In my opinion, one of the main reasons behind Amazon’s success is its attractiveness for 3rd party sellers. The large amount of traffic and the easy way to generate sales (profitability is another story) certainly helped. Another big reason is their fulfillment network, notably their FBA program. When I didn’t know much about Ecommerce, I thought the idea of 3rd party logistics programs was genius and a huge opportunity for ecommerce entrepreneurs. It is no surprise that Walmart, a serious contender in the US Ecommerce space, launched their marketplace along with their WFS (Walmart Fulfillment Services) program.
The hot topic in Ecommerce this year is TikTok shops, leveraging the huge amount of traffic the Chinese social network has seen over the last few years. Their next strategic move is to develop a logistic network for its Ecommerce feature. Let’s see how it will work, how it compares to Amazon’s, and what will be the impact on consumers.
TikTok’s Ecommerce Evolution: Beyond Influencer Marketing
When I first downloaded TikTok a couple of years ago, I had no idea how much the company would change Ecommerce. Of course, I thought that companies would advertise and strike deals with influencers. However, I did not see the Chinese company going as far as building a fulfillment network. TikTok is hoping to attract more sellers to the platform through this fulfillment network, most likely inspired by Amazon. Sellers won’t have to be in charge of fulfilling orders themselves; they’ll be able to rely on this new network to outsource this task and focus on more strategic goals. According to the company, its fulfillment service allows them to provide a “seamless and fast shipping experience for merchants and customers.”
A major difference between Amazon and TikTok’s models is that TikTok built partnerships with logistics providers like ShipBob and Newegg rather than building their own warehouses. Processes won’t be as streamlined (for example, Sellers will be responsible for arranging shipping to the fulfillment centers directly with the carriers, versus using Amazon Seller Central and benefiting from discounted rates), but this is a major step towards market share growth. However, TikTok didn’t comment on whether it may build its own warehouses in the future.
In addition to coming up with their own fulfillment services, TikTok is also subsidizing free shipping to customers, in an effort to encourage sellers to join the platform. According to TikTok, “For orders using TikTok Shipping, we offer free shipping to buyers on orders of $5 and above for first-time customers and $20 for returning customers. TikTok will reimburse shipping costs up to $40 for Standard and $80 for Express shipping.”
They will also offer to subsidize discounts of as much as 50% to get sellers to join the Black Friday program, taking place from Oct. 27 through Nov. 30. US consumers spent over $20B online during Black Friday and Cyber Monday last year, and with consumer spending expected to reach similar levels this year, TikTok wants its share of the pie.
TikTok’s Ecommerce Future: From Seller Boom to Market Wars
What will be the impact of these new features on sellers and customers? The first thing that comes to mind is that it may decrease the likelihood of customers getting scammed and receiving the wrong items. Merchants will need to actually ship the product to get paid, and I am hoping that TikTok will be quick to ban malicious sellers who ship counterfeits.
The easier it is to join the platform and sell, the more attractive it will be for sellers. That is what caused millions of new sellers to join Amazon, hence the popularity of “Make a quick buck with Amazon FBA” gurus online. A lot of these “FBA Entrepreneurs” joined Walmart Marketplace when the WFS program became easily accessible. Now that TikTok is offering an easy way to sell, what do you think will happen? This is even more true now that TikTok offers to subsidize shipping and deals.
The main difference between TikTok shops and Amazon is the shopping experience. When (and if) TikTok gets flooded with “FBA Sellers”, it will be interesting to see how the shopping experience evolves. Over the years, Amazon dedicated more and more space to sponsored ads. Will TikTok eventually take this route and turn TikTok Shops into a pay-to-win model?
For now, what we can observe is how fast sellers will join the marketplace, and how competitive the environment will become. Strong brands may thrive, taking advantage of discounts and subsidies. Rising brands will be able to test a new channel at a lower financial risk. However, I believe things will be more complicated for weaker brands, lacking differentiation and identity. I wouldn’t be surprised if we see bloody price wars, with many sellers competing for limited market share.
TikTok’s introduction of logistics and fulfillment services is a major move for the company, getting inspiration from Amazon’s successful model. This new venture aims to attract sellers by making logistics easier and more efficient for sellers, so they can focus on their core expertise and added value. TikTok even offers to subsidize shipping costs and deals, which is especially attractive right before Black Friday.
However, making it so easy for sellers on TikTok could lead to market saturation and intense competition. The challenge for TikTok will be to manage this potential increase in sellers, and find a way to become profitable in the future. If successful, TikTok’s new logistics network could significantly impact the Ecommerce world, benefiting consumers and transforming online shopping trends.