A 10,000-word article deconstructs the logic of the e-commerce live streaming industry

Live broadcast, live broadcast, live broadcast...

Entering 2020, live streaming seems to have become a universal antidote to solving traffic growth and monetization problems. Especially under the impact of the epidemic, all walks of life have generally moved online or to e-commerce. We have seen more new forms of content consumption such as cloud exhibitions, cloud music festivals, and cloud discos. On the other hand, e-commerce live streaming, which was popularized by Taobao Live, has also ushered in new growth. Content platforms including Kuaishou and Douyin have also gradually increased the monetization model of live streaming with goods.

After e-commerce platforms with stronger supply chain capabilities, transaction guarantees, and fulfillment capabilities have taken a dominant position, live streaming sales have in fact solidified into an important shipping channel for the retail industry. After the market cultivation is completed, the fundamentals on both the supply and demand sides are solid. On April 1, 2020, Luo Yonghao completed his first live broadcast on Douyin. Naturally, there was controversy. However, for Luo Yonghao, if he could just post a few more Weibo posts to achieve the desired marketing results, the benefits of being high-profile would naturally outweigh the pain.

Selling mobile phones from former competitors, bowing to apologize to the brand, trying out the razors that were promoted... No matter what the outside world thinks, with a payment transaction volume of over 110 million yuan and 8.206 million audio rewards, this middle-aged Internet celebrity's "re-entrepreneurship" is obviously smoother than ever before, and he must be more confident in paying off his debts.

On the same night that Luo Yonghao was live streaming, Wei Ya sold a rocket worth 40 million yuan in her Taobao live streaming room, and Simba’s apprentice “Dandan Xiaopengyou” sold a total of 2.78 million items in Kuaishou live streaming, with a total transaction amount exceeding 480 million yuan. The "Xiao Zhu Pei Qi" duo of CCTV host Zhu Guangquan and Taobao anchor Li Jiaqi brought more than 40 million yuan worth of goods for charity in Hubei.

Top anchors are in the limelight, and naturally more and more merchants, anchors, and MCN agencies aspire to sell millions of goods overnight. The "2020 Spring Live Streaming Industry Talent Report" released by Zhaopin.com shows that the recruitment demand in the live streaming industry after the Spring Festival increased by 132% year-on-year; the average monthly salary of Taobao live streaming talents reached 9,845 yuan.

In the era of internet celebrity economy, e-commerce is an important way to monetize, and using influence to do business is a natural thing: in the general trend, live streaming will become a standard feature of e-commerce platforms, and content platforms will have e-commerce as a standard feature. After the "live streaming fever" faded and e-commerce growth reached a bottleneck, e-commerce platforms tried to drive traffic and revenue growth through live streaming. This is a change from "live streaming aspiring to e-commerce" to "e-commerce aspiring to live streaming".

The problem is that e-commerce is a typical high-investment model, and the industrial chain involved is far more complicated than opening a Taobao store. Where will this live streaming e-commerce competition, which is increasingly being intensified by platforms and MCNs, go?

1. Live streaming sales: a changed world

"Either you exchange time for traffic, or you spend money for traffic." An e-commerce anchor once introduced his work experience in this way. The platform's allocation of traffic to the live broadcast room can easily increase the difference in viewership and sales of the same anchor by ten times. Pure e-commerce live streaming actually lacks a fan base, and the platform’s traffic distribution has a huge impact, so internet celebrities who bring their own traffic become the natural choice. Deepening cooperation with merchants and brands in bringing goods has become another value outlet that MCN has found after content marketing.

Back to the live broadcast room, the host’s core competitiveness comes from two aspects: one is that the price is sufficiently favorable, and the other is the professionalism of product selection and promotion. Among them, price comparison is explicit, and product selection is invisible. The former is directly related to the instant conversion rate of the live broadcast room, and the latter affects consumer evaluation, repurchase, and even return rate.

