Summary in Plain Language
Recently, a significant event has occurred within the local lifestyle services industry that could reshape the industry landscape: TikTok, which started out with short videos, has managed to catch up with Meituan, a company that has been in the food and dining services business for over a decade, in just six years. TikTok is now on the verge of generating billions in annual profits. However, ByteDance has made a bold strategic decision: the entire company is committing all its resources to AI, with plans to spend 470 billion yuan on purchasing computing power and research and development by 2026—more than double the amount invested last year. To fund this AI initiative, TikTok’s already profitable businesses, such as local services and e-commerce, have shifted from focusing on expanding market share to concentrating on generating profits. This means slowing down the pace of encroaching on Meituan’s market. It’s like taking all the eggs from a chicken that is already laying eggs to feed young, unprofitable AI projects. The entire industry is now watching to see if this move will be worthwhile.
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Detailed Explanation
1. Local lifestyle services are no longer solely dominated by Meituan; TikTok has joined the race
Many people think that ordering food and buying group purchase coupons are Meituan’s domain, but that era is over:
- The food delivery market has shifted from Meituan’s dominance (70% market share) to a duopoly between Meituan (52%) and Taobao Flash Shopping (42%).
- The most profitable business for Meituan, which involves purchasing dining and beauty services, is expected to generate 1.2 trillion yuan in orders by 2026, nearly matching Meituan’s 1.3 trillion yuan. The difference lies in the usage rate of coupons after purchase; TikTok’s actual transaction volume is already 70% of Meituan’s, and this growth rate is faster than anyone expected.
- The most noticeable change is in the attitude of businesses: previously, businesses spent most of their marketing budget on improving ratings on platforms like Dianping and buying rankings. Now, high-end brands in major cities spend half of their marketing budget on TikTok, and small businesses also allocate 30% of their budget to it. There’s a clear division of labor: TikTok focuses on attracting new customers through videos and live broadcasts, while Meituan maintains existing customers and drives repeat purchases. TikTok is no longer just a minor player disrupting the market with cheap coupons; it has become an essential platform for businesses.
2. TikTok’s success in local services isn’t due to spending money but rather by establishing a solid infrastructure
Many thought TikTok’s success in local services was based on subsidizing users. However, in 2026, TikTok cut subsidies and raised commissions to similar levels to Meituan’s, yet it’s on the verge of profitability. The key reason is that TikTok has successfully implemented offline services:
- TikTok has partnered with 2,700 local service providers across the country, covering nearly 500 cities. These providers help small businesses with video production, live broadcasts, and events, eliminating the need for businesses to learn online operations on their own. Data shows that these local service providers have increased the platform’s transaction volume by 146%. Previously, the subsidy-driven growth led to a vicious cycle where no one made a profit. After stopping price wars in the third quarter, the platform achieved break-even and could earn 200-300 million yuan per month by the end of the year, proving that the previous growth wasn’t just a bubble.
3. ByteDance’s sudden strategic shift: from competing with Meituan to focusing on AI
Just as TikTok’s local services were about to become profitable, ByteDance changed its strategy. AI has become the company’s top priority, and the goal for all non-AI businesses is to generate more cash flow for AI development:
- The independent group purchase app “TikShengSheng,” launched to target lower-tier markets, was discontinued shortly after its launch.
- TikTok’s e-commerce growth rate has slowed down, and the platform has lowered its annual growth targets.
- TikTok has even allocated more traffic to less profitable short-form videos, reducing the traffic allocated to local services and e-commerce. The logic behind this is simple: AI is the key to the next generation of internet services. By investing heavily in AI, ByteDance believes it will secure future business for decades, even if it means sacrificing short-term growth from its profitable businesses.
4. The “sacrificing profits for AI” strategy has obvious drawbacks
ByteDance’s commitment to AI is strong, but there are two significant issues with this approach:
- It’s missing the best opportunity to defeat Meituan, as Meituan is currently weak: facing competition from Taobao Flash Shopping in food delivery and Ctrip in travel services. Meituan’s profit margin in these areas has dropped from 40% to 25%. If TikTok had continued to pressure Meituan at this time, it could have further increased its market share. By cutting subsidies, TikTok is giving Meituan a chance to recover.
- The efficiency of traffic monetization has reversed: a large portion of traffic is now directed to short-form videos, which generate only a small amount of revenue. The same amount of traffic could have generated billions in transactions and commissions for local services. This trade-off is not cost-effective in the short term.
5. TikTok’s inherent weaknesses, even without the AI strategy
Even without the AI focus, TikTok would still face challenges in surpassing Meituan:
- Users tend to leave after getting a discount and don’t make repeated purchases, reducing the authenticity of transactions. TikTok’s traffic strategy relies on cheap coupons, and many users don’t use the coupons they buy.
- Traffic is heavily concentrated on top brands, leaving small businesses struggling. TikTok’s algorithm favors large brands, which can afford to invest in live broadcasts and influencers, leaving small businesses with limited access to traffic. In contrast, Meituan’s ecosystem relies on small businesses, which form the foundation of the local services industry. TikTok’s ecosystem is less stable than Meituan’s.