About a month ago, Douyin officially launched its open platform and announced the business carrier of the open platform - Douyin Mini Programs. Originally, mini programs are nothing new, as many platforms from WeChat to Alipay to Baidu have them, and they are not complicated to build, with many third-party service companies in the niche market. However, Douyin's move reflects a very obvious trend: Douyin is starting to focus on private domain traffic, because mini programs are a very typical private domain operation tool. As Douyin's official introduction states, mini programs support public domain - short video/live streaming embedding and distribution, support connecting private domain - IM and group chat sharing, and provide diverse scenarios such as search and fixed entry for revisits. In fact, Douyin is not developing private domain scenarios for the first time. As early as July 2021, Douyin Enterprise Account first introduced the concept of "Douyin Private Domain," and private domain was defined as a new increment for Douyin business. But honestly, a year has passed, and the private domain development centered only on enterprise accounts has merely given merchants a few more fans, some comments and likes, which feels far from the core of private domain. An ideal private domain should achieve high user stickiness through high-frequency interaction, thereby extending the user lifecycle and providing as many repurchase opportunities as possible. But obviously, this entire chain is difficult to achieve only through enterprise accounts competing in the public domain's waterfall information flow. So, theoretically, operation tools like mini programs can provide merchants with more handles to grab fans from the public domain pool into their own private domain pool, and through various operational means to increase private domain activity. But before running through the above logic, we first need to explain a question: Why does Douyin want to build a private domain? Essentially, merchants operate private domains to improve ROI levels and, in the long run, to amortize brand marketing costs. But Douyin, China's largest advertising platform, doesn't it live off marketing? In the extreme, the higher the cost for merchants to "fish" in the public domain market, the more it aligns with Douyin's interests. So why does Douyin want to build a private domain? Especially, why increase the development of private domain scenarios at this time? Regarding these questions, recently, "The Most Talk" (最话) has communicated with several industry insiders, including the boss of a Douyin agency operation company, a merchant selling on Douyin, the growth head of a large group, and a senior person in the content industry. Now, we plan to discuss this issue from three dimensions: pressure as the cause, repurchase as the result, and the balance required based on underlying logic. 01 Pressure as the Cause If we use Douyin's development of private domain as a scale to mark the company's development trajectory, then we should look at the current state of the company. A few days ago, ByteDance (now renamed Douyin Group, but to avoid confusion, this article still uses ByteDance) disclosed a financial report to employees. Data shows that ByteDance's revenue in 2021 grew nearly 80% to $61.7 billion (439.06 billion yuan). Revenue in the first three months of 2022 reached nearly $18.3 billion, a year-on-year increase of nearly 54%. There are also earlier data online, including from mid-2021, when ByteDance CEO Liang Rubo's data showed that ByteDance's operating revenue in 2020 was 236.6 billion yuan (approximately $34.3 billion at the then exchange rate), a year-on-year increase of 111%. 111%, 80%, 54% - clearly, a once steep growth curve is flattening. Let's look at ByteDance's advertising revenue, which is currently the company's largest revenue source, reaching 183.1 billion yuan in 2020, accounting for 77% of the entire platform's total. In the early years, ByteDance's advertising revenue achieved very high growth. As early as 2019, this young content platform's advertising revenue surpassed Baidu. But by November 2021, at an all-hands meeting of the commercialization product department, ByteDance disclosed that its domestic advertising revenue had stopped growing in the past six months. This was the first time since ByteDance began commercialization in 2013 that advertising revenue stopped growing. At the end of last year, according to 36kr reports, after entering the third quarter of that year, ByteDance's advertising revenue growth slowed significantly. And an insider said: "Excluding the boost from e-commerce business, ByteDance's annual advertising revenue barely grew year-on-year." In the first quarter of 2022, according to LatePost reports, ByteDance's advertising revenue became the largest in China, thanks to the growth of Douyin's advertising revenue. But a set of data in the report shows that Douyin's current advertising growth is also weak: Douyin's advertising revenue