Xiaohongshu has laid off employees again.

According to multiple media sources, Xiaohongshu has recently initiated a new round of layoffs, optimizing employees whose performance does not meet standards. It is reported that this group accounts for approximately 30% of the total workforce.

The reason for such a significant adjustment is straightforward: the new senior management is reportedly dissatisfied with the employee efficiency ratio, which at Xiaohongshu is only half that of Pinduoduo.

Prior to this round of adjustments, Xiaohongshu had high hiring standards. Headhunters have previously revealed that entering Xiaohongshu after 32 years old is basically impossible, and job seekers have complained about being rejected from interviews due to exceeding the age limit of 32 after "graduating" from large tech companies.

Interestingly, if we look solely at performance, Xiaohongshu's results in 2023 were actually not bad.

It is reported that Xiaohongshu's revenue in 2023 reached $3.7 billion, an 85% increase from $2 billion in 2022; the net profit was $500 million, successfully turning around from a loss.

Why then is there a "Expansion Plan" amidst such strong performance?

One argument is that behind the dissatisfaction with employee efficiency, Xiaohongshu's commercialization efforts have not been smooth sailing.

Xiaohongshu's revenue comes from two main sources: advertising and e-commerce.

In previous years, advertising and e-commerce contributed roughly 80% and 20% of Xiaohongshu's revenue, respectively. Even in 2023, when the platform倾斜ed towards e-commerce, advertising revenue still contributed over 70%.

Relying solely on selling advertisements for commercialization is unreliable.

In recent years, brands and merchants have been frantically cutting budgets. Even if Xiaohongshu's advertising performance was good in 2023, maintaining such growth momentum in 2024 is uncertain. Therefore, the employee efficiency ratio may just be a lever, and using this round of layoffs to make the scorecard look better could be the real objective.

01

Has Xiaohongshu Reached the Ceiling with Its Grass-Seeding Strategy?

This round of layoffs at Xiaohongshu came as a surprise.

Following the 618 shopping festival, such a major adjustment suddenly seems to have given investors in the primary market some food for thought: Was the urgency of the layoffs due to 618 data falling short of expectations, or a lack of confidence in future growth?

From the 618 performance, live e-commerce growth achieved new highs, with live order volume reaching 5.4 times that of the same period last year, purchase user numbers 5.2 times higher, and the number of buyers with single-session transactions exceeding one million tripling from the previous year. GMV and order scale performance were also impressive.

While the data looks good, issues still exist. The biggest challenge facing Xiaohongshu is how to further advance its commercialization.

First, Xiaohongshu's commercialization does not generate compound interest.

Grass-seeding is essentially an intermediate step in consumption. Xiaohongshu's core value lies in assisting decision-making rather than facilitating consumption actions. Essentially, it's still a traffic-selling model.

Relying solely on grass-seeding, Xiaohongshu can easily hit a ceiling because, although its over 100 million DAU (Daily Active Users) seems substantial, compared to e-commerce platforms with hundreds of millions of DAU, this traffic volume is still insufficient.

In other words, in terms of commercialization, Xiaohongshu cannot complete a closed loop on its own. Without a closed loop from traffic to transactions, it is difficult to generate compound interest. Therefore, Xiaohongshu has been hoping to develop its e-commerce business in recent years.

Second, you can't have your cake and eat it too; content-focused communities struggle to balance content and commercialization.

Numerous content platforms in the past have proven that content tone and commercialization are mutually exclusive. This is the biggest problem Xiaohongshu faces.

Last year, Xiaohongshu set a goal of "advancing towards 300 million DAU," following which Xie Yunwei (nickname: Hedao), the former head of community operations, left, and Jiang Yuan (nickname: Yunfan) took over as the new head.

Some believe Xie Yunwei's departure was due to slow commercialization progress.

In fact, under Xie Yunwei's leadership, Xiaohongshu's community operations always advocated gradual commercialization. The core reason is not difficult to understand: commercialization easily leads to the loss of community content tone, and without tone, Xiaohongshu struggles to continue expanding its traffic pool.

In reality, the goal of 300 million DAU and the commercialization objective are inherently incompatible or even conflicting. Insufficient commercialization is an inherent weakness of content platforms.

This conflict is also reflected internally, with some Xiaohongshu employees revealing tensions between the community department and the commercialization department.

This is not difficult to understand: the community department's KPIs mainly focus on traffic, and viral content drives traffic growth, thereby contributing to the 300 million DAU target. For the commercialization department, however, traffic that doesn't lead to sales is ineffective.

