How e-commerce and livestreaming became frenemies

Baidu’s billionaire founder Robin Li. “Home appliance queen” Dong Mingzhu, of electronics maker Gree. Luo Yonghao, the indebted online celebrity founder of smartphone maker Smartisan. China’s livestreaming industry has welcomed a flurry of high-profile figures over the past few months.

Livestreaming is really, really big. From its low-budget, grassroots origins, it has become a mainstream habit and an essential part of marketing in post-Covid-19 China.

Livestreaming is closely intertwined with e-commerce, short videos, and gaming. China’s livestreaming-derived market grew to RMB 61 billion (about $8.6 billion) in 2019, and is projected by research firm Equalocean to achieve a 12% compound annual growth rate to reach RMB 100 billion by 2023.

“As e-commerce and content blend together, shopping and video platforms have become frenemies”

Among various segments under the umbrella concept, livestreaming e-commerce has emerged as a key monetization model for players in the field—and a key marketing tool for businesses trying to reach China’s digital audiences. China’s livestreaming e-commerce market is expected to reach RMB 23.6 billion, on a 520 million live-show app user scale in 2020, the Equalocean report says.

Spokesperson or salesperson?

The most famous streams are hosted by celebrity KOLs, who build up loyal audiences with QVC-style online shows. The most famous, like “lipstick king” Li Jiaqi, are household names and fodder for memes far beyond e-commerce platforms.

But thousands of humbler streamers act as virtual salespeople, explaining products to potential customers. Lu Lu, who runs a virtual vegetable shop on Taobao Live, is a good example. When an order comes in, the stream (requires app download) shows her weighing out produce and preparing it for shipment.

Many e-commerce livestreamers come across more like a virtual salesperson than celebrity endorser, patiently explaining products on camera and fielding questions from live viewers. While browsing the product page for, say, an electronic toy or a brand of face cream, shoppers will often see a link to either a livestream or a recorded stream in which one of these streamers demonstrates the product.

Turbocharged growth comes with some serious growth pains, and the industry may have to contend with more regulation soon. Users have complained about false advertising, vulgar content, and misleading exaggerations. Currently, rules on false advertising are not applied to KOLs’ “product reviews,” but this loophole could be closed.

The Covid boom

Covid-19 was an unexpected boon for livestreaming e-commerce in China. Many brands and retailers have turned to livestreaming to help reduce the impact and losses from the epidemic. It has prompted businesses closely tied to offline showrooms to try online events—even electric carmakers Nio and Tesla.

According to China’s Ministry of Commerce, more than 4 million e-commerce live broadcasts were hosted in the first quarter of 2020, the key period when China was under countrywide lockdown due to the outbreak.

Compared to entertainment livestreaming, livestreaming e-commerce has a better chance of turning windfall users into recurring users by building up new marketing options for brands and an enriched shopping experience for consumers.

Read more: INSIGHTS | Brands turn to livestreaming as China stays home

The livestreaming players

Pretty much every company with a stake in either e-commerce or livestreaming has tried to combine the two. E-commerce platforms, like Alibaba, Pinduoduo, and JD, as well as short-video platforms such as Douyin and Kuaishou have all jumped on the bandwagon.

With a significant head start and a massive user base, Taobao is the elephant in the room, the one everyone else is responding to with varying success. In an increasingly crowded field, the challenge now for each of these platforms is how to differentiate itself from its peers and stand out by targeting different groups of buyers and brands.

It’s hard to compare exactly how the players stack up—as data on this phenomenon is still limited—but here’s a rough guide:

Taobao Live

• As one of the earliest pioneers of the “livestream + e-commerce” model, Alibaba’s Taobao Live is the clear heavyweight champion, with estimated 2019 GMV between RMB 200 billion and 250 billion.
• It’s one of the largest livestreaming platforms, whether in terms of the merchant size, user base, or sales achieved. 
• The platform accounted for nearly 60% of e-commerce streaming transactions in 2019. 
• It generated sales of RMB 20 billion during Alibaba’s November 11 Singles’ Day 2019 shopping holiday, or 7.5% of the total RMB 268.4 billion sales.
• Taobao Live is available both as an in-app feature on its parent marketplace Taobao, and as a standalone app.
• Just like Taobao, Taobao Live’s most popular product categories are women’s garments, skincare, food, and jewelry. 
• The platform is introducing big-ticket items such as cars and real estate, as well as consumer electronics.
• These popular categories reflect the fact that the platform is dominated by women and younger users. 
• Nearly 70% of Taobao Live’s audience are women, while most of the consumers belong to the post-’80s and post-’90s generation, says a Taobao report (in Chinese).
• Sales on the platform are driven heavily by top-tier KOLs, like Viya and “lipstick king” Li Jiaqi, who have highly sophisticated MCNs (multi-channel networks) behind them. 
• These professional content production agencies, now numbering more than 6,500, are a major force driving China’s livestream boom.
• An overall 20% (around 140) top MCN institutions on the platform contributed almost 75% of Taobao Live’s traffic and 80% of its GMV, according to the 2020 White Paper on Taobao Vendors.
• However, Taobao’s dependence on professional MCNs is highly costly to vendors. 
• Everbright estimates that marketing costs on Taobao Live eat up about 20% of GMV, with 70% of the spend going to MCNs, while Alibaba marketing platforms Alimama and Taobao Live take 10% and 20% respectively.

