Trouble at Xiaohongshu RED
Over the course of the last two weeks, China's red hot social commerce app "Xiaohongshu" (a.k.a. RED) has been taken down in most app stores. In the beginning there were mostly rumours as to the reasons. Now it has become clear that the company's hands were forced by the Chinese government with an unmistakeably clear instruction to clean up their mess. What happened? There have been complaints by loyal users for quite a while now that the app's ecosystem of user generated content had been flooded with questionable, fake and outright illegal content. Then on 30 July, well-known Chinese newspaper, Nanfang Metropolis Daily found that Xiaohongshu is becoming something of a distribution center for underground beauty practitioners. Those small businesses posted public displays of sales of drugs illegal in China such as various face lifting drugs and human placentas. These advertisements are very profitable for Xiaohongshu as the demand for Botox and similar cosmetic substances keeps increasing. The shutdown obviously affects a lot of other brands and advertisers as RED has become an integral part and advertising destination of many companies' social media budgets. These problems are typical growing pains of a young internet company overwhelmed by fast growth, technical difficulties in reliably monitoring content and tough ethical choices. Their plans for another round of fundraising to the tune of 500 Mio USD have been put on hold meanwhile. Brands should keep an eye out on the other up and coming social commerce players only if to make sure that all eggs are not in one basket. Here is a good article by the folks at Parklu.com, which apps to pay more attention to going forward.
Take-away: Another scandal involving sale of illicit beauty products this time involving Xiaohongshu RED only goes to show that all of China's young and fledgling internet unicorns have growing pains to deal with. For marketers it means to keep diversifying towards other platforms at all times to protect against such eventualities.