Kuaishou live broadcast analysis!

“In the past, if you told gossip, your popularity would increase rapidly, but now if you do, you will be reported and your account will be blocked. Let’s stop telling gossip and sell goods. Out of 1 million people in the live broadcast room, only 700,000 people can leave. All the old friends will run away.” Erlu, a big anchor of Kuaishou, complained in a video.

In fact, his situation is not an isolated case, but one of the pains shown by several major "big families" that have grown up relying on the universal traffic of Kuaishou and have failed to adapt to the changes in Kuaishou's live broadcast environment.

So, what exactly happened with Kuaishou Live?

Data shows that Kuaishou’s live streaming revenue has been declining for three consecutive quarters.

Further breaking down the factors affecting live broadcast revenue (live broadcast revenue = number of paying users * ARPPU) shows that the growth rate of the number of paying users of Kuaishou live broadcast is slowing down, with a negative growth of 21.8% in Q1 2021 (of course, this is also due to the high base caused by the epidemic in the same period last year); the growth rate of ARPPU of the live broadcast business has just returned to positive growth in Q1 2021.

Live streaming revenue has declined, and the factors driving its growth have shown a lack of subsequent growth, indicating that Kuaishou’s live streaming business may be showing signs of “peaking.”

Of course, this is not just the case for Kuaishou, the entire show live streaming track is the same: starting from Q1 2019, the revenue growth rate of show live streaming platforms has collectively declined, and in Q1 2021, the revenue growth rate of three platforms showed negative growth.

However, putting aside the industry trend of the show live broadcast track, for the relevant platforms, if there is no follow-up business to take over, the impact of the "decline" of the main business will be quite severe. So, is Kuaishou facing this dilemma?

This article will analyze from two aspects: business and traffic.

1. Live streaming resources are tilted towards e-commerce

"Three, two, one, get in the car. I'll give you two more bags. I paid for it myself. If you can afford it, just buy it. I never force you to buy anything." After Cat Sister's "heartfelt" recommendation, in just a few minutes, her friends generated 5,000 orders of yogurt for her live broadcast room.

Mao Meime was originally a "big eater" anchor on Kuaishou (a type of live show), who mainly earned income from tips by eating. Today, she is a leading salesperson in the Simba family.

This transformation path for anchors corresponds to the shift in the focus of live streaming on the Kuaishou platform - outside of the show, resources are tilted towards e-commerce.

Since 2018, Kuaishou has launched its e-commerce business and has been making continuous efforts in infrastructure, supply chain, and supply chain optimization. On the surface, such a heavy investment seems to be a passive response to the "reverse" trend of the live show industry. But a deeper analysis reveals that Kuaishou may be "enjoying it" .

Why do I say so? We analyze the two revenue models under the show and e-commerce models, as follows:

• In the show mode, anchor income = number of fans * conversion rate * ARPPU, platform income = MAU * payment rate * ARPPU
• Under the e-commerce model, anchor income = GMV*commission ratio, platform income = GMV*monetization rate

The simple explanation is that in the show live broadcast model, the income of the platform and the anchor comes from user tips, and the two companies split the profits 50-50.

It can be seen that although the platform’s reward income was very considerable when live show broadcasts were popular, rewards were entirely based on the user’s interest and there was too much uncertainty.

In the e-commerce live streaming business, the income of the platform and the anchor comes from the commission on the GMV of the goods brought in. This means that traffic can be monetized to the maximum extent. As long as there is sufficient inventory, the more goods are sold, the more the platform and the anchor will earn.

So, is this really the case?

According to the different focuses of live streaming, we selected data from two groups of show and e-commerce anchors who ranked the top eight in terms of revenue on Kuaishou in June this year, to see which live streaming mode could bring more revenue to the platform and anchors in the same period of time.

>The market generally believes that the commission rate (monetization rate) of top e-commerce anchors is between 10% and 25%. Taking into account that the commission rate of ordinary top e-commerce anchors may be relatively low compared with well-known anchors such as Simba and Li Jiaqi who have scale cost advantages, the average commission rate of anchors is conservatively set at 15% here; according to Kuaishou’s financial report, its commission rate for e-commerce business is 1%.

We added up the income of the hosts in the show live broadcast group and the e-commerce live broadcast group in the above figure respectively, substituted it into the income model formula, and the calculated data showed that the platform and anchor income under the e-commerce model is much higher than that of the show model.

The mystery is solved: e-commerce is more profitable than catwalks, and the motivation for increasing investment comes from here .

