TikTok Shops: A potential Amazon competitor, but will advertisers buy in?

TikTok is gearing up to take on the e-commerce giants, and the US launch of its Shop feature has advertisers intrigued. With big claims about driving sales and offering lower fees than Amazon, the platform is luring brands to explore this new frontier in social commerce. However, there’s a catch—TikTok demands significant resources from advertisers, making some hesitant to jump on board. Much like Amazon, TikTok is promoting itself as an all-encompassing e-commerce platform, a direct-to-consumer channel that puts it in direct competition with established retailers.

Rachel Tipograph, founder and CEO of e-commerce analytics firm MikMak, acknowledges the potential but warns that TikTok’s ambitious approach also positions them as competitors to all other players in the market. To entice merchants, TikTok is offering remarkably low fees for sellers—2% compared to Amazon’s hefty 15%. This aggressive pricing is attracting small businesses, who view TikTok as an attractive platform to connect directly with customers.

Notable names like Benefit Cosmetics and Lion Latch have already embraced the Shop feature. However, not all advertisers are convinced. Some have been scarred by negative experiences with commerce offerings on other social media platforms like Instagram Shops, which promised direct product discovery and purchasing but failed to deliver significant sales for brands. This past disappointment might make TikTok’s pitch a hard sell for those who remain wary of unproven initiatives. Moreover, joining TikTok’s Shop program demands resources from advertisers, which might be a challenge, especially for brands still recovering from the economic impact of the pandemic.

The appeal of allocating resources for a mere 0.5% or 1% increase in revenue seems slim, especially when established areas like partnerships with retailers and investing in their own e-commerce sites show more promising returns.

TikTok Shop’s technical requirements also add to advertisers’ concerns. Heavy engineering and integration with e-commerce platforms like Shopify and Salesforce are essential for seamless functionality. However, these features might not mesh well with existing loyalty programs used by major brands, creating integration challenges. Despite these reservations from established brands, small businesses and entrepreneurs are finding TikTok Shop appealing. Handling their own e-commerce fulfillment and shipping strategies, these businesses are more flexible to experiment with the platform.

Performance ad agency WPromote, for instance, has already onboarded 25 clients who plan to use TikTok Shop, with promising early results showing sales growth. David Dweck, SVP of paid media at WPromote, praises TikTok’s efficiency in rolling out Shop, boasting more adtech integrations than rival platforms like Instagram or Pinterest. This early success may hint at a potential shift towards TikTok’s solution in the future.

As TikTok Shops unfolds in the US, it remains to be seen whether it can successfully compete with e-commerce giants like Amazon. The platform’s proposition of lower fees and direct-to-consumer engagement is tantalizing for small businesses, but it needs to address the concerns of established advertisers and prove its mettle in driving significant sales. Time will tell if TikTok Shop can revolutionize social commerce or remain a niche platform for smaller players.

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