Kuaishou and Douyin are becoming "Taobao-like": from traffic distribution to demand distribution!

With the strategic upgrades of major platforms and the increasing competition, more and more platforms are choosing to enter the e-commerce market. Among them, Douyin and Kuaishou, relying on their advantages in the short video field, quickly capture user needs and have impacted Taobao on the road to commercialization. Now, Douyin has announced new regulations that live broadcast rooms will no longer support links to third-party e-commerce platforms. Why is this? Let’s look at the author’s analysis.

After “banning” external links, Douyin’s commercialization is entering a new stage of acceleration.

On August 26, Douyin Live released new regulations: starting from October 9, the live broadcast room will no longer support links to third-party e-commerce platforms. It is generally believed that Douyin’s move is intended to accelerate the closed-loop process of the Douyin store e-commerce ecosystem.

The reason behind this is probably related to the difficulties Tiktok encountered overseas. After suffering setbacks in its overseas business, ByteDance will accelerate its domestic commercialization process if it wants to achieve its predetermined growth targets. As a result of the chain reaction, the entire live streaming e-commerce industry may be entering a period of accelerated commercialization.

1. The underlying logic behind Douyin’s ban on external links: from information distribution to demand distribution

From the upgrading of Douyin's e-commerce department to a first-level department on June 18, to the continuous support for Douyin stores this year, to the current ban on external links, as a super traffic platform with 450 million daily active users, Douyin seems to be seeking a transformation from a traffic platform to an e-commerce platform.

Kuaishou has also been making frequent moves recently. Recently, it has made a series of optimizations and updates to the store rules. Kuaishou also hopes to build a closed-loop e-commerce ecosystem through specific measures such as building an alliance structure and detailing the entry rules for merchants.

In this regard, some people believe that Kuaishou and Douyin are becoming more and more "Taobao-like".

If we look into the reasons, it is not difficult to find that the success of the live streaming e-commerce business model is the basis for Douyin and Kuaishou to try to create a closed loop of the e-commerce business.

In fact, in addition to the incentives for accelerated commercialization, the business model of live streaming e-commerce has been verified: in addition to social e-commerce, vertical e-commerce, and comprehensive e-commerce, live streaming is becoming the "fourth form" of e-commerce.

"Livestreaming can be seen as an online shopping guide + selected shelves." The head of the North China region of a retail company told the Internet Jianghu: "In essence, livestreaming is also an emerging retail channel, but the potential conversion magnitude at the other end of the channel is quite high, and the conversion efficiency is also higher than that of traditional channels."

In the post-epidemic era, after live streaming has become an e-commerce infrastructure, live streaming sales itself is also becoming another new channel for linking people and goods after traditional e-commerce and new retail. In the era of stock, the channel efficiency of linking people and goods is often greater than cognitive efficiency.

Al Ries and Jack Trout, two famous American marketing experts, once proposed a "positioning theory", one of the core ideas of which is to require companies to become "first in the field" in the minds of customers, which is the so-called "occupying the minds of users."

The success of many companies such as Coca-Cola, NIKE, JD.com, Tmall, etc. is inseparable from this core theory, which is actually a kind of "cognitive efficiency" of the connection between people and goods: the stronger the brand awareness, the shorter the decision-making conversion path and the higher the conversion efficiency.

The success of live streaming sales confirms another efficiency law: channel efficiency.

In the existing market, user cognition is almost solidified, and channel reach is extremely important for the conversion of people-goods links.

Take live streaming sales as an example: live streaming sales is actually a real-time online supply and demand matching. When the operation end has a deep insight into the C-end consumer demand and matches it with the live streaming traffic attributes, the scale of supply matches the scale of demand, and the sales will naturally be very strong. This is actually a kind of retail channel efficiency.

Based on the logic of traffic distribution , Douyin and Kuaishou have actually been engaged in traffic monetization business before the rise of live streaming. To put it bluntly, they are selling traffic, which is essentially distributing attention. But the era of stock growth, the era of growth relying solely on traffic monetization, is over.