in the first quarter grew over 10% year-on-year, far lower than Kuaishou's 30% in the same period. Of course, this trend is consistent with the overall short video industry. According to iiMedia Research data, the growth rate of short video users in 2018 was 107.0%, but by 2020 it dropped to 15.2%. Douyin, being part of it, cannot be immune. After DAU exceeded 600 million, it undoubtedly saw a slowdown in growth, with DAU growth rate starting to decline. At the same time, industries that could withstand high customer acquisition costs, such as education and training, finance, and medical aesthetics, have all faced strict regulation in the past year or two, significantly reducing their content customer acquisition cost expenditures. So Douyin's advertising business faces two challenges: on one hand, after the scale growth peaks, the trend will inevitably slow down; on the other hand, regulation brings structural changes in advertisers. According to reports, in the first quarter of this year, over one-third of Douyin's advertising revenue came from so-called "internal circulation revenue" (advertising revenue brought by e-commerce business). In this context, Douyin's thriving e-commerce ecosystem becomes inevitable, because during the development of the content e-commerce ecosystem, it can partially fill the gap caused by advertiser replacement in the short term, and in the long term, cultivate a new revenue curve for the platform. Objectively speaking, in the traffic era, wherever traffic is, business opportunities are there. Since Douyin started intervening in e-commerce, its initial development was very fast. In 2019, Douyin e-commerce had only 10 billion yuan GMV, while Kuaishou e-commerce GMV reached 35 billion yuan, and Taobao Live GMV was about 200 billion yuan. But by the second year, Douyin e-commerce completed 500 billion yuan GMV. At the beginning of 2021, Douyin e-commerce set a goal of 1 trillion yuan GMV for 2021. To put it in perspective, Alibaba took 9 years to reach 1 trillion, and JD.com took 14 years. Later, analysts estimated that Douyin e-commerce GMV was around 800-900 billion yuan that year. But as the scale grows, some problems gradually surface. For example, for brand owners, having volume does not necessarily mean having profit. One case we obtained is that a large beauty agency operation company opened a live stream on Douyin, spending 10 million yuan in advertising fees in a month, producing 20 million yuan in GMV, and ultimately losing a lot of money. This is because, first, e-commerce customers are mostly brand owners based on manufacturing, with limited gross margin space for products, and their marketing costs are relatively limited and rigid, especially compared to virtual products. Second, in the past, industries like education and training had long customer lifecycles, so advertisers could tolerate high customer acquisition costs, even losing money for publicity. But in e-commerce, if only the advertising-to-conversion chain is run, the customer lifecycle is very short, and brands cannot withstand high customer acquisition costs. So, during this period, some influencers left Douyin. According to observations, Douyin influencers Chen Ke, Chen Ge'er, Cong Meimei, Durian Uncle, etc., have successively moved to Kuaishou. Some brand owners have also shifted their operational focus among Douyin, Kuaishou, and Taobao. A merchant who moved to Kuaishou introduced that they are doing well on Kuaishou now, surpassing some of their Douyin e-commerce sales data. "In Douyin's algorithm logic, there is a sense of insecurity, and competition is fierce. It's better to go to a place with a sound private domain, a place where you can be more stable." So, to retain everyone, Douyin must give them a sense of security, which mostly comes from control over traffic, such as helping brand owners build private domains, achieving high-frequency interaction with fans through private domains, then increasing repurchase and reducing marketing costs. 02 Private Domain with Repurchase as the Result Actually, for merchants, it doesn't matter whether it's public or private domain; the goal is to improve conversion efficiency and repurchase rate. Objectively speaking, conversion on Douyin is not difficult; otherwise, the platform couldn't achieve trillion-level GMV. But from practical experience, insights from Douyin agency operators show that in terms of selling goods, Douyin is more suitable for promotions, because the entire operation logic is simple: just invest in advertising. But the side effect is severe "price breaking." This is because Douyin has set its e-commerce development strategy as interest e-commerce, which uses Douyin's content ecosystem and algorithm recommendation mechanism to stimulate users' interest, thereby converting it into purchase behavior, achieving the goal of "goods finding people." But goods finding people and people finding goods are ultimately different. Non-purposeful shopping has a very short decision chain, and