ByteDance has made a dramatic strategic pivot, channeling profits from its core operations to fund an increasingly aggressive push into artificial intelligence.

While the AI wave continues to grip public attention, Douyin Life Services is rapidly reshaping the offline dining landscape at a pace far exceeding industry expectations. Sources indicate that in 2026, Douyin's fast food and snack category transaction volume surged 114% year-over-year, with merchant registrations climbing 155%, marking an explosive growth in both consumer demand and merchant supply. Huang Wenjie, head of KA fast food at Douyin Life Services, revealed that platform search GMV has grown 55% year-over-year since the start of 2026. Meanwhile, two significant consumer shifts have emerged: dining scenarios are moving from solo meals to light social gatherings of 2-4 people, which now account for 43.8% of GMV, and consumption periods are extending into early mornings and afternoons, with weekday order users soaring 847% year-over-year. Active store counts for categories like fast food and braised meats grew by over 200,000 outlets month-over-month.

Brand-side growth offers even more compelling evidence: Ziyan Baijiwei saw its Douyin payment GMV and verified GMV both double in the first half of the year, with short video exposure nearing 400 million views, a 140% sequential increase. Yuanji Dumpling achieved a group-buying new customer rate of 80%, with both transaction volume and verified sales growing over 110% year-over-year in the past six months.

However, amid this surging local services business, ByteDance has adopted a wartime posture where the core business generates profits while AI consumes them.

Has the Local Battlefield Shifted?

The local life services market is no longer dominated by Meituan alone. Industry discussions reveal that while Meituan still leads the food delivery market, its share has fallen from a peak of over 70% to roughly 50%. Nomura research shows Meituan holds 52% of delivery market share, with Taobao Flash closely trailing at 42%, transforming the industry from a 70-20-10 structure to a new 50-40-10 duopoly landscape. What truly stings Meituan is Douyin's relentless encroachment on its in-store business.

Transaction volumes vividly illustrate Douyin's aggressive advance: in 2025, Douyin's in-store payment GTV (total transaction value, pre-verification) reached 800 billion yuan, surpassed 600 billion yuan in the first half of 2026, and is projected to hit 1.2 trillion yuan for the full year. Nomura estimates Meituan's 2025 in-store GTV at 1.18 trillion yuan; assuming 10% annual growth, Meituan's 2026 in-store GTV would reach approximately 1.3 trillion yuan. This means that on a pre-verification basis, Douyin has essentially caught up with Meituan, placing them on equal footing for the first time.

Even accounting for verification rates, the gap is narrowing rapidly. With an estimated 1.2 trillion yuan annual GTV and a verification rate near 60%, Douyin's post-verification transaction volume would be around 600 billion yuan; Meituan, at an 80% verification rate, would exceed 900 billion yuan. In just two years, Douyin has shrunk the post-verification gap to the 30% range. This scale chase has directly ended Meituan's era of excess profits. Before 2024, Meituan's in-store and hotel-travel business profit margins exceeded 40%, maintaining levels around 35% even after declines; but by Q2 2026, Nomura predicts this margin has fallen to approximately 25%. This largely stems from Douyin's expanding scale, which has punctured the excess profit pool Meituan maintained for years, sending the industry back to average profit levels.

Douyin Life Services now covers virtually every lifestyle scenario—dining, hotels, leisure, beauty and fitness, medical aesthetics, and gas stations—elevating itself from a peripheral supplementary channel to a core merchant operating platform. Its ability to break into the market rests on two pillars: Douyin's inherent traffic dividend and the gradual maturation of its operations and merchant ecosystem. By the end of 2025, Douyin Life Services had built a complete business structure, dividing the country into directly-operated cities and radiated cities, with the former run jointly by platform teams and service providers and the latter relying on local partners. Douyin currently has approximately 2,700 service providers covering nearly 500 cities, contributing about 40% of POI registrations and boosting platform GTV by 146% compared to areas without such providers.

These service providers have become crucial to Douyin's offline expansion. During the 2026 Spring Festival, it was the service providers' focus on in-store dining, hotels, and leisure scenarios that drove simultaneous growth across multiple categories. Meanwhile, merchant marketing budgets continue shifting to Douyin. Third-party data shows that in 2025, high-tier city brand merchants allocated over 50% of their Douyin marketing budgets, with mid-to-low-tier brands exceeding 30%. Increasingly, dining merchants are pivoting their operational focus from review management and ranking ads on Dianping to content creation and livestream commerce on Douyin. As one food service provider summarized: "Douyin livestreams have lower average order values and conversion rates; their core value is multi-scenario exposure and new customer acquisition. It's the primary marketing channel, mainly used for new store openings and holiday promotions. Meituan has higher repeat purchase rates and suits existing customers better; it's the foundation for daily operations."