From the underlying logic, the shift from selling traffic to selling goods is actually a shift in the platform from traffic distribution to demand distribution. Compared with traffic distribution, demand distribution has a shorter conversion path and its value is naturally higher.

From the perspective of traffic value, traffic value = traffic coverage X conversion efficiency X traffic attributes. From the perspective of traffic coverage, Douyin has 400 million DAU and Kuaishou has over 300 million DAU, both of which are top traffic at the infrastructure level. From the perspective of conversion efficiency, the pure traffic distribution conversion path is longer than the demand distribution path of live streaming with goods, so the latter has a higher efficiency in linking people and goods.

To sum it up in one sentence, Douyin and Kuaishou have created an ecological closed loop of live streaming e-commerce, with a shorter conversion path, higher traffic monetization efficiency, and greater room for future business growth.

2. In the post-live streaming e-commerce era, supply chain may become the “decisive factor” in live streaming e-commerce

There are both opportunities and challenges for live streaming platforms to build a closed-loop e-commerce ecosystem, such as logistics and supply chain. In the long run, this is also the key to building the core competitiveness of live streaming e-commerce.

Logistics: Although we are "standing on the shoulders of giants", public logistics resources are only one aspect, but the key is to rely on logistics to form core competitiveness.

For example: Cainiao Network integrated SF Express, YTO Express and ZTO Express to form Taobao's core logistics capabilities. JD.com continued to invest for many years to build JD Logistics, and finally formed the core competitiveness of e-commerce logistics. Even Pinduoduo has started to engage in logistics.

For Kuaishou and Douyin, building core logistics competitiveness from 0 to 1 is still a huge challenge.

In terms of supply chain: Supply chain has always been the core of live streaming e-commerce, and Douyin and Kuaishou have also realized the importance of building the platform's core supply chain capabilities.

Regarding Kuaishou: In May this year, Kuaishou Technology and JD Retail signed a strategic cooperation agreement. The two parties will carry out in-depth cooperation in building the supply chain capabilities, brand influence and data capabilities of Kuaishou stores; regarding Douyin, Douyin e-commerce and Suning announced their cooperation at the end of July this year, and Suning.com will provide supply chain services for Douyin e-commerce.

However, the cooperation between live streaming e-commerce and traditional e-commerce is actually quite "discordant in appearance", and short-term cooperation may just be a transition. In the long run, live streaming e-commerce also needs to build its own core supply chain capabilities. The reason behind this is that the "behind-the-scenes strength" of the supply chain and logistics actually determines the upper limit of live streaming sales to a large extent.

For example: From the perspective of GMV, Taobao Live is expected to achieve an annual GMV of 250 billion in 2019, while the GMV of Douyin Live and Kuaishou Live are expected to be 40 billion and 25 billion respectively. Behind the data is the reflection of the deep cultivation in the supply chain field and the perfection of the overall e-commerce ecosystem.

The Internet Jianghu (VIPIT1) believes that for live streaming platforms to engage in live streaming e-commerce, content determines the fundamentals of platform traffic, the maturity of live streaming determines the efficiency of platform traffic conversion, and the supply chain efficiency ultimately determines the height of the platform's commercial monetization.

From the perspective of the business logic of the e-commerce of live streaming platforms, on the one hand, content determines the breadth and depth of the platform's traffic pool; on the other hand, live streaming with goods is an efficient way to monetize traffic. The more commercially mature the live streaming with goods, the easier it is to convert, and the higher its monetization efficiency.

Why is supply chain efficiency the ultimate factor that determines the ceiling of commercial monetization?

In essence, the core value of live streaming e-commerce lies in the benefits of scale that can be passed on to the C-end after the scale supply matches the scale supply and demand. Therefore, the higher the supply chain efficiency, the greater the room for profit sharing, which will eventually be transformed into the platform's core competitiveness of high quality and low price.

