RED, also known for its Chinese name Xiaohongshu, is a platform for users to share their opinions and thoughts on their life. It could be about shopping, where they comment on the quality and the user experience of certain makeups, clothes, or even electronic products. There are also users and bloggers who are active writers of their travel plans, experiences, and where to go for the upcoming vacation.
It sounds like a place of active discussion, through algorithm-driven newsfeed and subscription, the platform is making profit by actively engaging on average users to consume more time and, ideally, spend more money on the platform.
However, the business model remains to be challenging. The 3-billion worth company has yet to find a clear path of maintaining profits or create a sustainable business cycle. Despite receiving critical investment fundings from Tencent and Alibaba, the two leading investors’ group in China’s tech industry, RED has not been able to provide a concrete plan to make profit through its story-sharing/E-commerce model. In addition, the content platform faces tougher challenges in combating fake information and advertisements on controversial products.
Earlier in April, Chinese state media discovered more than 95,000 tobacco advertisements on RED’s content platform. It is against the Chinese law to promote tobacco products on the Internet. The platform was forced to take down these illegal advertisements. It remains unclear whether the Shanghai-based company will face any further punishments for these contents.
In addition to legal risks, users on the platform may have started to develop negative impressions on the existing contents available in RED. Designed to be a place for real-person experience and shares, the platform is gradually turning to a place for implicit advertisements and paid promotional content. It is discovered that fake content largely contributed to negative user impressions. Instead of seeing the intended contents, more and more users on Xiaohongshu are starting to get fed up by the increasing fake content that are written not by actual bloggers and real person, but by paid staffs for advertisement and implicit promotions.
The changing user sentiment is getting the attention of the RED operative staffs, and a revised version of blogger agreements even made it more challenging for existing bloggers, or key opinion leaders(KOL) to be recognized by the platform. RED changed the required number of subscribers and impressions that bloggers need to have in order to be recognized by the platform. Within the 6,000 key bloggers, more than 2,000 of them will be affected. Those who will not be recognized by the platforms will lose their privileges in taking paid advertisements, which is one of the most important ways for bloggers to monetize through the platform.
This recent change will surely impact the well-being and the financial prospects for bloggers on the platform. However, it remains uncertain whether the mechanism will improve the overall content quality of the contents available. While the latest move by Xiaohongshu attempted to address the increasingly high fake contents that are within the application, the effectiveness of such a strategy would be questionable.
RED has a strict policy on bloggers taking advertisements in private with the businesses. Once discovered, the blogger will be stripped of his/her recognition status for at least one year. However, the economic incentives are driving more and more bloggers into faster cash and lucrative deals. The fake contents are streamlined into an underground industry. With as low as 3 US Dollars, advertisers can get writers for creating implicit advertisements and content for them.
Despite having a 50-member technical team and a 500-member content reviewing working against fake content, RED has yet to achieve a satisfactory result on these challenges. Let alone the potential consequences of getting fined by the court or regulatory bodies, spreading fake contents and out-of-control underground markets can cause substantial damages to RED and its future profitability and survival.
Xiaohongshu is in such a contradictory position at this point. On the one hand, the platform is inviting larger brands and celebrities, such as Louis Vuitton on board for better corporate image promotions and brand recognition. On the other hand, however, Xiaohongshu would want to attain an ideal situation of refraining un-authorized advertisements and promotional content from polluting the original and authentic contents from independent bloggers. These two goals are essentially working against each other: The management teams want to have more advertisement for earning a profit, yet they are not willing to turn the platform into a classified ads mobile application.
Similar to other Chinese content platforms such as Weibo and Douyin, Xiaohongshu has a very strong tie with E-commerce. The items that bloggers are promoting in their posts could easily convert into sales following the links provided. There will not be any users who are installing an application just to read advertisements and promotions. In order to survive, and to turn the business into a profitable project, Xiaohongshu needs to redefine a better strategy in balancing between advertising content and its original series from creators.
Once the most popular place for potential shoppers to go to, there is no question that Xiaohongshu had the capability to generate and attract large amount of users. However, to profit from the existing and returning users remain to be a challenge that is yet to be answered. Will Xiaohongshu be able to build up an organic and healthy online shopping community? It is the question that the company’s executives need to address to truly succeed.
Featured photo credit to lieyunwang