Editor | Jiran

Xiaohongshu is undergoing a remarkable transformation.

On December 18, Xiaohongshu held the 2025 WILL Business Conference in Shanghai, themed "Grass-planting: Taking Business Further," and unveiled several new initiatives. The two core points are:

First, it is placing greater emphasis on the grass-planting economy, user preferences, and merchant operations, introducing the "AIPS Crowd Asset Model" and unveiling a comprehensive grass-planting measurement solution for the first time.

Second, Xiaohongshu is becoming more open. On one hand, it is connecting data from Taobao, JD.com, and VIPSHOP through the Grass-planting Alliance. On the other hand, it announced plans to expand into more fields in 2025.

The immediate impression is that Xiaohongshu is embarking on bold reforms and accelerating its commercialization efforts.

2024: Accelerated Commercialization of Xiaohongshu

For a long time, Xiaohongshu was a "slow" company in the internet industry. Founded in 2013, it exercised restraint in commercialization, aiming to maintain a pure content community atmosphere. It wasn't until 2019 that Xiaohongshu began its commercialization process, gradually enriching its brand, blogger, and user ecosystem.

However, as industry competition intensified and capital became more cautious, Xiaohongshu was forced to seek greater commercialization due to profit pressure. In 2023, often criticized as "laid-back," Xiaohongshu finally achieved its first profit, with revenue of $3.7 billion and a net profit of $500 million.

In an era where internet growth is increasingly difficult to tap, a laid-back approach to commercialization risks elimination. Therefore, since 2024, Xiaohongshu has taken even bigger steps towards commercialization.

In mid-October this year, foreign media reported that Xiaohongshu's Q1 2024 revenue surged to $1 billion, a year-on-year increase of 67%, with a net profit of $200 million, a year-on-year increase of 400%. Bloomberg reported that Xiaohongshu is expected to double its profits to over $1 billion in 2024 and may proceed with an IPO.

Although these claims have not been verified by Xiaohongshu, its accelerated commercialization is evident in its official transaction data. In November this year, Xiaohongshu's "Yearly Shopping Extravaganza" final report showed that the number of live streams with over one million views increased by 850% year-on-year, the number of merchants with sales over ten million increased by 540%, and the number of buyers with transactions over ten million in a single session increased by 360%.

So, what is driving Xiaohongshu's commercialization? It's the grass-planting economy, which Xiaohongshu repeatedly emphasized at the 2025 WILL Business Conference.

While more people are shopping on Xiaohongshu, unlike established e-commerce platforms like Taobao and JD.com, Xiaohongshu's prominent label remains that of a "grass-planting community".

What is grass-planting? It's when users see others sharing a product on social media, develop a liking for it, and want to try it themselves. It's like planting a seed in the user's mind that eventually germinates, leading to a purchase. Data shows that 100% of products sold for millions on Xiaohongshu have been "grass-planted" within the platform.

Based on the community characteristic of "from grass-planting to purchase," Xiaohongshu has created a closed-loop ecosystem that "grows from content and thrives on transactions." In this ecosystem, Xiaohongshu's profit model primarily relies on advertising and e-commerce. Media estimates suggest that advertising accounts for about 80% of Xiaohongshu's total revenue. However, with the internet advertising market's growth rate declining and most of the market share taken by top internet companies like Alibaba and Tencent, Xiaohongshu has gradually developed a "second curve" - e-commerce. E-commerce is closer to users' purchasing behavior, offering higher conversion efficiency and stronger commercial capabilities.

Compared to other content platforms, the most prominent feature or advantage of Xiaohongshu's e-commerce model is its users.

Data shows that Xiaohongshu has 300 million monthly active users, with a gender ratio of 3:7. There's a joke online that the ranking of spending power in Chinese households is: women, children, elderly, dogs, men. The large number of female users with significant spending power drives the growth of Xiaohongshu's e-commerce. Additionally, 50% of Xiaohongshu users are post-95s, and 35% are post-00s, with 50% of users from first- and second-tier cities. Young people in first- and second-tier cities have stronger spending power and are more willing to spend, laying the foundation for Xiaohongshu's e-commerce development.

However, tapping into the spending potential of Xiaohongshu users is not easy.

Compared to merchants on Taobao, JD.com, and Douyin, merchants on Xiaohongshu must not only present their products well but also act as "emotional experts." They need to consistently publish high-quality, heartfelt content to establish an emotional connection with users, gain their trust, and generate positive word-of-mouth to truly achieve the process from grass-planting to purchase, leading to better conversion results. However, creating an "emotional connection" is often difficult to quantify, and building emotional links is even more challenging.

Therefore, at this year's 2025 WILL Business Conference, Xiaohongshu released the "AIPS Crowd Asset Model" for the first time. This model measures and manages user group assets, helping Xiaohongshu better understand user behavior and preferences, thereby providing merchants with more precise marketing strategies.

Additionally, the conference mentioned data analysis on Xiaohongshu's brand "empathy," indicating that Xiaohongshu is also researching ways to enhance emotional connections between brands and users. In summary, in 2024, Xiaohongshu continued to accelerate its commercialization while striving to better understand its users.

Challenges Behind the Transformation

While Xiaohongshu has an advantage in commercialization from a user perspective, it reveals disadvantages on the merchant side.