Overall, whether it is cooperation or building their own supply chain, the purpose of Douyin and Kuaishou may still be to establish an internal cycle from the traffic ecology to the commercial monetization ecology: use content to obtain traffic, convert it through live streaming, and after normalized live streaming, form user stickiness, thereby spontaneously generating higher value e-commerce traffic and forming an internal cycle.

In other words, the platform banning external links is the "skill", building a supply chain system is the "method", and converting traffic into demand value is the "way". The result of "Tao follows nature" is the formation of a complete traffic-e-commerce internal circulation ecosystem, using small stores and live streaming as monetization tools to achieve the Pareto optimal solution for the benefits of commercial growth.

3. After the closed-loop business ecosystem, live streaming e-commerce may usher in a window of listing

Capital and business are two sides of the same coin in economic activities. Based on the evolution of business models, the capital market will make corresponding adjustments. Similarly, many business changes often involve capital considerations.

"After building a closed-loop e-commerce ecosystem, the next step may be an IPO." An investment banker told the Internet world, "In fact, from the perspective of capital value judgment, the difference in PE level between the live broadcast platform's self-operated commercial ecosystem closed loop and the content platform that sells traffic is actually quite large."

IPO listing is a very profound subject. Why go public? When will it be available on the market? These are issues that business decision makers need to consider carefully.

For the parent companies of Douyin and Kuaishou, although they have the strength for IPO, as the saying goes, "good things are worth waiting for." After Douyin and Kuaishou, as leading platforms, have completed the construction of a closed-loop e-commerce ecosystem, live streaming e-commerce may usher in a wave of listing windows.

According to the financing information of Tianyancha App, at the end of last year, Kuaishou received nearly US$3 billion in financing from Tencent, and its valuation at that time had reached US$28.6 billion.

According to a previous report by 36Kr, Kuaishou may go public this year or next year. As for ByteDance, at the end of July this year, there was news that ByteDance's Chinese business was considering listing in Hong Kong or Shanghai. ByteDance responded by declining to comment.

From the perspective of timing, Douyin’s ban on external links is intended to accelerate the construction of a closed-loop e-commerce ecosystem, and may also have valuation considerations.

On the one hand, with the fate of its overseas business uncertain, ByteDance needs to use the "e-commerce story" to hedge against possible negative impacts on the capital market; on the other hand, from the perspective of corporate value judgment, the e-commerce valuation method is better than the content platform valuation method.

The capital market has different value judgment standards for companies at different stages. For example, for content platforms, whether they are short video platforms or live broadcast platforms, DAU and MAU are very important growth indicators, and they pay more attention to the growth of the company. In the era of inventory, although such growth still exists, it obviously lacks momentum and is difficult to support the long-term value of the company.

But the e-commerce valuation method is different. As long as there is a stable supply chain and sufficient traffic pool, monetization is a process of continuously releasing value. In other words, the construction of an e-commerce business closed loop by live streaming platforms will actually have a long-term impact on their future performance in the secondary market.

"For ecological platform Internet companies, the STOP (sum of categories) valuation method may be used. The value of different businesses is judged according to different valuation methods, and then summarized according to factors such as shareholding ratio to obtain the total value of the company." The above-mentioned investment bank person told the Internet world.

“Once TikTok and Kuaishou have established a complete e-commerce ecosystem, their content business and e-commerce business will be valued separately under the STOP valuation method. Taking into account the traffic synergy between the businesses, their final valuation may be higher.”

There is a memorable sentence in "The Limits of Capital": "We cannot define value at the beginning of research, but must discover value in the process of research." In other words, no valuation method is absolute. For Internet companies whose businesses are gradually diversified and developing in an ecological way, how to accurately judge the true value of the company is a topic worthy of continued research.

For live-streaming e-commerce companies such as Douyin and Kuaishou, IPO is another starting point. What changes will take place in the industry after the IPO in the future is worthy of people's attention and expectations.

Author: Liu Zhigang

Source: Internet Jianghu (ID: VIPIT1)