By Zhixin Wan

Introducing Chinese internet companies to an international audience, technology journalists often have to define them with a parallel reference: Zhihu is the Chinese equivalent of Quora, and Weibo is the Chinese equivalent of Twitter. However, it is much harder to find an equivalent of Xiaohongshu, or “Little Red Book,” in the global tech landscape.

While some media outlets call it China’s answer to Instagram, Xiaohongshu has a lot more to offer. As Sarah Yam, co–founder of a digital marketing company, told Business Insider, Xiaohongshu is “kind of like Instagram, Etsy, and Amazon, all in one.”

Now, the Shanghai–based company is trying to maintain its momentum by venturing into the tourism business: Xiaohongshu is the sole shareholder of a traveling company founded on July 11 with a registered capital of four million yuan (US$ 600,000), according to business registration information.

The new company is named Puzhenxiangli, which roughly translates as “exquisite and natural countryside.” Its business scope includes travel consulting, hotel management, catering, to tourist site management. It also provides services such as organizing sightseeing activities, ticket booking, and camping site service.

Photo by Unsplash.

Three cornerstones: social e–commerce, algorithms, and active community

Xiaohongshu, also stylized as “RED,” is popular with China’s Gen Z because of its unique business model, which blends influencers and shopping.

It started in 2013 as a shopping guide, offering shopping tips to affluent mainlanders who travelled to Hong Kong for shoes, designer bags, and cosmetics. Gradually, its shopping destinations expanded to Thailand, Japan, and South Korea. Soon enough, it found online users were no longer satisfied by just “window shopping” on its web pages. They were eager to buy the products endorsed by influencers, celebrities, and ordinary consumers who shared their shopping experiences on the platform. One year after going online, the company launched e–commerce business, becoming a frontrunner in the emerging industry of “social e–commerce.”

In 2016, Xiaohongshu began using artificial intelligence and machine learning to distribute content. Its popularity shot up as the accuracy of its AI–powered algorithms appealed to young consumers’ tastes.

“Big data, please recommend me to people who love islands less travelled to,” writes a blogger in the headline. The post, which contains nine exquisite pictures of islands in China’s coastal Fujian Province, has gained more than 13,000 likes. Users recommend movies, cooking recipes, and even dating tips in posts like this, while others seek information and tips use the same format.

Screeshot of a post on Xiaohongshu titled, “Big data, please recommend this to those who love Bagels.” Over 7,000 people have added the recipe to their favorite.

The action of recommending products on Xiaohongshu is called “zhongcao” in Chinese, which translates to “planting grass.” The Chinese internet slang refers to the action of wanting a product after reading friends’ or influencers’ recommendations. The desire can only be quenched until they “bacao” — pulling out the grass — by either purchasing the product, or simply not wanting to buy anymore.

Grass is planted, and a vigorous word-of-mouth e-commerce model is built. Today, more than 200 million Chinese users log in the app every month for Xiaohongshu’s massive grasslands, seeking tips for beauty, fitness, cooking, and traveling.

Last year, Xiaohongshu surprised the tech industry by completing a US$500 million fundraising round, which valued the company over 20 billion dollars – quadruple the current market cap of Weibo. Investors included Chinese tech giants Tencent and Alibaba, as well as venture capital companies such as Grant Global Ventures (GGV) Capital and GSR (Golden Sand River) Ventures.

While it is unclear how Xiaohongshu is going to incorporate tourism and the new traveling company into its business, the three key drivers of its success so far – social e–commerce, AI–powered algorithms, and building an active online community – have paved the way for the company to enter the uncharted territory.

Xiaolongshu’s venture into tourism is a crucial development, said Elaine Ren, a senior branding executive at Tencent, one of the backers for Xiaohongshu. Ren sees smooth sailing for Xiaohongshu’s tourism business and expects major moves and products to launch soon.

“Xiaohongshu has already accumulated user stickiness and built an active online community before expanding its business in tourism. It makes traveling more like luxury–buying, or checking boxes on a bucket list,” said Ren, noting this is much more appealing than the services traditional traveling companies such as Trip.com offers.

Xiaohongshu’s vigorous online community is vital to its potential success in tourism, according to Ren. She expects a stampede as travel agencies flock to the site to register accounts and attract customers. The massive volume of content these travel agencies create on the platform can bring diverse information to the community and benefit the whole ecology, Ren said.