The "Online Survey Report on Consumer Satisfaction with Live E-Commerce Shopping" released by the China Consumers Association on March 31 showed that the top four reasons for converting watching live broadcasts into shopping were high cost-effectiveness of the products (60.1%), liking the displayed products (56.0%), preferential prices (53.9%), and limited-time and limited-quantity discounts (43.8%).

In general, the main reason that attracts consumers to decide to shop is the cost-effectiveness and price discount of the product itself. Among them, 37.3% of the consumers interviewed had encountered consumption problems during live shopping, and consumers' concerns about false advertising and the source of goods were relatively prominent. By determining the time, identifying the products, and giving discounts, e-commerce live streaming is still a form of social promotion, and each live streaming room can be regarded as a small promotional festival. Common problems in e-commerce and promotions will also appear frequently in e-commerce live broadcasts, such as excessively high return rates and after-sales problems.

Wei Zhe, founder of Jiayu Fund and former president of Alibaba B2B, once introduced that, taking clothing as an example, the return rate of clothing in traditional stores will not exceed 3%, but the return rate of e-commerce is as high as 30%. The return rate of shopping festivals such as Double 11 and the return rate of live streaming sales by Li Jiaqi, Viya and others are much higher than this ratio. Promotion is actually a kind of concentrated shipment. The so-called concentration lies in the concentration of different factors such as time, channel, category, brand, and form. This is particularly evident in Taobao Live:

• There is a judgment in the industry that Wei Ya accounts for 30% of the GMV of Taobao Live every night, and Li Jiaqi accounts for 20%;
• Taobao Live announced that the GMV driven by live streaming in 2019 was 200 billion yuan, and the GMV of live streaming during the 2019 Double 11 period was nearly 20 billion yuan, accounting for one-tenth of Taobao Live's annual GMV;
• Zhao Yuanyuan, former head of Taobao Live operations, also revealed that Wei Ya’s sales during the 2019 Double Eleven period had reached her full-year sales last year (2.7 billion), which was about 13.5% of the live broadcast GMV on Double Eleven Day. Li Jiaqi’s sales on that day would not be much different.

As the "Matthew effect" in the field of e-commerce live streaming becomes more and more obvious and the value of channels continues to increase, the bargaining power of anchors has also changed. Anchors not only attract users with their ability to purchase goods at the "lowest price on the entire network", but are also divided into levels based on slot fees and commission rates.

There are also some concerns when connecting consumer products directly to users. For consumers, shopping is part of life; for merchants, selling goods is a commercial activity. What consumers need is high quality and affordability, while merchants pay more attention to sales efficiency. In this scenario, the demands of both parties had a "hard landing" encounter after eliminating the "buffer" of traditional supply chain channels, dealer platforms, and branded advertising.

As a result, most e-commerce live streaming categories have a very serious mismatch in demands on both ends. It is easy to achieve high sales and high volume in the short term, but the long-term cost of the mismatch is the loss of brand value and consumer enthusiasm. On the other hand, the low-price logic itself has limited ways of playing.

The sinking e-commerce represented by Pinduoduo and the C2M e-commerce represented by Taobao Special Edition are also attracting price-sensitive consumers with replicable and higher efficiency by increasing subsidies and directly connecting with factories. Back to e-commerce live streaming, merchants who try to "make quick money" by having influencers sell goods have no branding strategy and can only constantly seek to purchase and convert traffic. The traffic can even be called "lost volume." The overall decline in ROI in the industry is inevitable. At that time, where will e-commerce live streaming go?

2. The “Lowest Price on the Internet” Paradox

The key to the issue of channel pricing lies in the right to speak. "Using users to command merchants", e-commerce live streaming has elevated the voice of top anchors (institutions) to a very high level. Anchors have to balance providing consumers with "low-priced" goods and increasing their own profits, which will inevitably continue to squeeze producer surplus, that is, the profits of merchants and brands.

