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China’s Live Streaming E-Commerce Reaches New Heights

Summary

The ‘Era of Live Streaming E-Commerce’ first blew up in 2019, creating a new industry at the intersection of e-commerce and live streaming. The pandemic has proven to be a major opportunity for this industry, both in terms of attracting new potential consumers and capturing shifting consumption habits. But one question stands: 'Will it last?'

With a market of just under one billion tech-enabled consumers, China’s continuously evolving digital consumer market has led the world for the past seven years. Live streaming e-commerce, the industry’s latest trend of promoting and selling goods through influencer streams, has exploded recently due to the growth of e-commerce alongside China’s increasingly affluent consumeristic urban population and an increasingly tech-capable audience. Around 265 million Chinese people made a purchase through live streaming e-commerce in 2019, comprising 37% of China’s total online shoppers and 47% of live stream viewers. Its popularity has given way to ‘live streaming +,’ an extension of live streaming into complementary industries – the intersection of which has created an ‘Era of Live Streaming E-Commerce.’ Having been exposed to live streaming from a young age, tech-savvy Gen-Z and Millennial consumers are driving this trend.

As coronavirus lockdowns kept Chinese consumers indoors, live streaming e-commerce has grown. More users have turned to their phones out of boredom, and as a result, discovered the excitement of live streaming e-commerce. Due to its popularity, both domestic and international companies are expected to begin competing in this market. While Alibaba’s Taobao Live holds the majority of the market today, huge companies such as JD.com and even Baidu are getting involved, either through investments, partnerships, or the creation of their own channels. The heightened competition is sure to increase innovation as the brands vie for countless viewers and potential consumers.

E-Commerce

E-commerce is a key pillar of China’s consumer economy. As a whole, the industry was projected to reach roughly US$1 trillion in 2020, up from US$ 862.3 billion in 2019. As of March 2020, 710 million people shopped online, an increase of 100 million compared to 2018. The gross transaction volume (GTV), defined as the total value of products sold, reached US$ 1.5 trillion, up 16.5% year on year. Much of the recent uptick in sales can be attributed to COVID-19, as lockdown regulations have left most consumers with no alternative but to shop online. However, as COVID-19 fades, stronger competition in China’s e-commerce market will require brands to identify new means of innovation.

Live Streaming

In 2019, 433 million people, or roughly 30% of China’s population, had watched live streams. By March 2020, this number increased to 560 million, or 62% of the country’s total number of internet users. Some of the most well-known companies in the short video/live streaming industry include Kuaishou and Douyin, the Chinese version of Tik-Tok. Though best known for their short videos, these platforms have also developed prominent live streaming channels. For reference, Kuaishou has 50% live streaming content in its Local Content section, while Douyin has 25%. While the popularized short video and streaming platforms are only beginning to take off in the United States, the format has already matured in China. Given its established reputation in consumer markets, live streaming quickly spread to other industries including news, travel, fashion, social media, and commerce. This evolution of live streaming is what many analysts are calling the ‘live streaming +’ model.

Major players have already entered the live streaming space across a variety of industries

Sources: QuestMobile Research, The China Guys

Merging the Two Trends

With live streaming and e-commerce reaching young urban consumers, a merger of the two trends was inevitable, and this combination came to fruition in 2019. An example of this ‘Era of Live Streaming E-Commerce’ is leading fashion platform, MOGU, which announced that live streaming e-commerce accounted for 53% of gross merchandise value (“GMV”) in Q3 of 2020, growing 99.5% YoY. Similarly, market leader Taobao Live reported that live stream sessions on the platform had increased by 110% YoY, and the number of first-time merchants grew by 719% from January to February 2020. Such massive growth points to the arrival of a uniquely new era.

The Main Players

In 2016, Taobao Live became the first service to utilize live streaming in e-commerce. Taobao Live’s move preceded the popularization of short video platforms such as Douyin and Kuaishou. After achieving more growth, Douyin partnered with Taobao and Tmall in March 2018, allowing viewers to buy products from these platforms without leaving the TikTok app. That June, Kuaishou introduced a similar feature that enabled livestreamers to sell goods through an in-app store, speaking to the future potential of the two short video platforms within live streaming e-commerce.

Taobao Live features a wider range of products than its major rivals, including apparel, beauty products, and parent-and-baby products, whereas Douyin focuses on beauty and fashion. As of June 20, 2020, the official Douyin account of the beauty giant L’Oreal had over 127,000 followers. KOLs on Kuaishou often help larger brands clear inventories and help local businesses sell things like rural fresh produce and local handcrafts. One such store, a fresh tangerine retailer called “Home of Tangerines 471” currently has over 95,400 followers on Kuaishou.

Top E-Commerce Players, several of which already have developed live streaming channels

Sources: China Marketing Insights, The China Guys

KOLs, the Faces of the Live Streaming Revolution

From a user experience perspective, live streaming e-commerce cannot simply be compared to popular American infomercial networks such as QVC or HSN. In reality,  this new industry is much more complex.

A huge component to live streaming e-commerce is the popularity of individual hosts, making them key opinion leaders (“KOLs”). The rise of KOLs is similar to the trend of social media “influencers” in the United States. Much like influencers, KOLs can range from movie stars to internet celebrities (or “wang hong” as known in China), all the way down to ‘micro-influencers’ – more niche influencers with a smaller, generally more loyal, following. A key difference between KOLs and their Western ‘influencer’ counterparts lies in the payment structure for the KOLs. Whereas influencers typically receive a fixed amount of money for every social media post, KOLs directly partner with brands to receive appearance fees and generous commissions on brand sales (25-50%). For the live stream shows on the KOLs social media channels, there is often an agreement in place ensuring the KOL selling during the livecast is offering the lowest price on the market, in the hope to boost sales figures. According to the KOL-management company Ruhan Holdings, these live stream hosts helped drive US$ 4 billion in sales in China in 2018.

