The e-commerce wing of TikTok, owned by the Chinese company ByteDance, has shuttered its services in Indonesia after the Indonesian government banned shopping on social media platforms last week.
The new regulation puts an end to social commerce in Indonesia, as it is now illegal for goods transactions to take place on social media platforms, though promoting goods is still permitted. The move is designed to protect small local businesses, which cannot match the immediacy and convenience of social media platforms’ powerful algorithms.
“Now e-commerce cannot become social media. It is separated,” the trade minister, Zulkifli Hasan, told a press conference last week.
TikTok Shop allows users to shop as they peruse content on the TikTok app, with links to sellers’ products embedded into video and livestream content to create a seamless shopping experience.
The move is expected to hit TikTok’s revenue hard as Indonesia is TikTok’s second largest audience at 120 million users and the company takes a 5% commission from each sale. While Indonesia’s e-commerce market is dominated by Shopee, Tokopedia, and Alibaba-backed Lazada, TikTok Shop had made significant inroads since launching in April 2021 and was reportedly on track to handle 6 billion USD in transactions in Indonesia this year.
“We deeply regret the government’s announcement, especially how it will impact the livelihoods of the 6 million sellers and nearly 7 million affiliate creators who use TikTok Shop,” a spokesperson for TikTok Indonesia told the press immediately following the announcement of the ban.
TikTok also said it would respect local laws and find a “constructive path forward” before it officially ended e-commerce services in the country on October 4.
The news also comes just weeks after the launch of TikTok Shop in the US, which is the video-sharing platform’s largest audience at approximately 150 million users. So far, the cornerstones of social commerce, like livestream shopping, have not taken off in the US, even forcing Instagram to remove a live shopping feature earlier this year. As a result, the success of TikTok’s e-commerce wing is far from guaranteed in this massive userbase.
“TikTok clearly has really ambitious goals, a roadmap in China and it can afford to take some losses along the way. But TikTok Shop is still an unproven investment, which will make it a tougher sell for particularly established brands in the U.S.” a social media analyst at Insider Intelligence told the Associated Press.