If the profit from selling goods through the anchor is lower than the commission fee, the merchant will have to face the choice of whether to lose money to buy exposure. According to the first financial report, the person in charge of Puxi e-commerce revealed that Li Jiaqi's link fee on "Double 11" was 150,000 yuan, and the profit sharing ratio was 20%. They cooperated with Li Jiaqi 5 times and lost money 3 times, and lost 500,000 yuan on Double 11. Only a few big brands can afford to spend money to gain popularity, and it does not constitute a long-term strategy. What Luo Yonghao said, "live streaming e-commerce is not a zero-sum game" is an issue that needs further inference.

"The lowest price on the entire network" can be seen as an alternative form of "wholesale" (not completely the same). The price is determined by supply and demand, and the formation of the "wholesale price" is often determined by the game between manufacturers and distributors. Distributors guarantee shipment volume, thereby sharing the manufacturer's risks and reducing the manufacturer's marginal costs, which are all manifestations of channel value. In traditional retail, “distribution is cost” - goods generally go through second-tier and third-tier wholesalers (distributors) and then to the final terminal retailers, and the markup in between can easily exceed 50%, or even multiples. In e-commerce (online retail), “channel is cost” - goods can be delivered directly to consumers from primary warehouses, and the commission of e-commerce platforms and the cost of e-commerce operation still exist, but the agglomeration effect, channel efficiency and price of e-commerce are still superior to traditional retail.

Common e-commerce live streaming is based on e-commerce and adds a live streaming channel. When the shipment volume of the live streaming room is large enough and can still cover the marginal cost of the goods under the condition of the "lowest price on the entire network", the merchants will make a profit. From the perspective of game theory, "zero-sum game" is not a result but a trend for e-commerce live streaming. Using Krugman's "impossible triangle" to understand, it is unrealistic to maintain a long-term balance among merchant profits, anchor/platform benefits, and consumer welfare.

In the live streaming e-commerce chain, the beneficiaries of merchants’ concessions include platforms, institutions, anchors, and consumers, but consumers have the least say. Once the balance between channel efficiency and value is broken, the costs will ultimately be borne by consumers.

• During Li Jiaqi's live broadcast on Double 11 in 2019, Pechoin temporarily cancelled the cooperation between the two parties. This is a typical case of a brand evaluating its revenue and changing its decision.
• On March 19, Li Jiaqi promoted a hair removal device in his live broadcast room. Later, many consumers complained that the products they received were not the same ones shown in the live broadcast room.

As a sales channel, live streaming can only focus on early product selection and discounts. The host team does not have much control over the merchant’s performance and after-sales service in the later stages of the transaction. There are many such incidents. The reason why Li Jiaqi's "crashes" seem to be more common is simply because he is the leader, and these incidents happened during live broadcasts and are easier to be seen by everyone on social media.

It should be noted that although there have been many phenomena of "county governors selling goods through live broadcasts" and farmers selling goods through live broadcasts, such as direct delivery from the source of goods, in essence, whether it is Taobao live broadcast or live broadcast sales on platforms such as Kuaishou and Douyin, it is still based on the e-commerce model. It's a very simple truth. When I live broadcast and sell local specialties in the village, I am not selling them to my fellow villagers, but to complete the transaction with someone thousands of miles away through a mature e-commerce platform, channels, and after-sales system. Therefore, what needs to be measured in live streaming e-commerce is whether it can further improve operational efficiency based on the traditional e-commerce model, rather than comparing it with traditional offline store operations. Even from a retail perspective, there are huge differences in sales and consumption between online and offline. Many business operations that have shifted from offline to online during the epidemic will eventually return to their original track.

3. Buy traffic or buy brand?

Taobao Express, Taobao Affiliate, Jingzhuntong, etc., as well as brushing orders and brushing ratings (although they are gray industries), are all common means of buying traffic. Live streaming with goods is not only a new form of e-commerce agency operation, but also has the function of "buying volume". In addition to "small profits but quick turnover", many merchants and brands can also accept "loss-making business". In this case, they are more concerned about exposure and increasing brand awareness. Fast and large-scale shipments through live broadcasts can also help increase the recommendation weight of some new products and stores on e-commerce platforms.

