TikTok has set a new target: 10x growth in U.S. eCommerce merchandise value (GMV). This would bring its 2024 total to $17.5 million – a lofty goal. But to be fair, when starting from a small base, percentage growth is easier to achieve (growing from $1 to $10 is a lot easier than $10 billion to $100 billion).
Backing up, the above revenue goal defines gross merchandise value, which is the total transaction value of goods sold on TikTok. The company’s revenue is a subset of that as we’ll get into in a minute. These transactions mostly happen on TikTok Shop, but also include other orbiting eCommerce programs.
Backing up even further, what is TikTok Shop? Launched in September, it’s TikTok’s affiliate marketing program that lets creators tag products within videos to make them shoppable. The idea is to keep creators fed with affiliate revenue so that they keep creating… not to mention revenue for TikTok.
Prime Positioning
The way that all breaks down is that TikTok keeps 2 percent to 8 percent of transactions – depending on the purchase price – as a channel/platform fee. This is substantial but less than Amazon’s 15 percent cut. Creators whose videos drive product sales, tracked by product tags, also get a revenue share.
Zeroing in on those tags, they tie the whole thing together as a sort of product taxonomy. Creators are financially incentivized to add those tags for relevant third-party products, as are brands and retailers that create TikTok channels to sell their first-party wares. It’s similar to what YouTube recently launched.
From the user’s perspective, they can discover products that appear organically in TikTok videos, or they can actively shop on a dedicated tab. That tab includes search functions as well as order management and recommendations. In fact, if there’s one thing TikTok’s good at, it’s a recomendation algorithm.
It’s also notable that TikTok Shop’s dedicated tab has prime (excuse the pun) positioning in the app’s UX. This demonstrates TikTok’s commitment to being an eCommerce engine. Indeed, TikTok Shop will need that prime app real estate within the popular app if it’s to reach that 10x revenue goal this year.
Diversification Play
And that brings us back to the $17.5 GMV million target. The other thing it represents is Amazon’s ambitions to take on Amazon. And it’s not the only one. Temu and Shein, representing the emerging “fast fashion” category, are likewise nipping at Amazon’s heels through aggressive price competition.
Pricing aside, TikTok has something that those other Chinese challengers don’t: organic viral content. This will be the vessel through which TikTok attempts to gain U.S. eCommerce market share. And it’s not a bad idea. Not only is it well-positioned for eCommerce, but this is a revenue diversification play.
As we often point out, social media players built on ad revenue need to diversify their income streams, given the growing headwinds in the ad world. These include privacy reform, a softened economy (which always hits ad budgets hard), and a more populated supply side… partly due to TikTok itself.
Meanwhile, TikTok reached about $20 billion in global GMV value last year according to Bloomberg (again, that’s total eCommerce sales, not its revenue share). But that was mostly in Southeast Asia. Now it’s all about turning its 150-million-user beachhead in the U.S. into an eCommerce revenue machine.
