ByteDance is trying to take a bite of Meituan’s cake

A few years ago, ByteDance was a media company. Now it’s moving from e-commerce into restaurant coupons.

ByteDance is on its way to building a business empire encompassing nearly every aspect of Chinese consumers’ daily lives. With core competency in content aggregation, the TikTok parent company has already expanded to entertainment, e-commerce, productivity, gaming, education, competing head-on with big names like Tencent, Baidu, and Alibaba. 

The tech giant recently accelerated its foray into local lifestyle, a RMB 1.3 trillion (around $199.9 billion) market that is dominated by long-standing incumbent Meituan, which operates two of China’s largest local lifestyle apps, Meituan and Dianping. Local lifestyle is a catch-all term for in-person services such as restaurants, movies, entertainment, and beauty care. Tech companies engaged in these areas typically adopt the O2O, or online-to-offline model, which entices online consumers to make purchases of goods or services from bricks-and-mortar stores by leveraging location-based features.

ByteDance is pushing into local lifestyle services in order to diversify and boost its revenue stream to support both the company’s rapid pace of development. With an IPO rumored to be coming soon, the company will also want to show strong revenue figures.

ByteDance recorded around RMB 240 billion of revenue in 2020, according to The Information, which cited people with knowledge of the matter. Revenue from its primary advertising business accounted for RMB 175 billion, or 72.9% of the total. The company has decreased its heavy reliance on ad income, which in 2019 accounted for over 90% of revenue. It may still need to improve that balance in order to fend off risk.

By advancing into lifestyle services, ByteDance is taking on a new rival: O2O giant Meituan. It’s a potentially Freudian moment for ByteDance founder Zhang Yiming, who has close connections to Meituan founder Wang Xing. Both men hail from the same town in rural Fujian, and they have a history. When Wang founded social media platform Fanfou in 2007, Zhang was his tech partner. They haven’t worked together since 2009, but the two CEOs appear to remain fond of each other, speaking highly of each other in public.

Deeper discounts, for now

Douyin’s newly launched local lifestyle section consists of four segments: group deals for restaurants and hotels, top lists for scenic spots, hotel reservations, a gourmet guide populated by reviews from social media influencers, and location-based check-in with prizes. The features have some overlap but are all focused on restaurant and accommodation reservations. Participating businesses are currently only located in top-tier cities including Beijing and Shanghai.

For users, Douyin’s local life offerings are largely a Meituan alternative. 

In addition to easy access to user attention, an obvious edge for the service is pricing. A Sichuan noodle restaurant chain in Shanghai is currently offering up to 60% off through campaigns marketed through Douyin’s new feature, while discounts from the same restaurant are only 30% on Meituan and Dianping. 

It’s hard to say how long the company will maintain its pricing edge, but it is an efficient and time-tested way to draw its first round of customers. 

“Meituan and Dianping are my go-to apps for lifestyle services. But if we can get a better bargain on Douyin for the same service, why not?” Deng Shuang, a Shanghai-based housewife who watches e-commerce livestreams on Douyin, told TechNode.

Merchants are also open to the new option thanks to Douyin’s favorable word-of-mouth reputation as an efficient marketing platform. Sandwich shop owner Xiao Yu spent RMB 500 for one promotional video on Douyin in an attempt to draw users to his restaurant which opened just two months ago. The review video, featuring a Douyin social media influencer visiting his Nanjing-based store, tripled daily sales of the store to RMB 3,000, increasing daily orders to more than 200 from around 70 per day. The traffic boost sustained for over a week. He told TechNode that the store’s initial low traffic may have exaggerated the growth rate, but he was satisfied with the results. Given this experience, he’s keen to try out the new group-buy feature if it launches in Nanjing.

At present, merchants with a Douyin enterprise account can use the service for free, partially lowering merchant marketing expenses. The current zero commission policy may be a big attraction for merchants who generally pay steep commission fees to Meituan of around 10%.

What’s ahead

User enthusiasm alone, however, won’t guarantee success for Douyin’s local lifestyle business. There are two difficulties in using Douyin to promote such destinations, according to Michael Norris, research and strategy manager of Agency China.

“The first is a technical challenge—whether Douyin can support the purchase and redemption of coupons as efficiently as Meituan’s Dianping,” he said.

As it gets started with the business, Douyin both cooperates directly with offline stores and acts as a traffic platform that helps to promote services offered by third-party platforms. A server at a Shanghai noodle restaurant told TechNode that she has seen few customers using Douyin group-buy coupons compared with those from Meituan’s apps. In another test, a meal voucher that a TechNode reporter purchased through Douyin could not be found in the restaurant’s ordering system. Restaurant management eventually noticed that the voucher was issued by another local lifestyle platform, Xiangku, and Douyin was only promoting the service. 

“The second is a user journey and experience challenge—in the case of restaurants, users generally search and redeem a discount coupon as they pay for the meal. How Douyin plans to support this behavior is key to whether it can be a credible threat to transactions in Meituan,” Norris says.

Although the products look similar, Douyin’s product is embedded in a different ecosystem—which probably means a different strategy.  

Meituan is all about convenience. People who are looking to buy food or services use Meituan to search for bargains available near their location to purchase immediately, usually for restaurants nearby while shopping or after finishing a meal at a restaurant. In addition, Meituan’s food delivery services, more frequently-used services although lower in margin, help the platform to accumulate merchants users. Meituan’s model relies on both ads and commission to make money.

Douyin appears to be counting on getting people excited enough that they’ll make a special trip to try a new restaurant. Based on its content and “Point Of Interest” feature, Douyin is trying to create demand using content marketing tactics including livestreams, videos, and other media. When a consumer sees that a friend owns an item, or an internet influencer recommends a restaurant, it plants a mental seed.

Another challenge will be very quickly ramping up and capturing a wide offline merchant network. Unlike e-commerce for physical goods, selling local lifestyle services is rooted in recruiting as many offline merchants as possible. The number of participating merchants is a crucial baseline for luring more customers. It is a difficult market to catch up in since such offline recruitment requires big teams and plentiful resources to support heavy offline operations. As a result, it is unlikely that Meituan will lose its first-mover advantage in the near term.

Broader e-commerce push

It’s no secret that Douyin has big plans for e-commerce, a coveted revenue source for tech firms. After earning RMB 500 billion in gross merchandise volume (GMV) in 2020, Douyin set a RMB 1 trillion (in Chinese) GMV goal for its e-commerce business in 2021. The company has launched a number of initiatives to increase sales transacted through Douyin, including shoppable short videos and livestreams. 

ByteDance is broadening its livestreamed e-commerce business to include online sales of services, or the local lifestyle sector.

READ MORE: Bytedance gaming play doesn’t threaten Tencent—yet

“A subset of these shoppable videos include coupons and group-buying deals for tourist attractions and eateries. The group-buying feature gives merchants, whatever they’re selling, new ways to facilitate purchases,” Norris said.

ByteDance has been adjusting internally, shuttering smaller or less successful ventures and investing further in businesses that are mature or seen as proven business models, in preparation for a public listing, according to a number of media reports. It shut down (in Chinese) paid knowledge-sharing services Haohao Xuexi and closed its smartphone business by integrating the Smartisan team into the education hardware unit. Meanwhile, it acquired the Wikipedia-like Baike.com and built an internet of vehicles team.

ByteDance appears to be willing to try anything and everything to power growth and stay ahead. It has been keeping pace with virtually all the bandwagons with huge market potential. Its leadership doesn’t seem to mind failure, only missing out on the next big thing in China’s cutthroat technology race.