Douyin's local services division is entering a new phase — one defined less by breakneck expansion and more by operational depth. After recording gross merchandise value (GMV) exceeding RMB 850 billion yuan (approximately US$117 billion) in 2025, the platform is setting a more modest growth target of around 50% for 2026, down from last year's 59% increase, signaling a deliberate pivot from volume-at-all-costs to sustainable ecosystem building.

The recalibration comes as Douyin local services — operated under ByteDance — acknowledges that its aggressive subsidy-driven model has delivered top-line growth while compressing margins across its merchant and service-provider ecosystem. Sources familiar with the business told Leifeng.com that while GMV surged, revenues and operating profitability for many downstream partners failed to keep pace, and in some cases declined.

The strategic deceleration does not signal retreat. Douyin's local services unit is still widening the gap with Meituan in targeted city markets, launching a standalone group-buying app, and expanding into new verticals. But internal communications now explicitly instruct field teams to "slow down" and take a longer view — a notable tonal shift for a unit that previously operated on monthly performance cycles and disbanded underperforming teams within six months.

Record GMV, But Profitability Remains Elusive

Douyin local services closed 2025 with full-year payment GMV exceeding RMB 850 billion yuan (US$117 billion), representing a 59% year-on-year increase — just shy of its internal 60% target and broadly in line with expectations. The trajectory reflects rapid scaling: the division posted RMB 300 billion in GMV in 2023, followed by 81% growth in 2024, before moderating slightly last year.

December alone contributed close to RMB 100 billion in payment GMV, surpassing even the peak summer month of August. The surge was driven by an intensified end-of-year push, including three dedicated "Bigday" live-streaming campaign days in directly managed cities and continuous promotional activity for service providers from December 19 through December 31. Platforms offered cash bonuses — a departure from the usual voucher-based incentives — for live streams exceeding RMB 100,000 in GMV.

Despite these headline numbers, the underlying economics remain under pressure. Sources indicate that Douyin had initially been on track to reach profitability in its local services division in 2025, but chose instead to accelerate subsidy deployment when competitive conditions shifted in the second half of the year. In some cases, rebates to merchants exceeded the commissions collected — meaning Douyin was effectively paying to generate transactions.

The distinction between payment GMV and redemption GMV is critical. Douyin's redemption rate — the share of purchased vouchers actually used — stands at approximately 50%, compared with Meituan's 80% to 90%. When measured on a redemption basis, Douyin's effective transaction volume is roughly half its headline figure, underscoring a structural gap that the company has yet to close.

Subsidy Wars and the City-by-City Offensive

Douyin's competitive push against Meituan accelerated meaningfully in the second half of 2025, with the platform selecting a cohort of priority cities for targeted investment. In these "offensive cities," merchant subsidies were raised from a standard 4% to between 6% and 7.5%, with select top-tier merchants receiving up to 10% — roughly double Meituan's prevailing rate in comparable categories.

Jinan was among the first wave of designated offensive cities. Under the elevated subsidy regime, Douyin's redemption GMV in local restaurant group-buying surpassed Meituan's in that market during 2025 — a milestone that illustrates both the efficacy and the cost of the approach.

The "Bigday" format, introduced in August 2025, became the operational centerpiece of Douyin's GMV push. Modeled on the surge mechanics of e-commerce live streaming — accumulating demand, then releasing it in concentrated bursts — Bigday events aggregate premium merchants into single high-intensity broadcast sessions, with platform subsidies running at two to three times normal levels. The format continued into January 2026.

However, the model has structural limitations. Large branded merchants benefit disproportionately from the concentrated traffic, while smaller operators report weaker traffic on Bigday compared with ordinary days. Service providers with per-broadcast GMV below RMB 50,000 find it difficult to absorb the operational costs — equipment, staffing, advertising spend, and promotional materials — required to participate effectively. Some smaller service providers have accumulated subsidy credits in their back-end accounts that they cannot deploy without running additional promotional campaigns.

Shifting Gears: From Monthly Sprints to Quarterly Strategy

At its January 2026 kickoff meeting, Douyin local services' regional heads delivered an explicit message to field teams: prioritize year-on-year comparables, understand your merchant base more deeply, and extend your planning horizon. The phrase "slow down" was used directly.

The change is reflected in how service providers are now evaluated. Performance targets for third-party service providers have been shifted from monthly to quarterly assessments — aligning with the cadence already used for directly managed cities and mirroring Meituan's standard practice. The previous monthly cadence had been notably aggressive; teams that failed to gain traction within six months risked being dissolved entirely.

For 2026, Douyin local services has set a GMV growth target of approximately 50%. On a payment GMV basis, this would bring Douyin meaningfully closer to Meituan's scale. Meituan exceeded RMB 1 trillion in full-year GMV in 2025, having set a target of RMB 1.2 trillion at the start of the year — a goal it fell short of amid disruption from the broader food delivery price war.

Douyin's growth strategy for 2026 centers on two pillars: deepening penetration with existing merchants, and expanding into underpenetrated verticals. The platform has identified a pathway of converting smaller key account (KA) merchants into larger national brands by facilitating franchise expansion. One example cited internally involved a merchant that added over 100 locations in six months and grew revenue more than tenfold after building brand equity on the Douyin platform.