products that truly touch consumers to place orders usually have a lower average order value. Some also call this e-commerce model emotional e-commerce. However, in this state, it is too difficult for merchants to operate long-term. The above content industry person told us that first-line brands are very cautious about opening stores on Douyin, because they have strict control over prices and channels, and in Douyin live rooms, many transactions are instantaneous and relatively private. "For example, a bottle of essence water might have a regular price of nearly 1,000 yuan, but often in live rooms it's 400-500 yuan. This is particularly painful for distributors and brands, because live rooms are not a scenario where channels and prices can be controlled. Another painful point is that the comparison in live rooms is usually against a brand's official Tmall flagship store, which makes brands very unhappy." Another factor that cannot be ignored is that the most efficient place for transactions on Douyin is live e-commerce, and live e-commerce is mainly influencer live streaming. But Douyin cannot allow influencer live streaming to grow unchecked, because in the content e-commerce chain, content builds trust, transactions consume trust. If the share of live streaming is too high, it will lead to excessive consumption of user trust in the platform. In addition, influencer live streaming is actually difficult to drive traffic to brands, because influencers prefer consumers to stay with them and "repurchase" in their own live rooms. This means that Douyin needs to provide brand owners with long-term operation scenarios. It is understood that Douyin e-commerce internally places great emphasis on repurchase. Recently, based on fans' purchase behavior, it has provided content operators with fan segmentation descriptions. Among them, A5 users correspond to the English word 'advocate': customers may develop strong loyalty to the brand, which is reflected in customer retention, repeat purchases, and promoting the brand's benefits to others. In specific parameters, A5 is described as "people who make purchases without activities within 365 natural days are counted as repurchase." But the above Douyin agency operator learned that for a brand with about 3-5 million fans, the current A5 completion rate is only single digits, around 3%-5%, which is very low. So we can see that in May 2022, Douyin upgraded "interest e-commerce" to "full-scenario interest e-commerce," upgrading "goods finding people" to "goods finding people + people finding goods," focusing on shelf e-commerce and search, i.e., the mall. But so far, Douyin's mall model is relatively primitive. This may be because Douyin's tone as a content platform is too deeply ingrained. We can also see that Douyin is making great efforts to change user mindset, such as canceling the Douyin box and giving the mall a first-level entry on the Douyin platform. In addition, mini programs are also operational tools to help brand owners build private domains, improve conversion rates and repurchase rates. For merchants, after investing in public domain traffic, they can use mini programs to bring traffic into their own store's private domain pool for refined operation. At the 2022 Douyin Open Platform Developer Conference, Chang Kun, head of Douyin Open Platform, said that the open platform represented by mini programs "provides operators with comprehensive content marketing scenarios and gameplay of 'customer acquisition - retention - conversion - revisit - activation'" and "we encourage developers to pay more attention to their own operations and continuously improve service quality, so that they can go deeper and more specialized on Douyin." 03 Balance Required Based on Underlying Logic Interestingly, in the short term, the launch of mini program functions can also promote advertising revenue on the Douyin platform to a certain extent, because merchants building private domains from scratch inevitably need a process of public domain traffic attraction. It is understood that currently 60% of mini program traffic comes from Douyin's public domain. Of course, in the long run, if Douyin's private domain is done well, brand owners' marketing costs will inevitably decrease; otherwise, this won't work. This also means that in the future, on the Douyin platform, more transactions will come from repurchase and private domain, rather than traffic purchases in the public domain market. So, another question arises: Is there mutual exclusion in the underlying logic between Douyin's private domain and public domain? Douyin's most typical feature is its centralized traffic distribution logic, i.e., platform algorithm recommendation. The control of content distribution and user reach is in the hands of the platform. The platform can make users see whatever it wants them to see. This is also the core factor why Douyin can lead in advertising revenue. In contrast, why Kuaishou is usually considered private domain is because its