As this industry continues to grow, the KOL economy will adapt alongside it. An example of this is the ‘Douzhi’ Project, an initiative launched by Douyin in late 2019. According to Jiang Yi, Douyin’s Head of Operations, the project’s key is “making valuable knowledge more interesting, and funny clips more meaningful.” This approach has been emphasized after the Cyberspace Administration of China, the country’s top governmental internet watchdog, reposted a state media article back in March, 2019 cautioning the negative effects of live shows currently dominant on live streaming platforms. This article went on to say that the diversification of content, especially towards popularizing knowledge, provides higher social benefits  In this way, the role of the ‘micro-influencer’ is set to expand as consumers want more honest opinions, relatable personalities, and, in the case of the ‘Douzhi’ Project, knowledgeable backgrounds.

Factors in the Future of Live Streaming E-commerce

Coronavirus

COVID-19 has impacted live streaming e-commerce in a big way. With most of the country either off of work or forced to work from home, consumers have been strongly pushed toward making purchases online. Despite facing major business disruptions, many small businesses and farmers were able to survive economic uncertainty thanks to the use of live streaming e-commerce. As the coronavirus began to spread across China, both JD.com and Taobao quickly launched rural live streaming initiatives. The companies helped farmers and merchants set up online stores with expedited approvals, showed them how to design the content of their broadcasts, and utilized their logistics networks to ship the products directly from farms to homes. In 2019, Taobao hoped to attract only 1,000 farmers to its platform. As of the beginning of May 2020, Taobao had over 50,000 rural live-streamers and aimed for at least 200,000 more within the year. Growers who had once sold 90% of their products offline have now flipped to selling 90% online, indicating just how much the live streaming e-commerce business model has shifted business standards.

While the size of China’s live streaming market reached CN¥ 433.8 billion in 2019, COVID-19 driven trends are already expected to double the size of the market by the end of 2020. As of February 2020, newly opened live streaming accounts were up roughly 700% compared to 2019. Additionally, it is estimated that the sales scale of domestic live streaming e-commerce will reach CN¥ 961 billion in 2020, accounting for 8.7% of China’s online retail scale. One of the most shocking statistics to come out of this period comes from a popular KOL known as the “Livestreaming Brother” or the “Lipstick King.” In one of his live-streaming sales sessions, he sold 15,000 lipsticks within five minutes. Unlike many beauty bloggers he always demonstrates the lipsticks he’s selling on his lips, rather than his arms. It seems to be paying off, as he now reportedly has a net worth of up to US$ 5 million.

While e-commerce live streaming has been most popular with gen-z and millennials, an interesting shift is occurring with other ages of consumers. Due to the pandemic, older consumers and others who prefer shopping at local stores have been pushed to shop online for groceries. In fact, even before the pandemic a large number of active middle-aged and senior accounts had been registered in the second half of 2019. In a short period of half a year, a group of short videos with middle-aged and senior people as the main body of creation became a trend and competed with young people for short video bonuses. Soon, more and more people outside of the main young, tech-savvy demographics for live streaming e-commerce may begin to participate in the trend. Many people see their live streaming e-commerce consumption increasing in the future, with roughly 30% of consumers stating they expected to increase their spending on selling via live stream. Future large scale e-commerce events will reveal how well this trend has stuck across age groups.

Broader demographics exposed to live streaming e-commerce: a Labor Day example

Labor Day (May 1st) was a huge holiday looking at indicators for the strength of the Chinese economy as it recovers from COVID-19. The above demographic statistics give us a great sense of who has begun to adopt more of these technologies. The age of live streaming e-commerce consumers has increased slowly, and as of 2020, over 43% of consumers over 30 with the Taobao app have watched a live streaming show. Sources: Quest Mobile, The China Guys

Live Streaming E-Commerce in a Post-COVID World

Due to the recent success of live streaming e-commerce, both domestic and international companies will be eager to join the bandwagon. As Taobao Live currently makes up nearly 80% of all live streaming e-commerce transactions, there is room for many more companies to come in and chip away at the dominance of this one platform. Additional competitors will inevitably also try to join in on this trend, with the most likely suspects coming from those the Chinese trust most. Japan is perceived to be the most trusted country for cross border online shopping among Chinese shoppers (72%), followed by South Korea (60%), the US (55%), Australia (37%), France and Germany (both 26%), and the UK (23%).

Some domestic competitors to Taobao Live are already beginning to make moves into the space. For example, JD.com recently launched its partnership with Kuaishou to provide in-app purchases surrounding China’s “618” shopping holiday. In addition, Chinese search giant, Baidu, decided to throw its hat into the ring, planning to invest 500 million yuan ($70.4 million) to cultivate 1,000 star live streamers. As Shen Dou, Executive Vice-President of Baidu, recently stated, “We have a user base of more than 1 billion, an advantage that other live streaming platforms do not have.” With this push, Baidu is hoping it can convert its large user base into dedicated consumers through its main streaming platform, Haokan. If successful, the platform would be able to provide one-stop services such as appointments and consultations based on health-related live streaming, and book-buying services based on knowledge and book-referral live streaming.

Looking Ahead at Live Streaming E-Commerce

It is clear that the live streaming e-commerce market is an attractive opportunity for companies to expand their distribution channels to a far-reaching and engaged audience. Growth in this industry will not only benefit companies who sell their products, but also consumers, who will be sure to see more diverse and better curated content as the industry grows. Similar to other Chinese industries with such explosive growth, government restrictions may impede future growth prospects, though it is uncertain how long the industry will be able to go unfettered. In just over a year, this innovative new way of driving consumption has taken China by storm, and continues to redefine e-commerce both in China and abroad.

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