This past week, millions of Americans self-identifying as "TikTok refugees” have flocked to Xiaohongshu, aka Red Note, aka ‘China’s Instagram,’ aka 'America's New TikTok' (the last one is me).
It’s an 11-year-old company, and it’s in the news suddenly only because the US has entered the conversation. This has sparked some really funny interactions on the app. Americans looking for new ‘Chinese spy friends’ or helping the Chinese with English homework - the satire and humor are off the charts.
However, I want to highlight a few things that make Xiaohongshu a standout in the Chinese social media landscape. The app’s feed combines videos, photos, text posts, and live streams.
Before I begin, let’s get the irony out of the way. “Xiaohongshu" translates to "Little Red Book," a playful nod to Chairman Mao Zedong's book of quotations, despite the platform's focus on lifestyle and consumerism.
Call it a subtle subversion of traditional notions associated with the original "Little Red Book".
Daka Tourism and The Lonely Tree
Let me start with the story behind the very unremarkable tree you see in the cover image. To set some context: Some 130 million Chinese travel abroad yearly and spend about $200B. This ‘Lonely Tree’ in Laos became a popular tourist spot - but only the Chinese visit - thanks to this app and its role in fuelling ‘daka tourism’, a superficial form of travel focused on visiting photogenic locations and sharing pictures on social media. Xiaohongshu has popularized many such obscure locations. The app's algorithm rewards users who frequently post, encouraging them to participate in daka tourism.
It allows users to complete the entire ‘daka tourism loop’ on a single platform, including research, trip planning and sharing the experiences with others. The platform has single-handedly shifted travel preferences among Chinese tourists.
While many Chinese social media platforms prioritize entertainment or news, Xiaohongshu centers around aspirational and practical lifestyle content like this, helping it attract a predominantly young, female, and affluent user base.
There’s another reason why it’s popular with young women. It has helped challenge the negative stereotypes attached to single women in China. ‘Living alone’ vlogs portray them as happy, independent, and fulfilled, in contrast to the earlier “shengnu” or “leftover women” discourse that shamed women for not marrying young.
One App To Rule Them All
Unlike TikTok (Douyin in China), Xiaohongshu has maintained a single version of its app for both domestic and international users.
Xiaohongshu's 300 million monthly active users are predominantly Chinese.
This is unusual for Chinese social media apps, which typically have separate versions to comply with censorship requirements. The company never intended to expand internationally, and it becoming a global phenomenon has been entirely accidental.
Stanford And The World's Best Seed Investor
For all the talk about Chinese dominance, the app was birthed in the US - Stanford GSB, to be specific. The thirst for Western education isn’t going down anytime soon.
Charlwin Mao, one of the app’s founders, earned his MBA from Stanford GSB in 2013. Anna Fang (Stanford GSB MBA ‘10) is a founding partner and the CEO of China’s Zhen Fund, considered one of the world’s leading early-stage VC firms.
Fang cut Xiaohongshu’s first check (Seed) after meeting Mao on a trip back to Stanford GSB when he was a student, “the one in the front row always raising his hand and asking questions.” (Side note: Stanford U/GSB alums and dropouts are responsible for 130+ unicorns).
This was an incredibly successful investment, with Xiaohongshu now being valued at $20 billion.
Thanks in part to this, Fang boasts the world’s best seed-stage startup portfolio and topped the 2022 Forbes Midas Seed list as the most successful seed investor in the world.
Get this: Over 30 seed-stage startups backed by Fang have become unicorns.
The Bottomline
Xiaohongshu became profitable in 2023, reporting $500 million in net profit on revenues of $3.7 billion. Its revenue surged to $1 billion in the first quarter of 2024 (vs $600m). For 2024, projections indicate that the company's net profit will double to over $1 billion.
It makes money by integrating e-commerce pretty seamlessly into its platform. Users can purchase products directly through the app, making it a one-stop shop for discovering, reviewing, and buying items.
Surprisingly, Xiaohongshu emerged relatively unscathed from the great Chinese tech crackdown, which began in late 2020. It was not targeted as directly as Alibaba or Didi. Still, its valuation dropped from $20 billion in 2021 to $14 billion in late 2023. Venture activity has been dead in China for the past couple of years as VCs try to de-risk from what they see as a volatile regulatory environment. Capitalism with Chinese characteristics rears its ugly head occasionally, reminding us of who is always in charge (the CCP). Xiaohongshu is now considering a potential Hong Kong IPO, and it awaits Beijing’s blessing.
All said this global reach is unusual for a single-version Chinese social media app, particularly one operating under the country’s strict internet regulations. Things will come to a head sooner than later. I predict that its new-found virality will be short-lived.