distribution logic is decentralized, and the algorithm is based on follow logic rather than recommendation logic. So traffic is mostly in the hands of top streamers. When the platform cannot decide what users see, it cannot collect money from advertisers itself. This is why Kuaishou, after painful thought and struggle, finally changed its splash screen to a waterfall flow, essentially reclaiming traffic distribution rights. So, when Douyin wants to expand its private domain, it essentially gives up part of its traffic distribution rights. This may require Douyin to make strategic trade-offs and tactical balances. You know, in large companies, each business has a corresponding department responsible, each department has to carry corresponding indicators, and each employee needs these indicators to complete tasks, climb higher positions, and get higher salaries. Another question is: Can Douyin, based on centralized algorithm logic, do private domain well? This may be a common problem faced by current public domain traffic platforms. Obviously, although various companies are making efforts in private domain scenarios, the one that has truly done well is WeChat. This is because WeChat is a decentralized platform, and it naturally matches private domain in underlying logic. Because whether a private domain can be formed, the core must satisfy two factors: first, whether the brand owner can have very heavy interaction with fans, achieving effective distribution of content and value; second, whether the interaction is initiated by the brand owner and can be fully controlled. In fact, every company has its own underlying logic. Just as WeChat is cautious in commercialization because it is naturally a decentralized product. Once it takes too much distribution rights into its own hands, WeChat's foundation will be destroyed. The same is true for Douyin. Its foundation is naturally a centralized distribution platform, and such algorithm logic is somewhat equivalent to the platform's base. In addition, a good private domain operation can not only achieve repurchase but also reduce brand customer acquisition costs through fission and other methods. But fission is based on social interaction, which may be an element that Douyin currently lacks. According to Douyin's official introduction - "Under the premise of fair competition and compliant operation, mini programs can be distributed in scenarios such as Douyin live streaming and short videos," which means that the traffic source of mini programs, or the traffic source of the private domain pool, needs to be purchased from the public domain pool under Douyin's algorithm recommendation logic. So, a person who does private domain business on WeChat has certain doubts about Douyin mini programs, especially when its traffic depends on public domain purchases. Because he feels that the biggest attraction of private domain customer acquisition for merchants is low customer acquisition cost, high user stickiness, and reusability. These are all issues that Douyin needs to think about when developing private domain. But objectively speaking, to this day, they are also challenges that Douyin has to face. An internet platform that earns income by helping merchants achieve business is somewhat like a country collecting taxes. Tax collection is an art: if you collect too little, you cannot support the platform's development; if you collect too much, you will make people's lives difficult and destroy the prosperity of the business ecosystem. Douyin certainly cannot infinitely pursue advertising revenue growth, but at present, making money is still the core proposition of ByteDance. According to the financial report, in 2021, this unlisted company's operating loss totaled $7.15 billion, far higher than $2.14 billion in 2020. So this year, ByteDance has carried out a series of cost reduction and efficiency improvement measures, but it still recorded a net loss of $4.7 billion in the first three months. What needs more attention is the reality that in the future, not only ByteDance, but also major consumer internet platforms will find it difficult to make easy money. In 2022, the entire e-commerce market has actually approached saturation, and several major platforms are gradually in a zero-sum game. Moreover, whether it's upstream merchants or downstream active users, everyone is in a highly homogeneous state. And homogenization inevitably leads to increased competition costs. Just as the growth head of that large company said, this is a game of the stock market. And the key to competition in the stock market is to balance three elements: first, help every player in the ecosystem become better; second, the platform's underlying logic is not destroyed, while the "tax rate" on the platform can be maintained at a reasonable level; third, not be poached by competitors, not be disrupted and destroyed by competitors' actions. But you know, just the third point is difficult to achieve.
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