Caixin
Jul 28, 2021 07:27 PM
BUSINESS & TECH

Social Media Site Xiaohongshu to Ax Some Rival Product Links, Sources Say

Although social media platform Xiaohongshu attracts large amounts of investment from advertisers, it has so far failed to achieve high conversion rates on its own shopping platform. Photo: VCG
Although social media platform Xiaohongshu attracts large amounts of investment from advertisers, it has so far failed to achieve high conversion rates on its own shopping platform. Photo: VCG

Chinese social media platform Xiaohongshu will stop hosting some links to products sold on other online shopping platforms from Monday, Caixin has learned, as the company struggles to convince users to make purchases in own online marketplace.

The Alibaba-backed app will cease to include written links to goods on its own e-commerce platform as well as Alibaba’s Taobao and Tmall, according to a service provider affiliated with Xiaohongshu. Links provided during commercial live-streams will not be affected.

Xiaohongshu and Alibaba insiders confirmed the move to Caixin. A Xiaohongshu source said it aims to improve the user experience and will buttress a broader campaign against soft advertising to “protect community users’ rights to know and make their own decisions.”

Both Xiaohongshu and Alibaba declined to comment. The app, whose name means “Little Red Book” in Chinese, is one of the country’s fastest-growing mobile platforms, boasting at least 100 million monthly active users and a reported valuation of around $6 billion.

Xiaohongshu may have decided to cut product links after concluding that they had failed to attain high conversion rates, creating little value for both creators and the platform, the service provider said, adding that the move is a “strategic adjustment, not a technical one.”

The move comes around a year after Xiaohongshu started testing product links and just five months after it formally launched a function allowing links to products on Taobao and some of its affiliated online shopping platforms.

Although the company attracts large amounts of investment from advertisers, it has so far failed to achieve high conversion rates on its own shopping platform as users prefer established names like Taobao and JD.com, said the founder of an advertising firm in Shanghai who is familiar with Xiaohongshu’s business model.

A person close to Alibaba said that Xiaohongshu will also remove links to goods on its own shopping platform, not just those on Taobao. The move aimed to standardize content on Xiaohongshu’s platform, the person added.

Xiaohongshu raised around $300 million during its most recent financing round in June 2018. In addition to Alibaba, its backers include internet titan Tencent as well as venture capital firms GGV Capital and ZhenFund.

Rumors that Xiaohongshu is mulling an initial public offering have circulated since 2019. In March, the firm appointed Yang Ruo, a former managing director at Citigroup, as its new chief financial officer. Caixin understands that Yang will take charge of any proposed listing.

The company has not publicly commented on whether it plans to join a throng of data-rich Chinese firms putting share sales on ice in the wake of Beijing’s recent national security crackdown, which began with a probe of newly U.S.-listed ride-hailing giant Didi Chuxing.

A person familiar with the matter told Caixin that Xiaohongshu has not yet moved ahead with the offering due to its comparatively high valuation during its last financing round and its relatively poor business performance over the past year, adding that the company has also not submitted any listing documents in secret.

Last week, Xiaohongshu was one of a clutch of tech firms to receive undisclosed fines from China’s internet regulator for hosting content deemed “harmful to the physical and mental well-being of minors.”

The penalties followed a recent outcry from social media users and state-backed news outlets against sellers on online shopping platforms who use suggestive photos and exploitative videos of underage models.

Contact reporter Matthew Walsh (matthewwalsh@caixin.com) and editor Flynn Murphy (flynnmurphy@caixin.com)

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