This differentiated positioning means Douyin has secured an irreplaceable place in merchant minds, no longer merely a latecomer competing on price. The inflection point arrived in 2026. In 2025, chasing ambitious GMV targets, Douyin Life Services reverted to a crude path of trading losses for growth and traffic for numbers: launching BigDay marketing campaigns, sharply increasing subsidies, and triggering price wars in core cities. Under heavy subsidy support, December 2025 saw Douyin Life Services achieve nearly 100 billion yuan in monthly payment GMV, exceeding August peak-season levels—at the cost of deferring profitability expectations.

In early 2026, following a shift in group strategy, Douyin Life Services proactively slammed the brakes on scale expansion, pivoting toward efficiency and profit growth. The clearest signals were commission hikes and subsidy cuts: Douyin's restaurant commission rate, previously just 2.5% and far below Meituan's, has now been raised to roughly match Meituan. In hindsight, subsidy reduction was inevitable—subsidy-driven GMV celebrations would trap the entire ecosystem in a vicious cycle of "more growth, more losses." For the platform, heavy subsidies continually erode already thin margins; the larger the business, the greater the loss pressure. For merchants, Douyin-driven GMV growth comes with declining personnel efficiency and compressed profits, with most earning traffic but not profit. For service providers, GMV growth masks declining operational efficiency, with subsidies concentrating among top providers and squeezing out smaller players.

After the strategic pivot, growth quality actually improved. Douyin Life Services saw first-half 2026 transaction volume grow over 50% year-over-year, exceeding targets, and raised its annual GMV goal mid-year. Concurrently, non-core businesses began contracting. The group-buying app Doushengsheng, launched in early 2026 and once seen as a key move to expand Douyin's downward reach, saw the platform cease traffic support just months after launch, leaving its active user growth nearly stagnant. Combined with reduced subsidies and higher commission rates, it entered a "self-funding" state before ever gaining momentum. These actions represent a cautious retreat toward profitability. According to Nomura, Douyin Life Services is expected to reach operational breakeven in Q3 2026, achieving monthly profits of 200-300 million yuan in Q4—a complete shift from scale-first to profit-first within a single year.

In other words, Douyin Life Services is now earning more tangible profits with fewer resources.

All-In on AI, Mature Businesses Provide the Lifeblood

Just as Douyin Life Services approaches profitability, AI has become ByteDance's absolute priority, prompting a dramatic strategic shift where mature businesses like e-commerce and local services are now paving the way for AI. Reports indicate ByteDance is considering raising 2026 capital expenditures to as much as 70 billion USD (approximately 470 billion yuan)—more than double its 2025 spending. This figure exceeds the annual net profits or even revenues of most internet companies, effectively meaning AI is consuming the profits of ByteDance's core businesses.

Why has the model race become so capital-intensive? With capital expenditures rising and AI investments expanding, other businesses must demonstrate stronger self-sustaining capabilities. Inside ByteDance, business priorities have clearly shifted to token-based businesses centered on AI large models; all non-AI businesses have moved from expansion mode to "accounting mode," demanding investment returns, breakeven points, and cash flow. Traffic allocation bias is already visible. With the rise of short dramas and AIGC content, QuestMobile data shows short drama users have exceeded 850 million (deduplicated), with average monthly viewing time growing from 13 hours in January 2025 to nearly 27 hours by May 2026—close to an hour daily. ByteDance's Hongguo short drama app has surpassed 356 million monthly active users, up 79% year-over-year, becoming the second-largest e-commerce carrier outside the main Douyin app. Another third-party report shows that in July 2026, Douyin's per-user monthly usage time surpassed WeChat for the first time, becoming the top app in China. Compared to July last year, ByteDance's usage share rose from 33.6% to 40.9% in July this year, exceeding Tencent's 29.1% share (including WeChat, Sogou, Honor of Kings, Tencent Video, and Tencent Music).

Behind this traffic shift, ByteDance is strategically contracting its e-commerce and local services operations: reducing subsidies, controlling costs, and even lowering information-feed loading rates for e-commerce and life services. The contraction is most evident in e-commerce. In the first half of 2026, Douyin e-commerce payment GMV reached approximately 2.4 trillion yuan, growing only 300 billion from 2.1 trillion in the same period last year; Q2 payment GMV was about 1.24 trillion yuan, with year-over-year growth slowing to low double digits. ByteDance has reportedly lowered its annual e-commerce advertising revenue and GMV expectations. Previously, underperforming core businesses would have triggered increased investment; this time, ByteDance has chosen proactive retreat. Local services follow the same pattern. Beyond the aforementioned commission hikes, subsidy cuts, and target increases, the most telling signal is stagnating advertising revenue, primarily due to unstable ROI on transaction-side ad conversions, directly weakening merchants' willingness to invest in traffic.