After the rise of e-commerce, many traditional brands have transformed into online channels, and the demand for e-commerce operation has emerged. In traditional e-commerce agency operations, how to balance online and offline businesses is also crucial. For example, should the online and offline products be the same? Are the same items of the same price and quality? For the retail industry, maintaining a balance in the price system of each channel is a delicate job. After the popularization of e-commerce, all commodities can be compared in price, but "price is not everything". What ultimately determines consumer purchasing behavior is the combined effect of different factors such as differences in consumer categories, urgency, and cultural attributes. On the night of Luo Yonghao's first Douyin broadcast, e-commerce and price comparison platforms launched special sections such as "Same Style as Lao Luo's Live Broadcast" and "Lower Than Lao Luo". The "Lowest Price on the Whole Network" itself is a comparative discount rather than an absolute discount, and it is obvious that it is trying to ride on the popularity of the platform. But it also reflects a problem that live streaming e-commerce has not yet solved: Will the preferential prices of live streaming have an impact on the pricing system of manufacturers and brands?

On the industry side, the regular price (price tag price) of a standardized brand is generally the actual selling price (often seasonal). In addition, there are discount prices, promotional prices, activity prices, and hook products (special price models). The regular prices of more commodities, especially those sold online, are generally confusing. For example, Luckin Coffee’s regular prices and competing products are benchmarked against Starbucks. After a 18% or 38% discount, it is actually similar to convenience store coffee. So at what level are Luckin’s products themselves?

From the consumer's perspective, the only thing that can be evaluated in the end is the terminal channel price, that is, the difference in "final price". "Buyers are not as smart as sellers" will not change. Back to e-commerce live streaming, it is a common practice to give special prices to products in the live streaming room through special channels. For many brands, they want to gain exposure and user growth through this kind of "hook product", but there are also many merchants who do it purely for the purpose of achieving quick shipment.

Anson, who works in digital marketing, provided a case. He had previously encountered a traditional manufacturer client who wanted to transform. They provided the client with brand positioning planning and delivery plans, and provided a complete set of digital marketing solutions. But this customer said: "Brands are useless. Now we can sell products with the help of influencers." "No need to build a brand, as long as the products can be sold." Many merchants who blindly enter the live streaming e-commerce market may think so, but without a brand, there will be no premium, and the profit will not increase if the products are promoted by influencers.

Merchants want to choose anchors, and anchors are also choosing brands and products. First-tier brands charge lower commissions, which is also a manifestation of brand premium. Anson's client has his own factory, which does OEM for some European and American mid- to high-end brands, so he doesn't understand why he doesn't want to build a brand.

There is a saying that live streaming is a “what you see is what you get” model. Is this beneficial to brands? From the perspective of exposure and brand alone, the effectiveness of live streaming also needs to be fully evaluated. Exposure has both advantages and disadvantages. Whether it is Li Jiaqi, Wei Ya, or Lao Luo, the most widely spread brands after the live broadcast are often the "crashed" brands. From a branding perspective, live streaming does not actually have as much impact on a brand as content such as pictures, texts, and short videos. As part of asset management, brand strategy should be a long-term strategy. The immediacy of live streaming is contrary to the long-term needs of the brand.

For example, people often say "same style as Ins", "same style as Xiaohongshu", "same style as Douyin". These contents (which are also commodities) can withstand dissemination, consumption, and reproduction, and finally form cultural and brand recognition. However, the instant nature of live streaming makes it difficult for it to have the "grass-planting" ability of pictures, texts, and short videos.

