enters the E-Commerce Race. Should Brands be Excited or Cautious?

With 560 million monthly active users and a host of new features like Xiaodian and Lvzhou, the social media giant is making a play for China’s lucrative e-commerce market.
Smart phone with the Weibo logo | Source: Shutterstock
By
  • Casey Hall
BoF PROFESSIONAL

SHANGHAI, China — Weibo is a platform people in China use to find out what's happening right now. It's a channel brands rely on to get news, to go viral and to distribute visual content to a wide audience. It is many things to many people, providing some users with serious updates on current events and others with a hotbed of juicy gossip. What Weibo has never been — until now – is a place to shop.

That place has traditionally been the purview of major e-commerce platforms. Chinese giants such as Tmall and JD.com, and increasingly upstarts like Secoo, are the go-to apps for fashion products and, ever since competing social platforms like WeChat, Xiaohongshu and Douyin enabled commerce functionality through mini-programs or otherwise, Weibo has been running the race with a disadvantage.

A reliance on advertising as a revenue stream has been hurting Weibo, which missed analyst expectations in the fourth quarter of last year, posting $468.1 million in net revenues from advertising and marketing services, down 3 percent year-on-year. The firm’s net income during the same period also decreased by 42.9 percent on the year, to $95.1 million.

A reliance on advertising as a revenue stream has been hurting Weibo.

This explains, in part, why Weibo recently launched Xiaodian (the name means “little shop” in Mandarin), a tool that allows users to promote products for sale on another platform, for example, a Tmall store, on their account.

A New Social Commerce Strategy

For brands operating in China, Weibo is often the platform of choice to announce a new ambassador, or to feature campaign photos and videos of lavish events, bringing the experience of a fashion show or exhibition to the attention of millions of users.

Brands use Weibo to amplify messages using the incredible reach of Chinese celebrity ambassadors on the platform, and it's easy to see why. The main accounts of Dior and Chanel each boast 3.5 million fans; Dior ambassador Angelabeby, meanwhile, has more than 100 million fans. Similarly, Prada has 1.14 million fans, but ambassador Cai Xukun has 29.4 million.

Now, with Xiaodian and other recent initiatives, Weibo is looking to diversify its revenue stream through commerce. Weibo accounts are still able to include links redirecting to third-party e-commerce platforms but have added Xiaodian, which allows users to manage inventory and process transactions within its own mini-program.

This must sound like a blessing to brands, many of whom now have a presence on platforms such as Tmall and JD.com — in fact, just this year Kenzo, Prada and Cartier have opened Tmall stores, while Delvaux, MSGM and Proenza Schouler have launched on JD.com — as they can use large Weibo followings to push products and convert fans into customers.

In one sense, it solves a problem brands have had with Weibo, according to Resonance China’s Client Services Director, Sherry Xie, in which posts linked to products were de-prioritised by Weibo’s algorithm unless they were accompanied by a Weibo ad purchase to promote the post.

“This is not an official rule, but it’s what we have experienced with our clients. Viewership of Tmall posts are very low when brands don’t purchase [Weibo ads],” she said.

Brands use Weibo to amplify messages using the incredible reach of Chinese celebrity ambassadors on the platform.

With Xiaodian, Weibo can also broaden its revenue streams to include commission fees from product purchases, Digital Luxury Group Managing Director, Pablo Mauron, explained. This is beneficial in China's ultra-competitive social media sphere, in which new platforms emerge regularly and Weibo, which first launched in 2009, has started to look behind the times compared to newer players.

“Weibo’s business model has always highly relied on traditional advertising revenue on social media,” he said. “Over time, I think [Weibo] saw the stellar rise of other platforms, [such as] Douyin and Kuaishou, [and] one of the reasons they grew so fast in terms of advertising revenue was their ability to integrate and drive traffic in a very impactful way to Tmall.”

The addition of Xiaodian is one of a series of steps Weibo has taken in order to win a greater share of China's lucrative "social commerce" sphere. The value of social commerce in China was estimated to be more than two trillion yuan ($300 billion) in 2019, an increase of 63.2 percent compared with 2018, according to research from the Internet Society of China and Chuangqi Social Commerce Research Centre.

Weibo announced last September that its platform will completely integrate with Alipay, and in January the company invested in Shanghai-based cross-border e-commerce platform Ymatou, which carries a wide variety of merchandise from 80,000 professional buyers located in 83 countries.

These moves, along with Weibo's launch of the Instagram-like Lvzhou app, known as Oasis in English, late last year, set Weibo up to more directly compete with China's social commerce darling, Xiaohongshu – which has tempted fashion brands from Zara, to Gucci and Dior to open official accounts.