From e-commerce to local services, ByteDance's non-AI businesses are no longer pursuing aggressive scale growth but are instead being measured on profit and cash flow. The group-level strategic direction is now unmistakable: All-in on AI with growing intensity, while mature businesses are reduced to "blood bags" for the AI machine. This strategic choice has its logic: AI represents the commanding height of the next-generation internet, and securing it means controlling future traffic entry points and commercialization initiative. But the question remains: is it wise to channel proven, rapidly growing cash-flow businesses into subsidizing AI's ongoing burn?

First, there's an ROI mismatch. AI has driven real user-time growth for short dramas and comics, but time doesn't equal revenue. Take Hongguo short dramas: despite surpassing 350 million monthly actives, its e-commerce GMV remains limited. Nomura estimates Hongguo's e-commerce GMV at around 15 billion yuan in the first half of 2026, only reaching tens of billions annually. Compare that to Douyin Life Services, with over 600 billion yuan in first-half payment GMV and a projected 1.2 trillion for the year, and e-commerce's 2.4 trillion scale. The same traffic allocated to e-commerce and local services yields far higher transaction conversion and ad revenue; allocated to short dramas, it mostly generates time growth with much lower monetization efficiency. More critically, local services have already validated profitability and are entering a profit-release phase, while AI remains in heavy investment with no confirmed timeline for scalable profitability.

Another cost of slowing local services investment is missing the industry reshuffling window. Meituan is currently in a multi-front battle: fighting Taobao Flash's subsidy war in delivery, defending against Douyin's onslaught in in-store, and competing with CTrip in hotel-travel. Meituan's Q2 2026 in-store and hotel-travel margins have fallen to around 25% and remain on a downward trajectory—its defenses have never been more vulnerable. If ByteDance continued increasing investment and maintaining subsidy intensity, it could fully capitalize on expanding market share and rewriting the local services industry structure. Instead, ByteDance has chosen contraction and reduced subsidies, effectively giving Meituan breathing room. Following this logic, local services' value to ByteDance is understated—it's not just about GMV and profit, but represents ByteDance's crucial extension from online to offline and the commercialization of its traffic.

Inherent Shortcomings That Can't Be Avoided

Beyond strategic trade-offs, Douyin Life Services faces two inherent shortcomings. The first is low verification and repeat purchase rates. Douyin employs a promotional logic of low-price traffic attraction: merchants exchange ultra-cheap group-buying packages for traffic exposure, drawing primarily price-sensitive users. This results in low verification and repurchase rates for group-buying orders, as payment GMV is merely an estimate of user orders rather than actual transaction value where merchants complete services and the platform realizes value. A large portion of unverified orders ultimately becomes digital froth. In contrast, Meituan uses a post-verification service logic: a consume-first, discount-later model covering all dining categories, focused on helping merchants with daily operations, serving existing customers, and boosting repurchase rates. Users come with clear purchase intent, yielding far higher repurchase and verification rates than Douyin. Comparing horizontally, a near-60% verification rate means for every 100 yuan of GMV, 40 yuan fails to complete fulfillment, denying merchants that actual revenue. Improving verification and repurchase rates is a long-term project requiring sustained investment across product mechanisms, traffic allocation, and merchant guidance to cultivate user habits and merchant practices.

The second shortcoming is that the traffic distribution mechanism inherently favors top players, creating a head-heavy merchant ecosystem. Centralized traffic distribution rules naturally concentrate traffic toward the top 20% of chain brand merchants. Small and medium merchants on Douyin struggle to afford fixed costs like influencer store visits and livestream operations; even hoping for algorithmic selection, most end up as ecosystem fodder. Meituan's merchant ecosystem is entirely different: mid-to-low-tier merchants account for over 90% of transaction volume, with platform rules better suited to small merchants' daily operations, enabling balanced development across all merchant levels. After all, a healthy local ecosystem cannot rely solely on top brands; it needs a vast base of small and medium merchants as capillaries to sustain supply diversity.

In summary, from a strategic priority standpoint, going all-in on AI is a bet ByteDance must make—aggressive investment has its rationality and necessity. Yet Douyin Life Services has grown from zero to a trillion-yuan scale in under six years, reshaping the entire local services industry landscape. More importantly, it has proven that ByteDance's foundational logic of traffic plus algorithms plus commercialization remains viable in offline scenarios.