Of course, Li Jiaqi also helped promote brands such as L'Oreal and Guerlain. This is a reflection of the compatibility between the host and the products and brands, and is also directly related to the professional capabilities of the host team. Brands need to invest money in suitable hosts for a long time, and it is difficult to say that this kind of income is cost-effective. Live streaming sales is not a panacea. It is possible to make a profit by finding the right platform, anchor, and pricing. Blindly pursuing the "live streaming effect" without doing a good job of cost control and revenue assessment will not necessarily make money and will most likely fail.

4. Live streaming and capital movement

On January 9, 2020, Yujiahui, the parent company of "Yu Nifang", received an inquiry letter from the Shenzhen Stock Exchange's Growth Enterprise Market Company Management Department, asking about its cooperation model and content with internet celebrities, as well as the impact on the company's operating performance, and whether there was any situation of exaggerating the impact of cooperation with internet celebrities. Qingyan (a beauty media) reported that on January 14, Yujiahui issued an announcement in response to an inquiry letter, stating that it had cooperated with Li Jiaqi on live broadcasts 47 times throughout 2019, cooperated with Wei Ya on live broadcasts more than 30 times, and cooperated with more than 1,500 Internet celebrity anchors such as Chen Jie Kiki and Lieer Baby, with a total number of live broadcasts exceeding 8,000.

In the first three quarters of 2018 and the first three quarters of 2019, the sales of products involved in Yujiahui's cooperation with internet celebrities accounted for 0.99% and 4.02% of the company's operating income respectively. Yujiahui stated that the more than 8,000 live streaming sales events do not yet constitute the main source of sales and have little impact on the company's operating performance.

In addition, Yujiahui also announced its own promotion and sales proportion in 2018 and January-September 2019. Yujiahui's brand promotion expenses in January-September 2019 shrank significantly, but the proportion of platform promotion service fees in sales expenses further increased to 38.51% (35.49% in 2018).

The platform promotion service fees in Yujiahui's announcement mainly include advertising on e-commerce platforms or purchasing brand promotion services or commissions paid to channel dealers, technical service fees, promotion service fees or software service fees, rebates, etc. This shows that Yujiahui still has a high level of platform promotion expenses. The reason why the Shenzhen Stock Exchange inquired about Yujiahui was that Yujiahui announced to investors the fact of cooperation with Internet celebrities, but did not explain the specific impact of this business on the company's operations. In response, the Shenzhen Stock Exchange asked it to explain whether it had actively catered to market hotspots, hyped up the company's stock price, and cooperated with shareholders in reducing their holdings.

From the content of Yujiahui’s announcement, it can be seen that it is a fact that it cooperates with internet celebrities, the scale of its cooperation with internet celebrities is not low, and it is also a fact that the sales share is not high. Coincidentally, live streaming e-commerce, as an emerging concept, is not an isolated case of turmoil in the capital market. On February 11, Xiamen Sanwu.com issued a major asset reorganization announcement, intending to acquire Shanghai Wanrui (Internet Star Dream Factory), an MCN company with more than 700 Internet celebrity IPs and 500 million fans. Currently, Shanghai Wanrui has also increased its investment in live streaming.

After the announcement was released, Sanwu.com's stock price continued to hit the daily limit. Subsequently, Sanwu.com received two inquiries from the Shenzhen Stock Exchange and was asked to answer several major issues in the acquisition: whether the disclosure of the plan was prudent, whether there was insider trading, whether the actual controller had a plan to reduce holdings, and the target company's core competitiveness and sustainable operating capabilities. In the second inquiry letter, the questions about the target company Shanghai Wanrui were particularly sharp:

Please disclose the statistical caliber of "more than 500 million fans", whether there is any case of "buying fans" and double counting of the number of fans;

Please disclose more than 700 Internet celebrities, and list by category the number of small and medium-sized incubated Internet celebrity IPs, big Internet celebrity IPs, and top Internet celebrity IPs;

Please disclose the integrated marketing cases and customer order amounts completed by the target company;

In response to the Shenzhen Stock Exchange's inquiry letter, Sanwu.com disclosed that Shanghai Wanrui's revenue in 2019 was 120 million yuan; of the so-called 500 million fans, 260 million were Weibo fans, and the proportion of active fans of the company's Weibo account was only 12.61%, or about 32.78 million. Regarding the statistical caliber of "more than 500 million fans" in the inquiry letter, Shanghai Wanrui denied the "purchase of fans" and admitted the problem of double counting. The duplication mainly includes one fan following the same internet celebrity on multiple platforms and multiple internet celebrity IPs on the same platform being followed by the same fan.

