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The Dazzling World of China’s Livestream Commerce

stream, shop, and socialize all in a compulsively watchable livestream

TL;DR:

  • Livestream commerce is the fastest growing segment of China’s broader social commerce boom. Born in 2016 and breaking out in 2019, Livestream Commerce has a Gross merchandise value (“GMV”) that surpassed $55 billion in 2019 and is primed to reach $90 billion this year.
  • The livestream commerce value chain is composed of Influencers, Products and Platforms:
  1. Influencers are supported by an army of Multi-Channel Networks (“MCNs”);
  2. Livestream commerce has enabled a new Consumer-to-Manufacturer (C2M) model, reshaping how manufacturers adapt to consumer feedback;
  3. E-Commerce platforms and content platforms have become frenemies, fighting for livestream views and share of margin.
  • Livestream commerce’s competition intensifies. Mom-and-pop MCNs and influencers have a challenging year ahead.

If you are confused but somewhat intrigued…read on, all will be explained.

Table of Contents

Austin Li sold 15,000 lipsticks in under 5 minutes. All in a compulsively watchable livestream on mobile phones.

The livestream lasted for almost 6 hours: It was part QVC-style infomercials, part talk show, part chit-chats with a guest host. Nearly 60 types of sneakers, neck massagers, juicers, lipsticks and other products were introduced, demoed and sold. More than 20 million Chinese consumers turned to Austin for shopping inspiration.

The entire shopping experience is natively embedded in the livestream content: within a few clicks, consumers can select products, add to cart, check out and complete transactions without ever having to leave the livestream mobile app.

For consumers, livestream commerce is as much about interactive entertainment as about shopping: you can send questions and get them answered in real time, you can see funny comments from other viewers on the stream, you can send digital gifts to the host — all for 6 hours straight.

Annotated Livestream (source: Taobao; annotations: Calanthia)

All hail Austin Li: the King of China’s $55 billion livestream commerce ecosystem. During the 6/18 Shopping Extravaganza, Austin scored a record-breaking $30 million single-day sale. Austin was closely followed by Viya, China’s Livestream Queen, and Yonghao Luo, a GenX entrepreneur turned TikTok-influencer.

Source: 三言财经/San Yan Cai Jing; ¥1 = $0.14 as of July 21, 2020

China’s livestream commerce amazes those of us from outside looking in. Last year, a16z predicted that

In the future, we’re all going to be shopping on video apps like TikTok.

Meanwhile, across the Pacific, it’s already happening: China’s livestream commerce surpassed $55 billion in GMV in 2019 and is primed to reach $90 billion in GMV this year.

While livestream commerce consists of ~10% of China’s e-commerce GMV, it is arguably the fastest growing format in China’s broader social commerce boom. Accelerated by the COVID-19 pandemic and our new reality of “apart-but-together”, livestream commerce has begun to look like a vision of our collective future: where we stream, shop, and socialize all in real time, in a compulsively watchable livestream, on mobile phones.

Livestream commerce has transformed the channel, increased the speed and disrupted the cost of acquiring, engaging and converting customers. It is also reshaping the relationship between consumers and manufacturers, allowing for real-time C2M feedback.

How did China’s livestream commerce evolve into the mainstream? Who are the shoppers? What are some key components in the value chain? Where do we go from here? Here are the sneak peeks into the dazzling world of China’s livestream commerce.

A Brief History of China’s Livestream Commerce

$55 billion industry, 30 million single-day views, millionaire influencers Livestream commerce is a high-flying business. Yet its rise is far from an overnight success.

Source: MOGU Investor Relations

2016 is widely regarded as the year when Livestream met Commerce in China. Traditional e-commerce platforms started to dip their toes into livestreaming. Online fashion destination and social commerce platform Mushroom Street (NYSE: MOGU) was the first to market. It was quickly followed by China’s largest e-commerce platform, TaoBao, owned by the formidable Alibaba (NYSE: BABA). Electronics-store-turned-e-commerce giant JD.com (NASDAQ: JD) followed suit, launching livestreaming in 2016.

2018 was the year when TaoBao reached ~$15 billion in livestream sales, growing 400% year-over year. More than 600k SKUs were sold via livestreams. Seeing Taobao’s early success, content platforms entered the competition. TikTok productized commerce and launched a shopping cart. TikTok’s nemesis Kuaishou caught up quickly, launching in-app mini-stores.

Video game livestreaming platform Douyu enters livestream commerce

2019 was when livestream commerce broke out. Livestream became a table-stakes offering for any serious e-commerce contenders in China. Newly public group shopping site Pinduoduo (NASDAQ: PDD) launched their version in January 2020. Even the Chinese Twitch video game livestreaming DouYu (NASDAQ: DOYU) beta tested selling to its mostly young, male users.

Source: Forward Industry Research Institute

By the end of 2019, China’s livestream commerce had grown into a $55 billion ecosystem, with Taobao, Kuaishou and TikTok occupying 51%, 25% and 10% of the market share, respectively. In June 2020, WeChat started testing WeStore, a 1-click-enabled mini program for selling products via livestream. With over a billion monthly active users available through WeChat, WeStore might be on the verge of shaking up the livestream commerce landscape.

