Is the e-commerce livestream hitting its ceiling?

Wu Xiaobo is a famous finance and company-focused writer, with a brand built on bestselling books and an annual year-end show in which he shares insights into the business world. So of course, he figured he could sell milk powder on an e-commerce livestream. Spoiler alert: he was wrong.

Livestream e-commerce shows have reached dizzying sales figures, with celebrity salespeople like star influencer Viya regularly selling RMB 72 million ($10.3 million) in a three-hour show. 

Other business figures have tried their hands as celebrity spokespeople. Dong Mingzhu, chairwoman of home appliance manufacturer Gree Electric, sold RMB 310 million worth of goods in a three-hour live stream in May. As Wu has said, “You are not living the year 2020 if you have never watched or hosted a livestream session” (our translation).

Wu’s June 29 debut on Taobao Live, the Alibaba-owned platform that accounts for nearly 60% of the market by transactions, was much anticipated. Themed on promoting “new national products” from Chinese domestic brands, the stream was advertised on billboards at train stations and airports, while Taobao Live promised to do everything it could to push users to view. Wu himself spent over a month preparing. 

34 brands paid up to RMB 600,000 for a spot on the five-hour show, with the cheapest “flash sale” slots going for RMB 300,000. While exact figures were not announced, if each of the 34 merchants paid the lowest price Wu would have earned RMB 10 million for the show.

It was a commercial flop. Even though 8.3 million people tuned in to watch Wu pitch products like milk powder, snacks, and bedsheets, they bought only RMB 22 million worth of featured goods. One brand representative told local media that it paid the full RMB 600,000, and earned less than RMB 50,000 during the event, far short of the company’s sales target of RMB 1 million to RMB 1.5 million. Yashily, one of the brands that paid to be featured, sold only 15 tins of milk powder.

Silly season for livestream e-commerce

Livestream e-commerce has reached the silly stage—and may be finding the ceiling for its meteoric growth. For the past three years, the format has appeared unstoppable. The market size is expected to more than double to RMB 961 billion in 2020 from RMB 434 billion in 2019. Brands, and influencers, have scrambled to get a seat on the rocket ship, trusting that anyone with a big audience can deliver big sales.

E-commerce and live-streaming platforms are clamoring for star power. Alibaba’s Taobao Live invited more than 300 celebrity performers to take part in its livestream campaign during June’s 618 shopping festival for what was billed as the largest celebrity broadcast in history.

Turns out, there is a limit to Chinese consumers’ desire to buy products endorsed on a celebrity stream. Despite gravity-defying sales figures, the basic principles of marketing still apply to livestreaming e-commerce. 

Most importantly, the person pushing your product should have some connection to it. Wu wrote in a self-critical post on microblogging platform Weibo on July 10 that he and his sponsors made a crucial mistake: They assumed his business-oriented audience would be interested in buying a random assortment of household goods, like snacks, bedsheets, toilets, chairs, and laundry detergent.

While Wu’s flop is the highest-profile streaming disaster, there have been others. Singer and performer Ye Yiqian sold only 10 Chinese tea sets after including them in a livestream session focused on beauty products. The stream had attracted nearly 900,000 viewers.

Next lesson: A big fan base doesn’t automatically equal trust, the currency that drives online purchases. Unlike more popular livestreamers like top-ranked Taobao Live KOL Viya, who tries out products and introduces them based on her own experience, Wu relied on co-hosts to do the talking while he mostly played the “listener” role.

Expensive lessons for merchants

Brands pay celebrities big money to promote their products. 

Live commerce sellers take a commission fee or a flat fee, more commonly known as “appearance fee,” or both, for promoting a certain product. Compensation is based on various factors, including a livestreamer’s popularity and a brand’s recognition.

Under the commission model, livestreamers need to deliver results since their earnings are directly tied to sales. However, livestreamers paid an appearance fee are compensated to promote the brand, regardless of how much gets sold.

During last year’s Singles’ Day shopping festival, “Lipstick King” Li Jiaqi charged an appearance fee of RMB 60,000, plus a 20% commission. For skincare products, that rate could be as high as RMB 150,000. Meanwhile, anchorwoman Li Xiang got paid RMB 800,000 for a five-minute promotion of a high-end down jacket to an audience of 16.2 million people. She didn’t sell a single garment. 

The exorbitant price tag of these promotions, along with potentially disappointing sales, could force brands to consider switching to other distribution channels. 

Fake data

In China, it’s no secret that marketers have turned to inflating sales figures to spur buzz. The stark difference between livestream audiences and orders has led to questions over purchased livestream views and potentially fake sales data.

The most common practice in boosting live commerce sales figures, like other forms of e-commerce, is “order brushing.” The practice involves sellers ordering their own products or getting others to order on their behalf. Such orders are often canceled later, resulting in higher order cancellation rates than the norm for livestreams on e-commerce platforms. 

A source from a multi-channel network agency told local media this month that the average order cancellation rate is around 20%. Industry watchers have become highly suspicious of order brushing on livestreams across platforms, since some see cancellation rates up to 35%, the source said, without mentioning specific companies. One such case involves celebrity comedian Xiaoshenyang, who sold 20 lots of baijiu, a sorghum-based white spirit, during his livestream session, of which 16 were canceled the next day.

Another trick involves calculating sales based on full price products without accounting for significant discounts. 

Finance writer Wu revealed in his letter that there was more than a RMB 28 million difference between the two figures for his livestream. The GMV for items at the full price was more than RMB 50 million, while the actual total paid price amounted to RMB 22 million GMV.

Is the rocket running out of fuel?

With live-stream e-commerce seeing a big upswing since the beginning of last year, shady practices have brought the attention of Chinese regulators. The China Advertising Association this month (CAA) issued a set of rules to restrict false and misleading advertising on livestreams. The notice also forbids livestreamers from order brushing and bans faking transaction metrics.

The hype around livestreamed e-commerce is threatening its sustainability, especially as regulators set their sights on the sector. Optimism is still rife, as the industry has grown so fast. But the sector may have hit its limit. 

Wu’s big flop shows that you can’t sell anything with a livestream. It’s time for brands and merchants to start figuring out what products livestreams work for—and how much it’s really worth paying for them.