The inability to effectively count fan data is actually a common problem in the entire field of online marketing and MCN. Especially for live streaming, which emphasizes purchase conversion, there is still a lack of transparency in the net value of customer orders brought by fans. In recent years, there has been capital speculation in concept stocks related to Internet celebrities and MCNs, and they are also facing doubts from the capital market about their business models. After Ruhnn Holdings went public, although it has been trying hard to cultivate new top influencers, more than 50% of the company's revenue is still generated by Zhang Dayi alone; Mei ONE relies on Li Jiaqi, and Qianxun relies on Viya. Dependence on top influencers is a common problem in the industry.

After the acquisition case was questioned, Sanwu.com also received a warning letter from the Xiamen Securities Regulatory Commission to its controlling shareholder and actual controller, a letter of concern from the Shenzhen Stock Exchange's Growth Enterprise Market, and a public condemnation and punishment from the Shenzhen Stock Exchange for suspected violations by its controlling shareholder and chairman. Sanwu.com's plan to acquire Shanghai Wanrui will be full of twists and turns. On the other hand, live streaming e-commerce, which relies more on the trust relationship between anchors and fans, requires a new business model that cultivates a stable user base, and also needs to answer questions about industry standardization and large-scale growth.

5. Live streaming as a connection channel

As a form of e-commerce agency operation, live streaming sales should also go back to the live streaming format to measure its value. We have said before that live streaming is just a tool. The field it constructs is determined by the existing identities of the transmitter and receiver at both ends of the screen, as well as the field characteristics of the live streaming platform. In the field of live streaming with goods, the anchor and the consumer are the senders and receivers at the two ends of this field. No matter whether the live broadcast room is joking, teasing dogs or telling crosstalk, in the end it all comes back to a series of issues such as product price, quality, after-sales service, etc.

So, how do we understand the value of live streaming as a tool?

In "Flash Point", Baharat Anand quoted the "dumb pipe paradox" proposed by Craig Moffitt to discuss the pipeline role played by cable TV companies in the era of streaming media. The "pipeline" metaphor can also be used to understand the value of live broadcast. The "dumb pipe paradox" reveals a reality: under the impact of the Internet, cable TV service providers in the United States abandoned their content lines and transformed into information infrastructure providers, which also fundamentally changed their own value in the digital age. Therefore, they will not be strangled by the rise of online media.

A domestic example is the communications service providers represented by the three major operators. Traditional communications services such as telephone and text messages have been increasingly replaced by Internet communication software, but as infrastructure providers, the operators' revenues have been growing. Data from the Ministry of Industry and Information Technology show that the growth rate of telecommunications business revenue continued to increase steadily from January to November 2019, with a total of 1.2039 trillion yuan in telecommunications business revenue, a year-on-year increase of 0.5%, with the growth rate steadily increasing. Looking at the operators' revenue, China Mobile's full-year operating revenue in 2019 was 745.9 billion yuan, China Unicom's full-year operating revenue in 2019 was 290.51 billion yuan, and China Telecom's operating revenue in 2019 was 375.734 billion yuan.

Correspondingly, Alibaba Group's revenue in fiscal year 2019 (April 2018 to March 2019) was 376.844 billion yuan, and Tencent's full-year revenue in 2019 was 377.289 billion yuan. From the perspective of revenue alone, the two Internet giants combined can only match China Mobile alone.

