TikTok Shop isn’t profitable and is on track to lose $500 million this year. Will the social media giant ban outside e-commerce links to create a walled shopping garden?
A new report from The Information reveals the staggering amount of loss TikTok Shop has endured as it struggles to gain a foothold online in the U.S. The report says TikTok is considering a plan to ban links to outside e-commerce—forcing them to use TikTok if they want to make a purchase. The report suggests the $500M loss went mostly to creating a content delivery network and subsidizing merchants to offer shoppers discounts and free shipping if they make a purchase.
TikTok sibling app Douyin (which only operates in China) banned links to other e-commerce pages in 2020. TikTok sees the move as a way to cut out competition using the platform as a way to drive sales off the platform. The TikTok Shop segment currently sees around $4 million in sales a day, which is up from $1 million in June 2023. TikTok’s internal numbers estimate this number will reach $10 million per day by the end of 2023.
The online shopping method using influencers to peddle products is not new, but the TikTok model is hugely popular in Southeast Asia. In that region, TikTok Shop’s daily volume is around $50-$60 million per day, which TikTok hopes to see increase to $90 million per day by the end of the year.
Most of TikTok’s losses have come from convincing merchants to sell their wares on the platform. TikTok employees scour Amazon for best-selling items and then invite those merchants to create TikTok Shop accounts, where they pay no commissions on the first three months of sales. Other incentives include free shipping reimbursement and discount coupons for customers—with TikTok making up the difference.
TikTok says it has no plans to ban outside e-commerce links for now, but that doesn’t mean it won’t happen.