This organizational fragmentation makes it difficult for Xiaohongshu to advance its commercialization as a whole, resulting in lackluster commercialization performance.

In the secondary market, Xiaohongshu's valuation is not high.

According to Tianyancha APP, after the 2021 funding round, Xiaohongshu's valuation was only $20 billion. Moving forward, how to further expand its e-commerce business and advance commercialization could be one of Xiaohongshu's strategic objectives in recent years.

02

Failed E-commerce Strategy: Is "Buyer's Market E-commerce" Essentially a Compromise?

For a long time, Xiaohongshu's e-commerce strategy has been misguided.

This misguidance lies in two aspects:

1. The implementation direction of the e-commerce strategy was wrong.

In the past, Xiaohongshu's commercialization focused on both advertising and e-commerce. Focusing on e-commerce was not the mistake; the mistake was in the approach. In the e-commerce industry, giants rely on burning money to scale, and Xiaohongshu cannot compete with them by subsidizing users with real money. Therefore, following the traditional e-commerce path was never viable.

In 2023, Xiaohongshu's announcements of shutting down Xiao Luzhou and Fuli She were signals that its commercialization explorations were unsuccessful.

What about live streaming e-commerce?

In early 2023, Dong Jie made her debut on Xiaohongshu's live streaming platform, gaining over 1.1 million followers across three live streams and accumulating over $100 million in GMV. In May, Zhang Xiaohui also made her debut on Xiaohongshu.

Looking back, Xiaohongshu's live streaming e-commerce can be summarized in four words: lukewarm.

Obviously, the live streaming e-commerce sector has lost its momentum and imagination. Look at the share price of Dongfang Zhenxuan, which has plunged 84% since February 2023, indicating that the market is no longer buying into it. And can Dong Jie and Zhang Xiaohui compete with Dong Yuhui?

This is a question Xiaohongshu has yet to figure out.

However, Xiaohongshu didn't stubbornly cling to the traditional e-commerce model and began experimenting with "buyer's market e-commerce."

So-called buyer's market e-commerce is essentially a compromise between content and commercialization, but this compromise is aimed at avoiding "low-price" competition as much as possible.

In reality, whether it's live streaming e-commerce or shelf e-commerce, low prices are ultimately a factor, and low prices have never been Xiaohongshu's competitive edge. Therefore, on the e-commerce path, Xiaohongshu needs to pursue differentiation.

Is buyer's market e-commerce sufficiently differentiated? It's hard to say. Without a core supply chain advantage, Xiaohongshu may ultimately still be limited to selling traffic.

2. Too much emphasis on KPIs and neglect of commercialization infrastructure capabilities.

A core issue with Xiaohongshu has been its relatively poor commercialization infrastructure capabilities.

One manifestation is weak soft power.

Xiaohongshu has strong traffic and popularity. According to QuestMobile data, the combined de-duplicated active user base of Douyin, Kuaishou, Xiaohongshu, Bilibili, and Weibo is 1.088 billion, with Xiaohongshu being the only platform with monthly active user growth exceeding 10%, reaching 20%.

This traffic is contributed by a large number of long-tail UGCers (User-Generated Content creators). In other words, the most valuable asset on Xiaohongshu's platform is its mid-to-tail KOLs, but these KOLs have lacked a mature commercialization cultivation system. For example, how to start with cold starts, monetize, and improve conversion rates? Other platforms have well-established mechanisms, while Xiaohongshu's efforts are insufficient.

Another manifestation is insufficient hard power for commercialization.

In April, numerous new bugs in the JuGuang ad platform's backend even affected merchant operations. Furthermore, there were P0-level technical failures in both March and May. These technical issues are unacceptable for a mature company.

Although these core capability issues need to be addressed, personnel changes suggest that Xiaohongshu intends to accelerate its platform's commercialization.

In addition to Jiang Yuan's joining, in January of this year, former Didi supply-demand strategy head Wu Yingbing and former Didi Hitch business head Zhang Rui also joined Xiaohongshu.

Compared to strengthening foundational capabilities, improving employee efficiency ratios is the easiest way to achieve results in the short term. Firstly, it gives the capital market something to report on: as long as the financial report numbers look good, financing or going public are both viable options. Secondly, the new leadership can use this round of layoffs to gain discourse power and prepare for the next stage of commercialization.