Even though many people have long given up the habit of sending text messages, domestic mobile SMS business revenue still reached 35.8 billion yuan from January to November 2019, a year-on-year increase of 2%. If Internet companies like Tencent and Alibaba are cars, then communications service providers are roads. This is the value of pipelines, and it is also the embodiment of “channels are king” in the communications industry.

The principle of pipeline value also applies to Internet platforms such as Taobao, Douyin, and Kuaishou. What the platform needs to consider is the growth of its entire traffic market. When short videos are popular, encouraging short videos, and stimulating live broadcasts when live broadcasts are popular, are both very realistic phased growth strategies. As far as the field of live streaming e-commerce is concerned, an obvious problem is that although the platforms have said a lot of words to encourage the development of the industry and have issued many policies, in reality they are still promoting a few top anchors. It is enough for the platform to stimulate the industry's enthusiasm for participation through the demonstration effect of top anchors. Another question worth thinking about is, will the platform really spare no effort to support live streaming sales?

6. Live broadcast room: Internet celebrities, sinking, private domain

China Merchants Securities' research report on live streaming e-commerce points out that the essence of live streaming e-commerce is the reflection of brands' desire for private domain traffic. The report also believes that live streaming e-commerce has reshaped the relationship between people, goods and the market: 1. People have changed from active consumption to passive consumption; 2. Goods have eliminated middlemen and brought products closer to their place of origin; 3. The market's functions of "clairvoyance + super hearing" have become a reality. In 2017, after Jack Ma proposed the concept of "new retail", Zhang Yong, then CEO of Alibaba, continued to interpret new retail from the concepts of "people, goods, and places", pointing out that the reconstruction of all business elements and the efficiency improvement brought about by the reconstruction of elements are the key.

In the following years, the "people, goods and place" theory continued to be widely used to interpret trends in the retail and consumer sectors, such as social e-commerce, community group buying, fresh food e-commerce, and even appeared in industries such as smart homes and e-cigarettes. During this period, the "people, goods and place" theory has undergone a more obvious marketing conceptualization, from the relatively complex and macro level of new retail to more vertical fields and industries, and even narrowed to a specific product or function, while placing more emphasis on methodology and quick results.

An e-commerce live broadcast that can achieve sales of over tens of millions or hundreds of millions of goods seems to be a perfect fit for the efficiency improvement of the so-called "people, goods and place" reconstruction. However, can the considerable sales ability of a host and a live broadcast really verify the "people, goods and place" theory? Looking back at the retail industry, there are still too many uncertainties as to whether the scale, stability, and efficiency control required for factor reconstruction can be popularized and verified in the long term:

As we mentioned above, live streaming e-commerce has seen a head effect and has gone a step further; for example, even for the head MCNs such as Han and Qianxu, a research report by China Merchants Securities also stated that such institutions are currently small in size, and their business models and profitability have yet to be verified. In recent years, whether it is new retail or social e-commerce, the so-called "people, goods and places" model innovation often falls on the innovation and change of consumption scenarios.

In the evolution of consumption scenarios, we can use the concepts of Internet celebrity economy, sinking market, private domain, etc. in recent years to establish a simple analytical framework to further explore e-commerce live streaming:

As we all know, Li Jiaqi was a BA (cosmetics counter beauty consultant) at L'Oreal in his early years and won the sales championship. At the end of 2016, MCN agency Mei ONE cooperated with L'Oréal Group on the "BA Internet celebrity" Taobao live broadcast project. After participating in the competition, Li Jiaqi signed a contract with Mei ONE and became a beauty expert. Since then, he has accumulated a large number of fans in Taobao live broadcast. During the Double 11 period in 2018, after "PK" with Jack Ma in selling lipsticks, the "Lipstick King" gradually became popular. Has Li Jiaqi proved that the “BA Internet celebrity” project is successful?

As of March 29, 2020, Taobao rankings show that among the top 100 live streaming influencers on Taobao, only Li Jiaqi and Hu Yueming_demi are signed by Mei ONE. In addition, according to the data currently available, Hu Yueming_demi's Taobao fans had reached 850,000 as early as February 2018. She is currently ranked 18th on the influencer list, with just over 1.15 million Taobao fans.

