Is RED Driving A New Maserati Down A Dead End Street?
COVID-19 and China
RED and its employees. Image credit: RED

On August 1, in response to the recent drop of APP in major application markets, RED (小红书), the lifestyle-sharing platform issued a statement at 3:43 a.m. this morning saying that the company has launched a comprehensive investigation and rectification of its content, conducted self-examination and self-correction, and actively cooperated with regulation departments to promote a better Internet environment.

Market observers thought the ban is related to the misleading medical aesthetic notes on RED platform.

One day before the drop, Nanfang Metropolis Daily published a piece of news on the unregulated medical aesthetic industry chain ran on RED to serve the micro-plastic surgery. It reported a large number of drugs banned by the state but publicly sold via the notes on the platform.

Some other observers who claim to be informed said RED was spreading pornography and conduct sex trade in shared notes that related to hotels.

However, the chaos is originated from a good intention of sharing good lifestyles.

In 2013, the Shanghai-based company started its business from a shopping strategy brochure that provided shopping guidance to tourists who travel abroad. Precisely grabbing the opportunity of outbound travelers' substantial increase, the brochure with informative content got so popular that was downloaded 500,000 times in one month.

Later in 2013, RED launched its APP and gathered not only common users but stars and KOL sharing goods, travel notes and lifestyle on its platform. Now RED'S users reached 250 million, the MAU bounced around 90 million, and the user-generated notes are exposed 3 billion times per day.

The bulked-up DAU, MAU of RED attracted giant investors like Tencent and Alibaba and boost its valuation to USD 3 billion, however, RED is still in its conundrum of commercialization and regulation. (See financing news of RED)

With a great proportion of users transformed into buyers, the sharing platform naturally extended the business to cross-border e-commerce. Nonetheless, the business didn't last long due to fierce competition and policy. A new regulation abbreviated 408-file that jointly released by Chinese authorities, including the Ministry of Finance (MOF), has brought vital damage to cross-border e-commerce platforms, RED included.

After 2017, RED made up its mind and claimed to be a social and lifestyle-sharing platform. The company keeps weakening its “e-commerce” label since highly saturated online shopping platform is no longer fancy in China.

The strategy workes as RED‘s business model has returned from commodity sales to generating online traffic. Retreated from the cross-border e-commerce competition, RED now functions partly as the promotion channel for those players desperate for traffic and is the best among other sharing platforms such as Kuaishou and Douyin.

Behind the traffic selling business, there're still more to concern for both RED and regulators.

April 16, 2019, Beijing Center for Diseases Prevention and Control (北京市疾病预防控制中心) released the monitoring results on tobacco’s online marketing data. On RED alone, there are more than 95,000 marketing posts related to "smoke". 

One note titled "refuse to smoke and keep healthy" was actually a sneaky advertisement selling e-cigarette to youth.

How to achieve credibility with more than 70% content generated by users while some "users"  were spreading misleading content or selling unregulated products?

The revenue of RED is mainly from advertisement when opening the APP, distributing notes based on information stream and commission from cooperation with stars and brands. Therefore, the credibility of shared-notes is crucial to its commercialization. In return, commercialization should feature authenticity to be consistent with other notes. It's a dilemma.

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