However, live streaming e-commerce is not a blank market, not to mention the competitive pressure from the numerous traditional e-commerce giants. Can Kuaishou’s heavy investment in e-commerce achieve the expected growth? Let’s take Alibaba as a model and take a closer look.

Financial report data shows that from 2013 to 2021 (fiscal year), Alibaba's monetization rate (commission rate) has been growing, with the specific data increasing from 2.4% to 4.1%. If nothing unexpected happens, the monetization rate of Kuaishou e-commerce will also change.

Here we may as well set the changing rhythm of Kuaishou’s monetization rate within Alibaba’s growth range to float up and down - 1%-5%.

It is known that the GMV of Kuaishou's e-commerce business in Q1 2021 was 118.6 billion, a year-on-year increase of 219.8%, and is still in a high-growth stage. In addition, considering that this data reached a high of 177.1 billion in Q4 2020. We set its single-quarter GMV growth pace at between 110 billion and 250 billion.

Then, according to the formula: e-commerce revenue = GMV * monetization rate, we can get the e-commerce revenue performance as shown in the following figure. Among them, if the monetization rate increases to 5% and the GMV in a single quarter reaches 250 billion, the annual revenue scale of Kuaishou's e-commerce business can reach 50 billion.

According to the financial report, Kuaishou’s e-commerce revenue in 2020 will be at most 3.7 billion. It goes without saying how much room for future growth there will be.

However, no matter how well the "calculation" is, it is impossible to "get everything you want". The acceleration of e-commerce live streaming has also caused certain "pains".

For the platform, traffic growth is limited. Focusing on e-commerce live streaming means squeezing the traffic of show live streaming, which may lead to an accelerated decline in live streaming revenue.

As far as the anchors are concerned, not all show anchors can successfully transform into anchors selling goods, such as Erlu from the Erlu family mentioned at the beginning.

According to media statistics, in a live broadcast on January 23 this year, Erlu’s sales in an hour and a half were only 786,000, which is a huge gap with his more than 40 million fans on Kuaishou.

Similar to him is Sanda Ge, who has more than 50 million fans on Kuaishou. On the evening of January 23, he sold goods for about an hour and a half and achieved sales of 843,800 yuan.

Fans "don't buy into the products they promote" because these anchors, who come from show venues, lack professional skills and have a simplistic and crude understanding of e-commerce live streaming. They use the same trick every time: after creating an "eye-catching" scene, they suddenly promote products when their popularity is at its highest. This kind of routine will quickly reduce the effectiveness of its own traffic bonus after initially consuming it.

It is not very realistic to switch back to live show broadcasts to generate revenue. After all, the platform and the users who use the platform have changed. If the anchor does not change, he may face elimination.

They have a huge amount of private traffic - fans, but cannot maximize monetization. Not only can the anchors not make money, but the key is that it affects the platform's profit. Realizing this, Kuaishou began to "plan" to gather the traffic into its own hands.

2. Convert private domains to public domains and regain control of traffic

Just when several major families on Kuaishou were depressed about "not being able to sell goods", a group of anchors incubated by MCN organizations such as Yu Dagongzi, Li Xuanzhuo, and Hua Shao were rapidly rising on the platform.

Behind this is the change in Kuaishou’s traffic logic.

For any type of Internet platform, advertising business is the easiest and most effective monetization channel. For e-commerce companies like Alibaba and Pinduoduo, and short video content platform Douyin, the main source of income driving their performance is advertising.

Kuaishou has also set its sights on this piece of "meat" very early on, but judging from the data performance (taking 2020 as an example), the gains have been limited: not only is the overall advertising revenue far behind that of Douyin, but the ARPU value is also at a relatively low level in the industry.

The reason is that Kuaishou’s current model, which mainly relies on private domain traffic, is not suitable for advertising business. Under this model, the platform has given the right to distribute and monetize traffic to the anchor, and the fans follow the anchor, weakening the commercial value of the platform itself.

In comparison, Douyin, which mainly relies on centralized traffic operations (public domain traffic), has a better control over exposure, which can better ensure the platform's control over the anchors and reduce their bargaining power.

This point was also mentioned in Kuaishou's 2021Q1 conference call: At present, private domain e-commerce is more effective, and public domain advertising will be more effective.

With profit at the forefront, Kuaishou quickly found a way to break the impasse.

In a live broadcast on the evening of June 5, Simba complained that Kuaishou converted the private traffic of his 80 million fans into public traffic, and that he spent 25 million to purchase public traffic in exchange for 800,000 viewers.