The ecosystem’s stellar growth trajectory was supported by several macro factors:

  • China’s mobile commerce penetration (an enviable 80% vs. a 59% global average)
  • Sophisticated mobile payments infrastructure (incl. micropayments, which enabled tipping as a business model)
  • World-class supply chain &. logistics

Stream, Shop, Repeat — Livestream Commerce Shopper Personas

We can’t talk about China’s livestream commerce boom without first understanding the state of mobile internet in China. With more than 800 million internet users, China is far ahead in embracing the internet as a way of living. Mobile internet, in particular, is nearly ubiquitous across income brackets. On average, Chinese users spend 144.8 hours on mobile internet monthly (or ~4.8 hours daily, +12.9% y-o-y), according to QuestMobile.

While it’s unsurprising that younger female users were the first adopters of livestream commerce, livestreaming connected influencers with consumers across a diverse set of geographies and income brackets.

Sources: Forward Industry Research Institute, AliResearch, QuestMobile

Location: Consumers from tier-2 cities make up nearly 50% of all users across major livestream platforms. Tier-3 and -4 cities and towns are catching up, contributing more than 20% of livestream commerce consumers. Interestingly, more than 1.4 million of livestream sessions were selling agricultural produce, covering farmers from 31 provinces and 2,000 cities and towns.

Age: Millennials are quick to adopt livestream commerce. Consumers born in the 80s and 90s represent over 80% of social commerce shoppers. Consumers born in the 00s are catching up, contributing 9% of the total consumer base.

Gender: With the exception of Kuaishou, females account for the majority of livestream platform user base. More nuanced personas — such as millennial moms and factory girls — emerged.

Livestream Commerce Value Chain: Influencers, Products and Platforms

Influencers

Let’s start with the shiny object — influencers. In the glorious realm of shopping, social influence mints money. The livestream queen Viya’s paycheck was estimated at ¥30 million (~$4 million) in 2018.

Viya has emerged as one of a few tier-1 livestream influencers. In fact, each major livestream platform has crowned their own top deal makers: Taobao’s Viya and Austin Li, Kuaishou’s Xinba, TikTok’s Luo Yonghao and Weibo’s Dayi, to name a few. These top-tier influencers command at least 10 million followers each and consequently have very high pricing power.

As seen on Taobao Live: Cosmetic brands pay up to ¥100K ($14K) to appear in Austin Li’s livestream

Austin, for example, has 280 million followers on Taobao. He easily quotes cosmetic brands ¥84,800-¥100,000 (~$12,000~$14,000) for a livestream mention, perhaps for good reasons: his most recent livestream on July 5 alone generated over 10.7 million views.

Below the tip of the pyramid are tens of thousands of other influencers. In this day and age, everyone can be a creator. However, not everyone can make a living out of being a creator.

The majority of professional influencers are managed by Multi-Channel Networks, or MCNs. A typical MCN wears multiple hats: talent management, audience development, content programming, data and product analytics, monetization and supply chain management, etc.. The first publicly-listed MCN Ruhnn (NASDAQ: RUHN) noted in its IPO prospectus that the company pioneered

a full-service model whereby we integrate key steps of the e-commerce value chain, from product design and sourcing and online store operation to logistics and after sales services.

MCNs are nothing new, but are growing like weeds as livestream commerce permeates the China websphere. ¥41.5 billion (~$6 billion) of venture capital has been poured into MCNs since 2016; few, however, have had successful exits.

Source: iimedia.cn

Platforms

China’s livestream commerce is like the Hunger Games for platforms.

First, there were the warring states: Between 2016 and 2019, seeing the early success of Taobao, many e-commerce (e.g. TaoBao) and content platforms (e.g. TikTok) rushed to get involved in livestream commerce.

Then came the three kingdoms: By the end of 2019, Taobao, Kuaishou and TikTok emerged as market leaders, occupying 51%, 25% and 10% of the $55 billion livestream ecosystem, respectively.

e-Comm and Content Platforms are frenemies

Categorically speaking, there are two types of platform players in China’s livestream commerce: e-Commerce platforms (e.g. Taobao) and Content platforms (e.g. TikTok). e-Commerce platforms boast commerce infrastructure as their core competency, while social media and content platforms are by design stronger in low-cost traffic consumer acquisition and conversion. Traditionally, they have different business models: e-Commerce platforms rely on selling goods, while content platforms monetize via commissions.

To fight for bigger slices of the cake, e-Commerce and content platforms have started to develop overlapping product capabilities. The line between two distinct business models is also increasingly blurry. Taobao, for example, launched an independent Taobao Live app on the iOS and Android app stores in 2019. By the end of the year, more than 350,000 hours of livestream content was available for daily consumption on Taobao. On the flip side, while TikTok and Kuaishou have traditionally redirected consumers to e-Commerce sites to complete purchase, they are aggressively pushing for their own namesake in-app shopping cart products as the livestream competition heats up.