Weibo vs Xiaohongshu

When Oasis soft-launched in September last year, Xiaohongshu had been removed from app stores in China, coming under fire from authorities for hosting content deemed to be inappropriate (as is often the case in China, the reason for the temporary ban on downloading the Xiaohongshu app was never stated in more explicit terms).

Weibo, which boasts 560 million monthly active users, must have sensed an opportunity to take the initiative and fill a gap left in Xiaohongshu’s wake since the look and utility of Oasis closely resembles a mash-up of Instagram and Xiaohongshu. It is still very early days for Oasis, which officially launched in December and has garnered 10 million monthly active users (including early luxury brand adopters of the platform like Chanel). But the sub-platform is dwarfed by Xiaohongshu’s 300 million total users and 100 million monthly active users.

The trouble for all social commerce propositions... is that it is... more difficult for them to pivot to sales conversions.

Xiaohongshu, which was set up six years ago, was valued at more than $3 billion after its Series D round led by Alibaba in June 2018 (Alibaba is also an investor in Weibo, upping its stake in the company to 31.5 percent in 2016). After last year's controversy, Xiaohongshu is now back on China's app stores and has attracted more fashion and beauty brands to its platform in recent months. In March, Louis Vuitton became the first international luxury brand to experiment with Xiaohongshu's new livestreaming function.

The trouble for all social commerce propositions that come from a content background, including both Xiaohongshu and Weibo, is that it is inherently more difficult for them to pivot to sales conversions, than it is for a sales-oriented platform, like Tmall, to pivot to content, which they have done with great success recently by utilising KOL’s user-generated livestreams, for example.

Even so, senior advisory specialist for Gartner in the Asia-Pacific region, Amie Song, sees Xiaohongshu as having a significant advantage head-to-head with Weibo from a social commerce standpoint.

“Weibo used to be the awareness-building broadcasting platform while Xiaohongshu serves as the next step in consumer journey, cultivating interests to drive purchase,” Song explained.

“However, with more brands and celebrities launching their official presences on Xiaohongshu, the platform has now become a brand discovery destination, playing a larger role in building general awareness,” she added.

Look Before You Leap

Even if the Xiaodian tool or Oasis app are not the keys to make Weibo the king of social commerce in China, today or in the future, for brands who already have an official account on the platform and a Tmall store, for example, it seems little harm can be done by using an official Weibo account to promote products for sale via e-commerce.

Unless you consider the commission fees.

There has been no public statement outlining the sales commissions charged for purchases directed through Xiaodian and Weibo did not respond to requests for comment for this story, but several people with direct knowledge of talks with Weibo about utilising Xiaodian have told BoF that the commissions are high. Some have reported 6 percent for categories such as watches and jewellery and up to 20 percent for beauty.

“[By contrast] when you operate a store on WeChat, the commission from WeChat is 0.6 percent; when you operate on Tmall, the commission is 2 to 5 percent,” Mauron claimed. “[So] Weibo is coming here in a challenger position with a commission that is going to be higher than other platforms.”

Mauron suggests a pared back Xiaodian strategy for international brands. It makes little sense to put an entire brand’s inventory on Weibo if the commission is much higher than on other platforms. Instead, he said, Xiaodian could be a useful tool for brands to launch limited editions or drops.

In times like these, when every consumer counts, brands need to be on the lookout for new levers and be bold enough to pull them.

“It creates that feeling of urgency, [and if] you can take advantage of the strength of Weibo to make a product massively visible in limited quantities, then the 6 percent commission is not going to be an issue because we know at the end of the day, drop retail is more a marketing strategy than something that turns into a steady and sustainable stream of revenue. I feel like that might be a good end goal,” he explained.

Sherry Xie, meanwhile, advises fashion and luxury brands who have their own WeChat storefronts to focus their Weibo strategy on exposure. Once people discover a brand on Weibo and are interested in learning more, the next logical step for them is to follow the brand's WeChat account. From there, brands have a better chance of converting them to customers within the WeChat ecosystem.

“If you use Weibo to convert traffic to your own store and the transaction is happening there, then the commission isn’t a problem,” she said.

In short, Weibo's Xiaodian doesn't look like an e-commerce game-changer, but it does seem to be an interesting additional lever that brands can pull when battling for consumer attention in China's crowded social media sphere. In times like these, when every consumer counts, brands need to be on the lookout for new levers and be bold enough to pull them — so long as they don't require excessive upfront investment.

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State of Fashion 2023
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State of Fashion 2023