China-based lifestyle platform Xiaohongshu is accelerating its push into artificial intelligence as it works to protect its core strength—authentic user-generated experiences—amid rapid advances in generative technology. The company, which recorded 300 million monthly active users and $3.7 billion in revenue in 2023, now handles nearly 600 million daily search queries.
Ai push intensifies as search demand surges
The company introduced its AI tool suite, RED Skill, on June 8, enabling creators to embed interactive elements into posts. Earlier this year, it formed a dedicated AI division, Dots, reporting directly to President Conan. The move followed its acquisition of AI search startup Diandian and a payment license, steps aimed at building a complete transaction ecosystem.
At the core of this transition is a growing concern: generative AI tools can replicate or absorb Xiaohongshu’s vast archive of user experiences. In response, the company is developing proprietary systems including its local model Digua, image generator Trik, and dialogue product Da Vinci.
From search to personalized recommendations
Dots now plays a central role in integrating these tools. Its open-source framework REDSearcher and image tool FireRed are designed to process posts, videos, and comments into tailored recommendations. This marks a shift away from traditional search toward AI-driven, personalized assistance.
The strategy is gaining traction among developers. More than 300,000 users began building AI-based tools after the RED Skill launch, with some attracting thousands of installations within days. Earlier developer competitions drew over 1,300 projects, while hackathons saw participation from increasingly younger creators.
Expanding ecosystem through investment and payments
The company has also reshaped its investment strategy to support AI infrastructure. In late 2024, former trader Dai Lidan was appointed to lead strategic investments, directing capital toward firms such as MiniMax, Moonshot AI, and robotics startups including CloudVision Tech and Skyris. It also joined a venture fund managed by GSR Ventures to strengthen ties with emerging technologies.
Its acquisition of a payment license in November 2025 further integrated product discovery with transactions. Using its AIPS audience model, the platform maps detailed purchasing cycles, such as 29 days for skincare products and over 70 days for baby nutrition items.
This data is used to identify hesitation points in purchasing decisions, allowing AI systems to place marketing content directly within search results and recommendations rather than relying on traditional advertising formats.
Balancing AI growth with content authenticity
As China introduced new content regulations in 2026, Xiaohongshu began labeling AI-generated posts and suspended accounts that rely entirely on automated publishing. It also banned synthetic voices and fabricated experiences. Management has stated that AI should enhance, not replace, human contributions.
Chairman Mao Wenchao has emphasized internally that the company’s long-term value depends on preserving credible, human-derived content even as AI systems handle increasing volumes of queries.
Ipo plans and valuation outlook
Reports indicate the company plans to file for a confidential initial public offering in Hong Kong by the end of June, targeting a valuation of $31 billion and projecting $3 billion in profit for 2025.
This potential listing comes as the global generative AI market is expected to exceed $83 billion this year. Analysts say Xiaohongshu’s valuation is increasingly tied not just to its user base, but to the proprietary data generated by hundreds of millions of daily searches.
Data-driven moat reshapes market view
The company’s strategy reflects a broader shift in China’s consumer internet sector—from sharing personal experiences to structuring them through AI-driven systems. Its closed-loop model combines content, search, recommendations, and payments, limiting data leakage while improving algorithmic accuracy.
Market participants are closely watching this approach, viewing it as a model for building durable advantages in a fast-evolving technology landscape. The focus is moving beyond user growth toward platforms that can convert behavioral data into predictable commercial outcomes within regulated environments.
As Xiaohongshu moves toward a potential public debut, its ability to merge authentic content with AI-driven commerce may determine whether it can sustain growth in an increasingly competitive and regulated market.
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