The simple explanation is that Kuaishou restricted Simba's private traffic, making it impossible for his more than 80 million fans to see the information about the live broadcast on their follow pages, and they were unable to enter the live broadcast room. If you want traffic and popularity, you need to spend money to buy it from the platform. The platform will select the appropriate number of users based on the bid and push it.

In addition, we noticed that in addition to spending money to buy popularity, Kuaishou has also begun charging anchors for "increasing fans."

Generally speaking, in the Kuaishou family, the way for big anchors to lead small anchors is to interact with the small anchors in their own live broadcast rooms, guiding fans to follow the small anchors, thereby increasing the number of fans for the small anchors.

In the past, Kuaishou had no restrictions on this behavior, but now the platform directly deducts the corresponding money from the small anchor’s account according to the number of fans gained. This means that these small anchors are still spending money to buy traffic.

Through a series of actions like this, Kuaishou gradually took control of the right to distribute traffic by transforming private domains into public domains. By the way, the familial problem that had always been a "headache" was "cleverly" resolved.

(There are many reports on the long-term problems between the six major families of Kuaishou and the platform, which will not be elaborated in this article. Here we focus on analyzing the impact of de-familyization on the platform.)

It can be seen that Kuaishou’s restrictions on private domain traffic are mainly on the top anchors, or to put it bluntly, the six major families including the Simba family; while mid- and lower-level anchors are given key support.

"The platform is willing to give some very valuable traffic to the middle and lower levels. There is no upper limit on our investment in supporting small and medium-sized anchors." said Zhang Yipeng, head of Kuaishou's e-commerce marketing center.

By restricting on one hand and supporting on the other, the "one tightening and one loosening" not only rebuilt the platform's control over traffic, but also aimed at "whitewashing" the platform's tone.

At present, Kuaishou’s six major families not only control most of the platform’s traffic - a total of 698 million, but their "master-apprentice system, paying homage to the boss" organizational method constantly creates verbal battles and conflicts among each other, affecting the platform’s reputation and making some brands unwilling to settle in Kuaishou: to sell goods or advertise.

According to Caixin, people from broadcasting agencies have come into contact with Kuaishou live broadcasts, which basically sell cheap snacks, daily necessities and other products that sell well, and big brands are not very willing to do it.

This is obviously something the platform does not want to see.

Introducing MCN agencies and live broadcast unions, strengthening anchor supervision, and allocating traffic to small and medium-sized anchors...Kuaishou is trying to create a professional and formal image for the platform.

For example, Mr. Yu mentioned above is a professional beauty anchor trained by the MCN agency Yaowang Network. With the support of the platform, by mid-April, her number of Kuaishou fans had increased to 21.18 million, surpassing "Shi Da Piaoliang" (18.9 million), another beauty anchor from the Simba family.

Of course, whether Kuaishou will eventually achieve a relatively healthy anchor ecosystem, or it may repeat the mistakes of "familyization" and cause conflicts with MCN agencies, which requires long-term tracking and verification.

However, as Kuaishou gradually regains control of traffic, its advertising business has indeed seen positive changes. As shown in the figure below, from Q3 2020 to Q1 2012, Kuaishou's advertising revenue growth rate was over 150%.

It can be seen that by "de-familializing" and transforming private domains into public domains, Kuaishou has taken control of the traffic in its own hands. The previous top anchors will be affected by this, and may suffer losses in both show live streaming income and e-commerce income.

Although the platform will also sacrifice some live broadcast revenue, it is undoubtedly the ultimate winner in terms of the expansion and growth of its advertising business and the gains from the live broadcast e-commerce ecosystem.

However, whether such a change in traffic logic can enable Kuaishou, which is moving beyond the era of live show broadcasts and doing "big things" in e-commerce and advertising businesses, to achieve its goal, remains to be seen.

3. Summary

Judging from market trends, the "decline" of the live show industry is an indisputable fact.

While the anchors who came from the show field and experienced the highlights of live streaming stick to their cognition and (such as Erlu) are proud of "never changing", the platforms have long given up the plan to "rescue" show live streaming and are planning to take back the control of traffic from these top anchors and return it to the platforms.

While increasing its e-commerce business on the one hand and expanding its advertising business on the other, Kuaishou has made clear arrangements for the destination of traffic monetization. But in this case, is Kuaishou still the Kuaishou of the old friends?

Author: Chen Cheng, Yao Sha, Hu Tinglang

Source: Inside and Outside