Xiaohongshu – the death of a dream

5 min read

A user opens the Xiaohongshu app. (Image credit: TechNode/Eugene Tang)A user opens the Xiaohongshu app. (Image credit: TechNode/Eugene Tang)

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January 2019. I was incredibly bullish on Xiaohongshu (XHS).

The platform seemed to have it all: fresh investment from one of the biggest internet companies in China, a focused ecosystem that presented tangible value to a core psychographic and demographic group, and one of the best examples of Web 2.0.

Then in March, a post accusing XHS of misleading and malicious content went viral on Weibo.

There is little doubt in my mind that if this was not an orchestrated attack by Weibo, they at the very least saw an opportunity to slam a budding competitor.

Two weeks later in early May, XHS went against typical PR advice to ignore unfounded viral slander and instead took the bait—hook, line, and sinker. They issued a vague list of new content posting rules which specifically targeted content creators.

No one likes predatory capitalism until it benefits them

One of the main things that made me bullish on XHS at the turn of the year was its social recommendation engine. It feels like a next-generation internet search tool—much like WeChat—that seems to be headed in the right direction for social search.

The problem is that XHS’s social recommendation engine is a cheap Baidu knockoff. And if you thought Baidu search is easily hacked, XHS’s engine is a black hatter’s wet dream. In fact, XHS’s algorithms are so easy to crack that there are service providers that offer not only first-page ranking for any desired keyword but the ability to make any keyword recommended on the homepage.

This is, of course, a super tough battle and one I wouldn’t dare to blame on XHS. But the reality is that it needs to do more.

A bad coalition of rules and monetization

XHS seems to have taken a page out of the playbook of their investor Alibaba’s Tmall by offering fairly comprehensive marketing solutions for brands.

The way Tmall is sometimes sold to foreign brands is a borderline scam. It’s described as an “If you build it, they will come” proposition, with a Tmall store being the proverbial cornfield ballpark that’s supposed to make customers appear out of thin air.

The reality is that if you build a Tmall store, it’s about as useful as a hot dog stand located underground: Without a neon sign pointing down the hole, no one even knows the shop exists. What Tmall really sells is neon signs and electricity. To make a Tmall store work, brands have to buy search engine marketing, banners, live-streamers, and other twisty bright colored tubes. Brand shops on XHS are essentially the same.

After XHS officially enacted the new creator posting and sponsorships rules in early June, only 4,700 creators were deemed eligible for brand collaborations.

Of course, one of the first things the creators in the qualified pool did was to double their fees.

This is a smart way for XHS to divert creator-sponsored post ad dollars to XHS’s native ad offerings. I personally have no problem with social content platforms charging fees to creators for sponsored posts, but XHS took it to the next level.

Greed and authenticity is a Catch-22

No one browses a social content platforms like XHS to see what their mom or best friend is buying—that’s what messenger apps are for. Content creators are what make or break content-first social networks. Anti-creator initiatives damage the core value proposition of XHS.

In my mind, XHS is the perfect example of Web 2.0. If we can agree that bloggers, professional content creators, and the like were the ones that made websites great, then by extension it’s going to be the same netizen class that will make Web 2.0 great too.

A healthy content-first social network supports creators. A perfect example is Douyin’s genius strategies in its early days. The firm headhunted creators from competing platforms, trained them, and paid them a salary to regularly publish short videos on the platform.

The app knew a healthy ecosystem with great content would inspire new users to return after their first interaction with the app. It understood that regular people also needed to be trained and inspired—and that great content wouldn’t create itself. Actually, the only reason I’m at all bearish on Douyin today is that its viral-oriented content recommendation engine rewards witless video over anything redeeming. But I digress.

XHS’s attempt to keep it real while restricting what users can post is a fundamental contradiction. It might not be very well understood, but creator posts are not what the regular users ultimately trust.

User comments are the litmus test and social proof that keeps authenticity in check. Regular people take crappy pictures, suck at writing, and are generally uninteresting. That’s why professional content creators exist. Contrary to popular belief, not everyone can make a living posting commentary on social media. This is a real skill acquired via sore fingertips, dry eyes, and a core expertise/passion to educate or entertain a community of likeminded individuals. It’s the posts that creators create that stimulate conversations that reinforce legitimacy.

The typical XHS user journey:

  1.   Discover a product somewhere
  2.   Open XHS
  3.   Search the product
  4.   Select a Top 3 post
  5.   Watch the video or pictures
  6.   Read the accompanying article
  7.   Read the comments to validate
  8.   Close XHS and continue the buyer’s journey somewhere else

Although XHS wants to be a robust e-commerce platform, it’s not—and therein lies one of its monetization problems.

Sex, bots, and bullshit

The next round of pain and fallout was recently handed to XHS after the app was pulled from the Google Play Store.

XHS’s official statement was that they took down the app to improve the user experience.

Rumors about the company have been swirling—ranging from hotel prostitutes and fake accountants to a ban based on the unlawful collection of user data. And in classic Chinese company PR fashion, XHS has done little to be transparent.

Of course, I don’t condone prostitution or misuse of user data. Moreover, I commend XHS for doing what it can to deal with these issues—if that’s really what it’s doing—but I learned a long time ago about love bots.

In 2014, I produced a travel show pilot with Tencent. After the QQVideo team posted the video, the first thing they did was to drive a bunch of fake views, likes, and comments to the show. I had never seen such a thing before, so naturally, I asked why they had done this.

For two reasons, they replied: First, they were manipulating the platform’s recommendation algorithm. Secondly, they were manipulating the human algorithm.

Eventually, there may be a reasonable basis to believe that XHS manipulates its platform to increase DAU and MAU, given the highly competitive landscape in which it competes. It’s a practice considered a new normal in the environment—and which has pushed up the game threshold.

Blood is definitely in the water

I’m personally on the lookout for a challenger to XHS, since it’s swimming in bad waters. Were I heading up Meitu, Meipai or any other contender with a desire for an 18 to 35-year-old female demographic, I would target XHS’s disenfranchised KOL community and leery user base.

Actually, I believe this is a market for the next generation of platforms which are smaller and vertical-specific. But it’s so hard to be satisfied with 100 million MAU in VC-driven pyramid schemes (i.e., bike-sharing and coffee shops).

Don’t get me wrong: I still like XHS and by no means think it’s finished. But if the company doesn’t value the creator community, tighten up its PR, and find a way to monetize without negatively impacting the user experience, someone else will.