The Chinese app Xiaohongshu exploits a niche of wealthy Gen Z women

Teresa Cheung launched the Xiaohongshu app, turned on her camera, and dazzled her nearly 1.8 million online followers during a seven-hour live broadcast.

At one point, she demonstrated an eyeshadow palette: “This color is called ‘Love Letter,'” she said in Mandarin, praising the dark berry shade. She then recited in perfect English a fragment of the poem A Valediction: of the Book by John Donne:

“Study our manuscripts, these myriads

About the letters that passed between you and me,

Hence we will write our chronicles and they will include:

To all those attacked by the sublime fire of love,

A rule and an example have been found.”

By the end, the 60-year-old Hong Kong actress had promoted dozens of beauty products, read a few verses from Shakespeare and became the first person on the platform to achieve sales worth 100 million yuan ($13.8 million) in a single session.

Xiaohongshu Technology Co. — part Instagram, part Pinterest — has boomed in recent years thanks to a combination of top influencers like Cheung, her artificial intelligence technology and soft marketing tactics, making her a lifestyle bible for many of China’s highest earners. He also created a $6 billion fortune for his co-founders Charlwin Mao Wenchao and Miranda Qu Fang, according to the Bloomberg Billionaires Index.

“Xiaohongshu is a powerful tool for brands looking to enter the Chinese market or attract Asian customers in the United States,” said Frost Li, founder of Loup.ai, an e-commerce solutions provider that helps online sellers use artificial intelligence to interact with customers . “They really double watch time and click-through rates.”

Founded in 2013, the company whose name means “little red book” has opposed government repression of the technology industry. After entering the live shopping sphere, it turned a profit of $500 million last year, beating the likes of Weibo, China’s equivalent of X, which has almost twice as many users.

Backed by large investors including Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Singapore’s Temasek Holdings Pte, the latest financing round in 2021 valued Xiaohongshu at $20 billion. Mao and Qu own about 27% and 3% of the company, respectively, according to people familiar with the matter who asked not to be identified because the information is confidential.

While aftermarket trading in the stock last year indicated a lower valuation, the Shanghai-based company has since shown better-than-expected business growth and China has softened its approach to technology. Next month, a mid-year shopping bonanza similar to Singles’ Day will test the app’s ability to attract shoppers.

A representative for Xiaohongshu did not respond to a request for comment.

Started as a shopping guide for Chinese tourists abroad, Xiaohongshu now counts 300 million monthly active users. Its success relies on what’s called “content seeding”: Key opinion leaders, also called KOLs, contribute posts that often look like travel hacks or tips that help consumers with things like finding the best makeup to match their skin tone or the right fit. outfit to get a job in finance. The company’s technology then tracks what content users spend time on and shows them similar posts when they return.

“The management team has devoted time to building the quality of the user community,” said Cao Rui, senior analyst at Tianfeng Securities. “The posts often relate to everyday life, which is why they have become a popular and unique search tool for consumers who are looking for beauty and lifestyle products.”

In times of economic downturn, when many larger e-commerce operators are defrauding price-sensitive buyers, Xiaohongshu has become particularly attractive to marketers: most of its users are young professionals, and about half were born after 1995. Nearly 17% spend in data from online business intelligence service QuestMobile, at least 3,000 yuan per month is the highest percentage among China’s major social media apps. More than 100,000 sales advisors and key fashion influencers regularly post on Xiaohongshu to promote products, and luxury brands including Dior have set up online “shopping malls” on the app to reach young, affluent customers.

Mao, 39, CEO of Xiaohongshu, was in the US when he was thinking about creating an aggregator of lifestyle advice for tourists from the second-largest economy. The former Bain Capital consultant, who holds an MBA from Stanford University, shared the idea with longtime friend Qu and convinced her to quit her job at the culture firm and join forces. At the very beginning of the project, they received support from Chinese venture investor ZhenFund, and soon thereafter other well-known investors, including Alibaba, GGV Capital and Tencent.

The app has quickly gained popularity outside mainland China, with Hong Kong, Taiwan, the United States and Malaysia now generating most of its traffic, according to an analysis by digital analytics firm Likeweb. In Hong Kong, where financiers often post about the lives of bankers and mainland tourists share their travel experiences, Xiaohongshu has become so ubiquitous that earlier this year a lawmaker went so far as to warn that the government itself is paying too much attention to importance of what people say on the Internet. platform, giving the impression that the application “administers” the city.

While its e-commerce assumptions are paying off, Xiaohongshu’s long road to an IPO hasn’t been smooth. Qu, who manages strategic partnerships, business development and external affairs, said in a 2018 interview with Bloomberg that the company’s goal is to go public in two to three years – still with nothing on the horizon. Since then, Chinese tech crackdowns have stunted the growth of many internet companies, while TikTok’s U.S. ultimatum to divest or be banned could discourage global investors from Asian social media companies.

Competition in the e-commerce space is also intensifying. Many existing larger players — including Alibaba, JD.com Inc., PDD Holdings Inc. and ByteDance Ltd.’s Douyin, TikTok’s Chinese sibling — uses artificial intelligence to make customers spend more time on their platforms.

“Xiaohongshu has gained relatively higher user loyalty than other platforms due to the uniqueness and branding of KOL,” said Tianfeng’s Cao. “To gain greater market share, it must maintain the differentiation of its e-commerce offerings.”