Teresa Cheung, a 60-year-old actress from Hong Kong, captivated her nearly 1.8 million followers on Xiaohongshu with a seven-hour livestream. Demonstrating a palette of eyeshadow, she showcased a dark berry-colored shade named “Love Letter” in Mandarin and recited an excerpt from John Donne’s poem, “A Valediction: of the Book,” in perfect English. By the end of the session, she had promoted numerous beauty products, read Shakespeare verses, and became the first on the platform to achieve over 100 million yuan in sales in a single session.
Xiaohongshu Technology Co., a blend of Instagram and Pinterest, has experienced significant growth, driven by top influencers like Cheung, advanced artificial intelligence technology, and subtle marketing tactics. This combination has made it a lifestyle guide for many high-income earners in China and created a US$6 billion fortune for its co-founders, Charlwin Mao Wenchao and Miranda Qu Fang, according to the Bloomberg Billionaires Index.
“Xiaohongshu is a powerful tool for brands wanting to enter the Chinese market or attract Asian customers in the United States,” said Frost Li, founder of Loup.ai, an e-commerce solution provider. “They really double down on the view time and click-through rate.”
Founded in 2013, Xiaohongshu, translating to “little red book,” has navigated the government’s crackdown on the tech industry and ventured into live shopping. The platform achieved US$500 million in profit last year, surpassing peers like Weibo, the Chinese equivalent of Twitter, which has nearly twice as many users.
Backed by investors such as Alibaba Group Holding Ltd, Tencent Holdings Ltd, and Singapore’s Temasek Holdings Pte, Xiaohongshu was valued at US$20 billion in its last funding round in 2021. Mao owns about 27% of the company, while Qu holds a 3% stake, according to anonymous sources.
Despite lower valuations in the secondary market last year, Xiaohongshu has shown better-than-expected business growth, and China’s attitude towards tech has become more lenient. An upcoming mid-year shopping bonanza similar to Singles’ Day will test the app’s ability to attract buyers. Xiaohongshu did not respond to requests for comment.
Initially a shopping guide for Chinese tourists abroad, Xiaohongshu now boasts 300 million monthly active users. Its success relies on “content seeding,” where key opinion leaders (KOLs) upload posts resembling travel hacks or tips to help consumers find the best makeup or the right dress for a finance job. The app’s technology tracks user engagement and presents similar posts on their return.
“The management team has focused on building up the quality of the user community,” said Cao Rui, senior analyst at Tianfeng Securities. “The posts are often relatable to daily life, making it a unique and popular search tool for beauty and lifestyle products.”
During an economic slowdown, as larger e-commerce players target price-sensitive buyers, Xiaohongshu appeals to marketers. Its users, mostly young female professionals, with half born after 1995, spend significantly online, with 17% spending at least 3,000 yuan monthly. Over 100,000 sales advisers and key fashion influencers regularly post on Xiaohongshu, and luxury brands like Dior have established online “malls” on the app to reach young, wealthy customers.
Xiaohongshu’s Market Performance and Growth
| Metric | Value |
|---|---|
| Monthly Active Users | 300 million |
| 2021 Valuation | US$20 billion |
| Co-founders’ Stakes | Mao 27%, Qu 3% |
| 2023 Profit | US$500 million |
| Influencers | Over 100,000 |
| Average Monthly Spending | 3,000 yuan for 17% of users |
| Key Markets | Hong Kong, Taiwan, US, Malaysia |
- Founded in 2013, Xiaohongshu has navigated regulatory challenges and emerged as a leader in the e-commerce space.
- Influencers like Teresa Cheung play a significant role in driving user engagement and sales.
- The app combines social media and e-commerce, creating a unique user experience that drives high engagement and spending.
Mao, 39, the CEO of Xiaohongshu, conceptualized the app as an aggregator of lifestyle tips for Chinese tourists. With a background as a Bain Capital consultant and an MBA from Stanford, Mao collaborated with Qu, who left her job to join the venture. Early backing from ZhenFund and subsequent investments from major players like Alibaba and Tencent fueled the app’s growth.
Xiaohongshu’s popularity extends beyond mainland China, with significant traffic from Hong Kong, Taiwan, the US, and Malaysia. In Hong Kong, the app is so prevalent that a lawmaker warned the government against over-reliance on its content, suggesting the app’s influence in the city.
Despite success in e-commerce, Xiaohongshu’s path to an initial public offering (IPO) has been challenging. Qu mentioned in a 2018 interview that they were targeting a listing within two to three years, a goal yet to be realized. China’s tech crackdown and global uncertainties, like TikTok’s US ban threat, have dampened investor enthusiasm for Chinese social media firms.
Competition in the e-commerce sector is fierce, with giants like Alibaba, JD.com, PDD Holdings, and ByteDance’s Douyin leveraging AI to enhance user engagement. “Xiaohongshu has built up relatively higher user loyalty due to the uniqueness and branding of its KOLs,” said Tianfeng’s Cao. “Maintaining its differentiation in e-commerce offerings is crucial to gaining more market share.”
In summary, Xiaohongshu’s innovative approach, influential user base, and strategic investments have positioned it as a major player in the social media and e-commerce space. Its ability to adapt and grow amidst regulatory and competitive pressures will determine its future trajectory.
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Featured Image courtesy of DALL-E by ChatGPT