From The Information:
“TikTok powered early growth in its U.S. shopping service by offering low sellers’ fees and footing the bill for deep discounts. But that free ride is quickly coming to an end.
“The company on Wednesday told sellers it will start taking a bigger cut of the sales they make on its app, by raising the commission it charges on most items to 8% over the next few months from 2% plus 30 cents per transaction currently. At the same time, TikTok Shop has started reducing some subsidies for merchants that sell on the app, according to a person familiar with the changes, limiting the offers to top-selling items as the company slashes its spending on the service.
“While merchants were initially hesitant to sign up for TikTok Shop’s service, which officially launched in September, many sellers saw explosive sales on it during the recently concluded holiday season. But the growth came at a significant cost to TikTok—as of August, the company expected to lose more than $500 million in the U.S. in 2023 on Shop, in part because of the subsidies it was offering sellers.
“For TikTok parent ByteDance, the fee increases represent a major test for its ambitions to transform the app into a shopping destination, which could be a key source of revenue beyond advertising.”
KC’s View:
The idea is to get merchants hooked on TikTok so they can’t give it up. Sort of like heroin. The question is whether TikTok allowed enough time for the addiction to really get hold, and if the high that merchants experienced was enough to keep them coming back for more.
TikTok’s goal is to compete effectively with Amazon. My gut tells me that they should have let the subsidy-and-low-fee strategy play out a little longer – after all, Amazon has a three-decade head start. But maybe TikTok’s pain tolerance levels are not what I would’ve expected.
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