The convergence of social media and e-commerce platform : A case study on RED’s platform economy

 

RED, also known as Xiaohongshu, has been a trending social media platform in China these years, mainly targeting young female users. By July 2019, the amount of RED’s users has reached 300 million. It is a lifestyle platform with the goal of inspiring lives, encouraging users to discover and interact with a variety of different lifestyles. Users could be either or both content receivers or creators. The formats of contents include images, text, videos, and live streaming, while a wide range of topics involved not bounded by fashion, travelling, food, and technology. With the community combined with commerce, RED has swiftly become an innovative tool for lifestyle decision-making.

In this article, we will look at the history of this platform and analyse its vital reformation decisions with the concerns arose, in order to better understand its platform economy. The future trend of online shopping will also be explored via the lens of this case study.

The evolution of RED: raised concerns and reformations

RED 1.0: From PDF file to mobile app

Wenchao Mao and Fang Qu founded RED in August 2013 in Shanghai as a user-generated content community focusing on overseas shopping experiences sharing. A significant market opportunity in foreign shopping information sharing prompted the founders to start their own business. To begin, consumers can get the “Xiaohongshu Outbound Shopping Guide” in PDF format from its website. In less than a month in October 2013, the PDF achieved 500,000 downloads.

However, later in 2013, as the development trend of mobile Internet replacing PC Internet has become a foregone conclusion, and almost all Internet enterprises are accelerating the layout of mobile terminal. Founders rapidly adjusted and launched the “Xiaohongshu” app in the Apple App Store before Christmas. Since then, consumers have started exchanging reviews of products purchased overseas, including brand, packaging, price, buy location, and usage suggestions. RED then saw its first spectacular user growth during the 2014 Spring Festival, followed by the rise of contents on travel and cuisine sharing, pushing the founding team to contemplate expanding RED’s field beyond the normal social media features.

The exchanging reviews of users shows new opportunities to civilianised advertising, which is to promote products or business via micro-celebrities or even average users on the platform. It is argued that the available information shapes  individuals’ purchasing opinions, thus decision-making (Huhn et al., 2018). Compared to traditional ways of advertising, civilianised advertising tends to be more influential on customers’ decision-making, the information provided by average users tends to be less official but more objective and constructive for individuals to make determinations. RED offered a platform as well as opportunities with low risk that require low inputs for some small businesses. An example could be the Chinese cosmetics brand Perfect Diary, but the income of RED itself seemed to be a problem. 

RED 2.0: community + E-commerce

As a result, RED launched an e-commerce business in August 2014. There are RED’s self-operated stores and settled merchants. With the previous user base, RED figured out its own “community+e-commerce” mode that attracted investors like Tencent and GGV Capital. Seizing the opportunities, RED reached unicorn status in three years, valued at $1 billion. The set of merchants not only broadens the product range but also lessens the risk of self-stockpiling for RED, enabling the transition of its platform economy from cross-border to comprehensive e-commerce. Then it turns out that in June 2018, RED was valued over $3 billions. As RED’s community grew, thousands of celebrities got attracted to share their lives, and this made RED become highly influential on young people’s lifestyle and decision-making. RED also started sponsorships and advertising which contributed to its new explosive growth of users in 2018.

Nevertheless, despite the large number of existing loyal users, RED has struggled to effectively convert users into customers. As RED’s contents are user-generated, many traders from other platforms use RED as a tool for self-advertising, another way is to advertise through micro-celebrities. Another situation could be the promoted commerce is offline, such as restaurants or a new bookstore. Hence, RED has been working on content moderations, such as detecting and cancelling users’ messages to external sites through AI.

RED 3.0: Now and the Future Development: focus on the community or e-commerce

RED then faced the new issue of whether to focus on its e-commerce or maintaining users’ experiences. On the one hand, RED had just started the mall e-economy, and it might need more time to improve its business. On the other hand, media inflation (McPhillips & Merlo, 2008) due to the growing number of users and advertiser competitions seems to be an inevitable trend for RED. 

RED chose to work on both. For its economy, RED launched the “surprise boxes” to randomly drop on users’ pages when they are viewing posts. The boxes might contain either coupons or products as gifts with a count-down timer below, to urge users to make determinations to buy the products they are looking at (Hahn et al., 1992). While improving the e-malls, RED also do advertisements, including the covering page advertisements and advertising via content recommendations. It also provides marketing services for users in need. RED also tried offline business. It opened its first offline store named REDhome in 2018, but it seems that they had some problems with these stores so far, that all REDhome in Shanghai were closed. And for the second concern, RED started “the woodpecker plan” in 2020, to decrease fraudulent and misguiding posts to ensure the experiences of users. 7,383 accounts and 213,000 posts got disposed. Commercialised product reviews are asked to clarify the interests, to allow users to make decisions wisely. RED also tried to fix the unbalanced perception of male and female users, which almost reached the ratio of 9:1 (STATISTA, 2021), but in a controversial way. The advertisement it put in Hupu, a male dominated community, was considered to be using female users as “baits”, which is against the original purpose of the community and highly immoral.

Would it be the Future Trend of Online Shopping Experience?

“People buy based on social opinions,” Ecom (2020) said.

Although RED still has room to make improvements, its platform economy idea of converging e-commerce into social media is interesting and might be the trend of future platform economy development mode. The mode fills the lack of interactions and information in the e-commerce platforms, and vice versa for social media.

“Understanding consumer needs can be a highly complex process and it requires businesses to develop the right level of sophistication to coordinate all their business operations with the knowledge gained from customer interactions on social media (Sharath Shruthi, 2019, pp19).”

Compared with the traditional retailing industry, RED’s one-stop service shows more conveniency for the customers, while gaining profits by transforming users to customers. There are other examples that show the convergence of social media and e-commerce. DouYin, the Chinese version of TikTok now has the “window” function so allow users to put product links on their profile page so that followers can purchase by clicking on them. And the “yellow cart” function that appears in live streams in Douyin for people to purchase whatever they want from the live streamers cart. Meanwhile, E-commerce platforms are getting some social media features as well. For instance, the live steaming feature of Taoabo, Alibaba, and so well for Pinduoduo, and its posting features that offer users a place to share useful information about products.

Exploring the best mode for both users experience and itself, RED has undergone several transformations and changes. It has evolved from overseas shopping and sharing community into a community-based cross-border e-commerce business. Its community+ E-commerce mode acts as an inspiration for both social media and the existing and future business, while reflecting the future trend of platform economy. The reason why Xiaohongbook can stand out from many social e-commerce products and achieve success is that it accurately grasps the needs of users in different periods, always adheres to the “people-oriented” product design concept and adheres to the UGC lifestyle sharing community. At the same time, the large number of users also brings new problems for Xiaohongshu, such as the unsolved lack of balance on users’ gender, as well as the prevention for the loss of old users in the face of user sinking? In addition, it has to improve the quality of content to ensure both its quality of users and contents, thus a nice community ecosystem. It is also expected that Xiaohongshu will not only meet the needs of users but also take its social responsibilities to make a warmer and more valuable brand.

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