In terms of numbers, merchants on Xiaohongshu are indeed growing. In 2023, the number of merchants with annual transaction volumes exceeding 100 million yuan on Xiaohongshu increased by 500% year-on-year, and those with transaction volumes exceeding 10 million yuan increased by 380%. In the first half of 2024, the number of small and medium-sized merchants on Xiaohongshu increased by 379%, and their total transaction value (GMV) increased by 436%.

However, merchants face a significant pain point when doing business on Xiaohongshu: unclear transaction data.

For a long time, the key metrics for evaluating Xiaohongshu's advertising effectiveness were impressions, click-through rates, and CPM. The platform focused on the grass-planting process rather than transaction results. In other words, Xiaohongshu was more like an advertising platform than a trading platform, creating significant uncertainty for merchants.

Many merchants doing business on Xiaohongshu complain about the unclear effectiveness of grass-planting. A cosmetics merchant told the author that after advertising on Xiaohongshu, it was difficult to accurately track whether users made purchases, where they made them, and how many they made. As a result, they had to rely on search growth on e-commerce platforms like Taobao and JD.com to get a rough idea.

This leaves many merchants wondering how much return they are getting from their investment on Xiaohongshu and how much is being wasted. Moreover, consumption decision cycles vary across industries. For example, the decision cycle for facial essence products is 29 days, while that for baby food can be as long as 70 days or more. During these two months, merchants may feel lost and uncertain about their operations.

It's important to note that more and more merchants are focusing on final transactions, and Xiaohongshu's "blind business" experience has discouraged many of them. This is not a good sign for Xiaohongshu.

At the 2025 WILL Business Conference, Xiaohongshu provided some solutions.

From the dimensions of process measurement and result measurement of grass-planting, Xiaohongshu released a comprehensive grass-planting measurement solution for the first time. For example, Xiaohongshu can use the Grass-planting Alliance to access post-link transaction data from e-commerce platforms. Currently, Taobao, JD.com, and VIPSHOP have integrated their data into the alliance, launching products like Xiaohongxing, Xiaohongmeng, and Xiaohonglian. Xiaohongshu revealed that it will explore cooperation opportunities with more platforms in the future.

Additionally, Xiaohongshu collaborates with brands on first-party data, analyzing the brand's grass-planting data on Xiaohongshu with omnichannel conversion data, allowing merchants to directly calculate business indicators and achieve "far-sighted, detailed, and comprehensive" insights. Currently, Xiaohongshu is attempting to address merchants' operational uncertainty through data tools and platform cooperation. However, it remains uncertain how significant Xiaohongshu's breakthroughs in platform data integration are and what the merchant experience will be like, requiring time to validate.

What Changes in 2025?

On the threshold of a transformative 2024, Xiaohongshu has new plans for 2025.

At the WILL Business Conference, Xiaohongshu introduced three major commercialization directions for next year: First, expanding from focusing on consumer goods to meeting the needs of multiple industries, with a focus on breaking into lifestyle services and other industries; second, enhancing commercial product capabilities, particularly in optimizing grass-planting advertising, measuring post-advertising effectiveness, and directly delivering customer leads; and third, embracing greater openness in the ecosystem by directly connecting with more platforms, merchants, brands from different industries, and MCN agencies.

In one word, Xiaohongshu's 2025 can be summarized as "openness." Especially the expansion from focusing on consumer goods to meeting the needs of multiple industries, with a focus on breaking into lifestyle services and other lead-generating industries, offers significant potential.

History serves as a mirror to understand the rise and fall of dynasties. Multi-industry, multi-category expansion once brought a significant transformation to JD.com. Before 2007, JD.com only sold 3C products. At that time, Liu Qiangdong decided to expand into a full range of categories, but some investors opposed it, arguing that they should focus on perfecting 3C products first, and that full-category expansion required significant funding and carried high risks of failure.

However, despite opposition, Liu Qiangdong resolutely pursued full-category expansion because he realized that JD.com's product range was too narrow after comparing it to Amazon. Users only visited JD.com when they needed 3C products, making it difficult to attract and retain more consumers, and limiting JD.com's growth potential. Therefore, after expanding into a full range of categories in 2007, JD.com achieved significant growth, and its subsequent diversification strategy further broadened its development space.

Similarly, while Xiaohongshu currently hosts many product categories, it still pales in comparison to e-commerce platforms like Taobao, JD.com, and Douyin. To unlock greater potential, Xiaohongshu must introduce more industries, different types of brands and merchants, and expand its overall platform base.

Lifestyle will undoubtedly be a key focus area for Xiaohongshu in 2025. In July this year, Xiaohongshu's COO Conan defined Xiaohongshu's e-commerce as "lifestyle e-commerce" for the first time. Additionally, at this conference, Xiaohongshu stated that the monthly active merchant count related to lifestyle services has increased by 167%, with 98% of these merchants interacting with users through consultation services within the platform.

However, as Xiaohongshu expands into multiple areas, it will also face pressures and challenges.

Every time a platform introduces a new category or industry, it requires supporting customer service, supply chains, logistics, etc., all of which collectively influence the user experience. Compared to mature e-commerce platforms like Taobao, JD.com, and Douyin, Xiaohongshu currently lacks a comprehensive e-commerce system, which is a significant shortcoming.

In simple terms, Xiaohongshu's "e-commerce infrastructure" is not yet solid. Once this foundation is strengthened, the platform will usher in broader opportunities.