Social media: The most serious challengers to Taobao Live come not from e-commerce, but rather livestreaming. As livestream e-commerce matures, social media players Kuaishou and Douyin have made plays that leverage their traffic and KOL resources. 

These forays began as partnerships with e-commerce platforms to pilot livestreaming e-commerce features, but the companies gradually built up their own e-commerce capacities and ended the partnerships as trials developed into full-fledged services that keep users in the app when they buy.

Kuaishou

• Kuaishou launched livestreaming in 2017 to a relatively gender-balanced user base with a typical user in a third- or fourth-tier city..
• Kuaishou reportedly achieved an estimated GMV of about RMB 35 billion in 2019, and aims to multiply that to RMB 250 billion in 2020.
• Livestream e-commerce accounted for 19% of Kuaishou’s RMB 55 billion revenue in 2019, although 60% of the revenue still came from virtual gifts associated with traditional entertainment livestreaming. 
• These figures reflect the platform’s KOL-centered online culture, where users address each other as laotie (“old chap”), a colloquial term used in northeast China to refer to unbreakable brotherhood.
• Thanks to strong connections with users, Kuaishou’s e-commerce conversion is five to ten times higher compared to its peer Douyin, according to a report by Frees Fund. 
• But the products are mainly low-margin and low-price, with sales under RMB 50 accounting for 63.3% of total sales, compared with Douyin’s 41.5%.
• The most popular categories are personal care, cosmetics, clothing, local specialty foods, and alcohol.

“Power seems to be shifting toward video platforms”

Douyin

• Douyin did not emphasize livestreaming until 2019. Since then, the business has grown very quickly by encouraging KOLs to transfer their accumulated fans from short-video to livestreaming and online consumption.
• Douyin predicts RMB 200 billion in GMV on the platform in 2020.
• Unlike Kuaishou, Douyin relies on short-video quality and attractive products to make sales, rather than relationships between fans and content providers.
• Douyin users are largely concentrated in higher-tier cities, with purchasing power that results in larger ticket orders.

Read more: Why Kuaishou beats Douyin for e-commerce

Other e-commerce players: Taobao’s e-commerce peers are stuck in the lightweight division for livestreaming, with substantially smaller user bases and sales than Taobao and the video platforms, handicapped by business models that emphasize value for money over fashion-driven impulse buys. Nonetheless, Pinduoduo and JD have built real, if smaller, user bases around livestreaming.

Duoduo Live:

• As a marketplace, Pinduoduo has enjoyed robust growth since its establishment with a unique model that encourages users to get together with friends to buy in bulk.
• But livestream e-commerce didn’t win attention from Pinduoduo until recently, when growth slowed down.
• The Shanghai-based firm officially rolled out Duoduo Live as an add-on within the app in January 2019—after testing the livestream feature the previous November—making it a relative latecomer to the field.
• Over 1 million, or 20-30% of Pinduoduo’s 5.1 million active merchants have opened livestream sessions, according to data from the company.
• Users aged between 20 to 35 years old contribute the most to GMV.
• Pinduoduo’s approach to livestreaming is drastically different from Alibaba’s. With its distinctive consumer-to-manufacturer model, it has leaned heavily on the virtual salesperson model. 
• Duoduo live audiences likely have a potential buy in mind before loading a stream (e.g. drawn in by a discount or social referral), and will use the stream to gain more information before making a decision.
• Duoduo Live’s livestream sessions are centered around products, meaning they’re cheaper for merchants than Taobao Live’s slicker MNC-driven streams. 
• The anchors, often amateur KOLs, are mostly people with a stake in the product—CEOs of manufacturers, government officials for promoting agriculture products from their towns, or even the sellers themselves. 

JD Live

• Livestreaming is a poor fit for JD’s brand, which is built on keeping things simple for users. 
• JD Live is still playing catch-up to Taobao Live, following a similar high-production value approach. Many streams use an “expert + celebrity + host” format, which combines rich content with expert knowledge and a link to purchase. 
• It also serves as a medium to educate users and build brand awareness. 
• Like Taobao, this model means high costs for merchants.
• JD Live has partnered with both Douyin and Kuaishou to leverage their traffic and KOL network, in addition to building up super KOL celebrities to promote premium products. 
• On Wednesday, JD announced a new deal with Kuaishou which will allow Kuaishou viewers to make purchases from JD without changing the app.
• Like Taobao Live, JD Live is also diversifying product categories from consumer electronics, beauty, and food to big-ticket items like real estate. 

Who owns livestreaming eyeballs?

As e-commerce and content blend together, shopping and video platforms are becoming frenemies. On the one hand, they rely on each other: Video apps boast traffic and content, while e-commerce sites have brands and supply chains. On the other hand, they are competing to be the central platform for the new model.

Alibaba has the best of both worlds, with its Taobao Live emerging as a major content platform in its own right.

But the rival e-commerce sites do not have the same traction with in-house content, creating a dilemma. For JD and Pinduoduo, integrating with video apps means handing over some of their crown jewels—control of advertising, product search, and customer data. It’s no wonder that these partnerships can fall apart.

Power seems to be shifting toward video platforms. In the previous partnership model, video apps usually directed users to e-commerce apps such as Taobao and JD to finalize the purchase.  

However, as a new deal between Kuaishou and JD allows users to purchase JD products without leaving the app, JD is giving up its users’ eyeballs to drive sales.