Omar Oakes
Oct 29, 2020

Why TikTok and Shopify are joining forces but need to be careful

Ecommerce has become the new social media battleground, but are these challenger brands joining forces in a way that could threaten Facebook, Google and Amazon?

Why TikTok and Shopify are joining forces but need to be careful

Despite recent pressure from the Trump administration to sell its US operations, popular video app TikTok showed it has no intention of keeping a low profile after announcing a tie-up with Shopify.

The Canadian ecommerce platform, which is now worth more than $1.3 billion and provides online hosting services for brands to sell their wares, has agreed to a deal to allow businesses to create and track video ads on TikTok.

TikTok, owned by Chinese company Bytedance, has been eagerly growing its US and international sales operations. Its UK general manager Richard Waterworth told Campaign this summer that TikTok had more than doubled its UK employee roster since the end of 2019, when headcount stood at 150.

But the US government has ramped up pressure on Bytedance this year, arguing that it poses a national security threat because of the company’s relationship with the Chinese government (Bytedance denies its operations are influenced by Beijing).

President Trump signed a controversial executive order in August that bars US companies from doing business with Bytedance, shortly before ordering that Bytedance sell its US operations. This led to a potential deal being mooted with software giant Oracle and US retail giant Walmart, although details of what this means in practice have been sketchy at best.

The Shopify/TikTok deal, however, is a clear statement of intent by both parties: the former is eager to grow internationally and take on Amazon, while TikTok is keen to broaden its revenue base beyond social media and video advertising, which is dominated by Facebook and Google, respectively. 

For Shopify, the partnership allows its more than one million merchants to sell products in the form of “shoppable video ads” and target TikTok’s audience, which has proved highly popular with tweens, teens and young adults. Initially the deal will be available in the US and roll out to Europe and South East Asia next year.

Mudit Jaju, global head of ecommerce at WPP media agency Wavemaker, described the move as an example of how social commerce is moving to becoming a part of culture, having evolved from online catalogues that one might see on Amazon.com or Google’s Shopping tab.

“I think that direct-to-consumer is evolving into a social-platform-based route to market – and this is to some extent a foregone conclusion,” Jaju said.

“An integration with Shopify is cost of entry, because all of the other platforms (Facebook, Pinterest, Snap) have done it. It’s also why commerce brands need to start figuring out a way to move much faster. The days of 18-month timelines are long gone.”

Revenue from ecommerce appears to be the new battleground on which social platforms are competing, driven by a boom in demand for online retail this year, as the Covid-19 pandemic encourages people to buy goods and services online.

Jaju reported that all social platforms are working on how to leverage this boom. “It allows them to redefine the way brands go to market, and leverage the role they play in culture in a way that makes sense for their coffers.”

He added: “If you have the amount of audience data they do, you can set up a pretty lucrative cost-per-acquisition-based business, which allows you to talk to the very performance-focused stakeholders who don’t go into areas that are not strong for you, like brand safety or measurement of brand KPIs [such as] awareness.”

And yet, while the Shopify deal appears to make sense for TikTok as a monetisation strategy, the interruptive nature of the proposed ad formats may pose a problem, Anthony Macro, head of social advertising at performance media agency Croud, warned.

Macro explained: “The types of ad formats proposed by this new partnership with Shopify are potentially counterintuitive for the platform. Despite its high impressions and engagement, TikTok is not yet proven to generate great return on investment as users are reluctant to disrupt the experience by leaving the platform.”

Rather than trying to copy the format of its competitors, Macro said, TikTok should instead focus on “delivering better brand building for advertisers”. 

“[TikTok] currently trumps the likes of Facebook on both impressions and engagement – and [is] much cheaper,” Macro added.

“The allure of TikTok – and, therefore, its greatest advertising potential – is seamless, user-generated content. When you have a platform that is built on creative and engaging content, the focus needs to not be on clicks, but instead on how your brand can leave a lasting impression that works with the environment.” 

Even before the 2020 pandemic, Shopify was growing at a fierce pace, reporting 47% year-on-year revenue growth in 2019. However, as of late 2019, Amazon was by far the biggest ecommerce player in the US with 37% market share, with Shopify a distant second at just under 6%, ahead of eBay, Walmart and Apple.

So does the TikTok deal mean Amazon should be more worried about Shopify?

Jaju warned that Amazon, by comparison, could seem even more like a “very functional” place to shop online and this could be reflected in a bigger shift to supply of “core hardlines” like FMCG products and electronics.

“If Amazon cannot figure out a way to be more enticing, they have something to worry about,” Jaju said. “Discounting Amazon, however, is always a bad idea: they have the world’s best loyalty programme in the form of Prime, and also are made of money from their AWS [cloud-based data storage] business.”

Source:
Campaign UK

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