Products

In the world of livestream commerce, you snooze, you lose. Consumers demand a constant stream of fresh and diverse product choices, faster delivery speeds, and more delightful customer services. They also provide feedback in real-time.

Austin Li’s lip stick supply challenge (w = 10,000)

Going back to Austin Li: In the past 7 days, he broadcasted 10 livestreams, each running 5–6 hours and covering 50–60 SKUs. At his peak, Austin ordered 2,000 M.A.C. lipsticks from international suppliers in 3 days. Behind the social commerce hockey stick growth curve lies a towering supply chain challenge.

Yet with challenge comes opportunity. Livestream commerce is fundamentally reshaping the relationship between consumers and manufacturers. In this new Consumer-to-Manufacturer (C2M) model, consumers drive demand. Real-time data allows manufacturers to understand consumer preferences, iterate products, and predict demand at a higher speed. Everbright Securities estimates that

While traditional apparel manufacturers launch new products 2–3 times a year, C2M manufacturers launch 3–4 times a month.

In return, a streamlined supply chain, with refined and reduced product lines and stronger economies of scale, helps bring down production costs. The C2M model therefore allows manufacturers to offer competitive pricing to influencers, and influencers then leverage their exclusive access to competitive pricing to amass an even larger fan base.

While the top-tier influencers can communicate directly with top-tier manufacturers and brands, the lower-tier influencers and manufacturers tend to rely on livestream platforms’ economics of scale. For example, Alibaba provides end-to-end livestream commerce infrastructure, including connecting manufacturers and influencers. In return, Alibaba charges a ~6% fee for the service rendered. Other supply chain innovators, such as XYB2B, are also rumored to be expanding into the livestream commerce vertical.

So, What’s Next?

The growth of livestream commerce has been accelerated by COVID-19. What does the future of China’s livestream commerce hold? Here are some quick takes.

CCTV enters livestream commerce

Traditional media goes live: the stereotype of a grassroots influencer will be disrupted. Savvy media professionals have started to experiment with livestreaming. China Central Television (“CCTV”) introduced CCTV Boys, consisting of some of the most famous new anchors in China (think: the Chinese equivalent of Anderson Cooper, Chris Wallace, Brian Williams and Chris Cuomo in a livestream “boy band” together). CCTV Boys gathered 23 million views in their livestream debut.

Long-tail MCNs will struggle: the number of MCNs is estimated to grow from 14.5K to 28K in 2020. In a world where MCNs act as talent agents, supply chain managers, business managers, and content marketers, MCNs are expected to provide end-to-end managed services. Economies of scale thus become critical, making it more challenging for mom-and-pop MCNs to succeed.

Will livestream go private? As platform traffic becomes increasingly expensive in China, the concept of “private traffic” will take off. Instead of relying on public platforms, such as RED and Weibo, brands have started to invest more in private communities via WeChat groups and private mini-programs embedded in WeChat. Compared to public platforms, private traffic is more helpful in cultivating a loyal group of customers via contextual targeting, retargeting and up-/cross-selling.

Progress on the infrastructure side will accelerate this “private traffic” trend: WeChat’s newly announced WeStore allows a merchant to create an eCommerce mini-program inside WeChat easily. WeStore will also provide merchants with order management services, transaction, logistics and after-sales support.

Chinese cosmetic brand Perfect Diary is a pioneer in producing tailored livestream content for private communities. It will be interesting to see if other top-tier brands follow their lead.

Commerce Infrastructure remains a challenge: The demand for more sophisticated 3rd party commerce infrastructure and supply chain services is driven by two trends:

  1. More merchants have started to explore livestream commerce
  2. Leading eCommerce platforms (e.g. TaoBao, JD.com) still control the infrastructure layer of livestream commerce. Non-eCommerce platforms can benefit from partnerships with 3rd party commerce infrastructure companies.

Which livestream platform will win? A billion-dollar question (literally). So far, eCommerce platforms still occupy the majority of the livestream market share and will likely remain so, given their strong commerce infrastructure and supply chain advantage.

However, content platforms (e.g. TikTok, Kuaishou) are under tremendous pressure to monetize via integrated commerce. In order for content platforms to become more competitive and stop redirecting traffic to eCommerce platforms, they need to either partner up with 3rd party infrastructure providers or develop such capabilities in-house.

Or perhaps, the future of livestream might become more decentralized. Top-tier brands might defect to their namesake WeStores, diverting traffic from major platforms. The next 6 months will be interesting to watch.

Enough from me. I’d love to hear from you. What other social commerce trends should I write about? Do you think livestream commerce will become mainstream in the U.S.?

P.s. If you are creating something cool in the livestream commerce ecosystem, my DM is open @calanthiaaa.

Thank you to Leon Lin, Amit Sankaran, Jen Yip, Daniel Hui, Ariel Kang, Kelly An, JLai, Laurel Skurko, and my roommate Philip Fuchs for your feedback on drafts of this essay.

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SoGal is home to 100,000+ women entrepreneurs and investors across 5 continents. Every day, we are working to redefine the next generation of diverse founders and funders, with access to capital, global grassroots communities, and education.

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Calanthia

Calanthia

(sometimes) writes

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