New Verticals, New App — and the Medical Aesthetics Wildcard

Douyin's category expansion strategy reflects a deliberate effort to identify verticals where it can build a structural advantage rather than simply replicate Meituan's coverage. Petrol stations emerged as a breakout category in 2025, with some smaller service providers reporting quarterly GMV exceeding RMB 200 million and 50% year-on-year growth. Monthly redemption volumes above RMB 5 million qualify merchants for next-day settlement.

The medical aesthetics vertical represents a potentially significant near-term growth lever. Policy restrictions on medical aesthetics live streaming remained in place as of early 2026, but Douyin began permitting short-video content for some medical aesthetics merchants toward the end of 2025. Advertising spend in the category is already substantial — individual merchants reportedly investing RMB 600,000 to RMB 700,000 per month in platform advertising. A full reopening of live-streaming capabilities for the vertical could catalyze a new wave of GMV growth, though the pace of policy relaxation remains cautious.

On February 11, 2026, Douyin launched a dedicated group-buying application called "Dou Sheng Sheng" across major app stores and began promoting it internally. The move mirrors ByteDance's earlier strategy of creating a standalone storefront app — "Douyin Mall" — to capture incremental e-commerce volume. Whether the new app becomes a durable growth engine or a short-lived experiment remains to be seen.

Compared with Meituan's 25 first-level category entries in its group-buying interface, Douyin currently offers 19. Both platforms broadly cover each other's core categories, with differences emerging primarily in secondary and tertiary classifications. Meituan maintains an edge in medical aesthetics depth — with 26 subcategories versus Douyin's classification of the vertical as a secondary entry under "beauty and hair." Douyin, meanwhile, is investing in property search and shopping mall purchases as new first-level entries.

Internal Restructuring Reflects Efficiency Imperative

The operational recalibration at Douyin local services is unfolding against a broader strategic reset at ByteDance. At a company-wide meeting on January 29, 2026, ByteDance CEO Liang Rubo outlined the company's priorities for the year: sharper business focus, improved cross-unit integration, and higher efficiency — all framed in the context of prioritizing investment in artificial intelligence.

Within Douyin local services, the integration of commercial monetization functions into the business unit — a process that began in April 2025 when the local advertising platform's personnel were folded into the local services team — is still ongoing. From September 2025, business development staff began receiving advertising performance incentives in addition to their base compensation, with full bonuses available to those ranking in the top 30% of their city cohort.

The restructuring addresses a longstanding internal tension: the monetization team historically pushed for maximum advertising volume, while operations staff argued that excessive ad load degraded user experience. Integrating the two functions under a single reporting structure is designed to align these competing objectives.

Advertising revenue from local services reached over RMB 12 billion yuan in 2024. The target for 2025 was set between RMB 23 billion and RMB 28 billion, though heavy subsidy deployment in the second half of the year is expected to have weighed on the final figure. Restaurant advertising generates the most stable returns, with merchants reporting a roughly 1:7 return on ad spend — one yuan invested generating seven yuan in transaction value.

Regional leadership has also been reshuffled. Shanghai was carved out as an independent region — a move motivated by observations that the market has strong traffic but underpenetrated transaction volume. The broader organizational changes reflect a push to install operators with deep city-level execution experience: several of Douyin local services' key regional heads have been with ByteDance for six or more years and were forged during the company's earlier city-by-city competitive campaigns.

The Structural Challenge: Local Services Is Not E-Commerce

Underlying Douyin's recalibration is a fundamental tension that no amount of subsidy spending can fully resolve: local services operates on different economic physics than e-commerce.

The same unit of platform traffic that might generate thousands of e-commerce transactions is capped at a fraction of that in local services — geography constrains demand in ways that digital goods do not. ByteDance's core algorithm, designed to maximize reach with minimal human intervention, is inherently less suited to the radius-constrained nature of local service discovery, where relevance is bounded by a three-to-five kilometer catchment area. This geographic constraint introduces structural traffic inefficiency.

The advertising economics reflect the gap. A large restaurant chain running a major live-streaming event might generate over RMB 1 million in transaction volume while investing only RMB 30,000 to RMB 50,000 in advertising. An e-commerce merchant of equivalent scale might invest the same amount in a single evening and treat it as routine daily spend.

The "20-80 rule" remains firmly entrenched: roughly 20% of merchants generate 80% of platform GMV, and mid-tier and smaller merchants on monthly group-buying volumes below RMB 1,000 are increasingly common. For smaller service providers, growth is slower than the platform average and operating economics are deteriorating even as GMV expands.

The path to a genuinely healthy local services ecosystem — one where merchants, service providers, and the platform itself earn sustainable returns — requires more than GMV scale. It requires redemption rates, advertising ROI, and merchant economics to converge toward levels that justify continued investment without perpetual subsidy support. That transition, not the GMV race itself, is the defining challenge for Douyin local services in 2026 and beyond.