As for improving fundamental capabilities, it's a thankless task that might be more cost-effective to leave to the next leader.

04

Peak Benefits: Easy Grass-Seeding but Difficult Conversion for Brand Merchants

For brand merchants, they don't care about Xiaohongshu's layoffs or leadership changes; they only care about whether advertising on Xiaohongshu is still cost-effective and whether growth efficiency is high.

However, more and more brand owners are finding that advertising on Xiaohongshu is no longer as cost-effective as before.

In the past, Xiaohongshu's advertising logic was a combination of Kol (creator) quality content, Feeds (information stream advertising) precision targeting, and Search (search advertising).

In essence, the core was still to indirectly sell advertising placements and resources to brand merchants by emphasizing grass-seeding, and the platform could also share in the profits.

Due to Xiaohongshu's strong "grass-seeding" attribute, but the difficulty in quantifying grass-seeding itself, it's challenging for brands to directly measure ROI when working with influencers. One of the core reasons it could attract brand advertising was that Xiaohongshu was not heavily commercialized in the past, making it essentially a traffic lowland.

However, in 2023, many sectors that once offered benefits have gradually become red oceans, with demand saturation leading to lower ROI for information stream advertising.

Of course, compared to traditional search engines, Xiaohongshu's content pool is smaller, making it more valuable. However, compared to short video platforms, Xiaohongshu lacks a complete closed loop within the platform, making it less precise, and conversion efficiency is difficult to improve.

In addition, Xiaohongshu's "diverse" content makes its audience less precise.

Some merchants say that in the past, Xiaohongshu's main advantage was in beauty categories, with clear user personas, making it easy to target advertising by screening a few basic tags. However, since Xiaohongshu began experimenting with breaking out of its niche, the platform's traffic has increased but also become more diverse. Due to inadequate data-driven advertising and algorithmic capabilities, conversion data is often unsatisfactory.

"If we look at note collections and interactions, the situation is not bad, and there are viral contents. But the problem is that conversion is indeed lower than before. On the one hand, the bonus period has passed. On the other hand, content on Xiaohongshu is now too homogenized, and Xiaohongshu's current data-driven advertising capabilities are not as mature as platforms like Douyin and Kuaishou, resulting in lower ROI," said a brand merchant.

Another merchant admitted that there are more advertising messages on Xiaohongshu than before, but conversion effects have decreased significantly.

In fact, this is an inevitable consequence of Xiaohongshu's content "breaking out of its niche."

In the past, Xiaohongshu was a hub for beauty and fashion content and a main base for female users to share content. Therefore, commercialization was primarily focused on beauty and skincare brands. But recently, the male user base on Xiaohongshu is growing at a faster rate than the overall platform.

On the content side, Xiaohongshu launched the "Male Content Incentive Plan" as early as 2021 to expand content ecosystems such as outdoor sports, travel exploration, sports, and technology, further enlarging the traffic pool. On the commercial side, it provides monetization channels for products in categories like technology, collectibles, and home appliances.

It's the same old problem for content platforms: traffic or tone? User value or commercialization scale?

Reaching 300 million DAU means Xiaohongshu must find a new incremental user group. The original content tone and community atmosphere must be thoroughly adjusted, which has real implications for commercialization.

Lower ROI for merchants may be one of these real impacts.

In fact, the value of native community users is the fundamental reason why Xiaohongshu attracts brand merchants for advertising. As commercialization progresses, this value continues to be diluted.

From a data perspective, Xiaohongshu is one of the few content social platforms that can still maintain traffic growth dividends and has over 100 million DAU in 2024. One of the reasons is that Xiaohongshu has consistently maintained its content tone.

Xiaohongshu is a sophisticated and bourgeois content social platform. It hosts some of the most powerful purchasing internet users: young, middle-class women.

When the value of this user segment is insufficient to support Xiaohongshu's commercialization ambitions, how much value remains in its content-driven "grass-seeding" culture is a question worth pondering for brand merchants.

Whether it's layoffs or strategic changes, Xiaohongshu must continue on its commercialization journey.

In the world of internet commerce, Xiaohongshu occupies a unique niche in both content and e-commerce dimensions. For content platforms, Xiaohongshu's commercialization value may be the highest. For e-commerce platforms, Xiaohongshu's community traffic is the most valuable.

This uniqueness also necessitates that Xiaohongshu forge a unique path to commercialization.

Layoffs are just the first step; for Xiaohongshu, this transformation has only just begun.