(Li Jiaqi's early introduction, Mei ONE)

There are various accidental and inevitable factors for Li Jiaqi's popularity. "BA becoming an internet celebrity" is an opportunity for Li Jiaqi, but the project itself is far from a success. It can even be said that Li Jiaqi is an accident of this project. Until now, Mei ONE is still too dependent on Li Jiaqi. Qianxun, which ranked first in the Taobao ranking, reflects another side of e-commerce live streaming in terms of talent operations:

Although she is not as popular as Li Jiaqi, Viya is still another top anchor among Taobao anchors. This is due to Viya's long-term accumulation of offline retail and online stores, as well as the support of institutional operations after the establishment of Qianxun. In the Taobao ranking list of the same period, among the top 100 Taobao live broadcast talent index, 14 are artists under Qianxun. In addition to talents incubated by itself like Wei Ya, Qianxun is also more proactive in signing talents, such as Shen Ye Lao Shi Xu, Zhang Mofan and other well-known beauty bloggers and internet celebrities. Qianxun's strategy of signing top influencers is in line with the naturally formed trend of "Internet celebrity BAization" after the explosion of e-commerce live streaming, that is, more and more Internet celebrities and stars with voice want to enter this industry.

This also reflects that MCN agencies such as Mei ONE, Qianxun, Ruhan, and Wuyou are still unable to realize the vision of "mass cultivation of Internet celebrities". In terms of Internet celebrity incubation and monetization capabilities, MCN agencies have hardly made any major changes or progress in recent years. MCN itself has become a trend by following the trend. Whether it is a content production organization or a service provider with content marketing as its core, this is the "vicious circle" that MCN has not been able to get out of.

When it comes to becoming an internet celebrity, Kuaishou and Douyin, as important platforms for internet celebrities to sell goods through live streaming, have obvious differences from Taobao Live. Data from China Merchants Securities shows that the average daily transaction volume of Kuaishou's live streaming sales in 2019 was 100 million yuan, and is expected to be 40-50 billion yuan for the whole year; Everbright Securities predicts that the narrow-caliber transaction scale of Kuaishou's live streaming sales will be 25 billion yuan (transaction scale within the platform) and 150 billion yuan (transaction scale directed to WeChat by anchors). The popularity of Kuaishou Live is not so much due to the emergence of the "e-commerce live streaming" trend as it is the exposure of Kuaishou Live's own ability to sell products. The number of users that Kuaishou has accumulated in the sinking market over a long period of time, the trust base of anchors and the habit of selling goods through live streaming are the basis for Kuaishou to become the second platform for live streaming sales.

As for the sinking market, we have mentioned in our previous reports that the "Internet going to the countryside" represented by the sinking market is actually a continuation of the "information equality" movement, and its greatest significance lies in the reconstruction of information elements. The third- and fourth-tier cities, small towns, and the vast rural markets are associated with more complex channels, interpersonal patterns, and differences in consumption concepts, but fundamentally it is still a problem of urbanization. From the perspective of urbanization, the sinking market and the private domain are actually highly compatible:

Because they have been more thoroughly transformed by commercial culture, cities have typical characteristics of consistent consumer culture. For example, consumer brands such as Haidilao and Heytea, and commercial real estate brands such as Vanke Center and Wanda Plaza are very popular in first- and second-tier cities, and there are also many of them in some third- and fourth-tier cities. However, in small towns, rural areas and other areas, more traditional business models are still highly competitive. Even online ride-hailing and food delivery services, which are prominently Internet-based, may not be able to compete with local car rental and food delivery services in these areas. As for the differences in consumer brands, from the early store sinking strategies of vivo and OPPO, to the franchise operations of traditional dealer stores such as Guirenniao and Yilcon, their brand recognition in the sinking market is also very high.

Another example is some businesses in special fields and specialized services, which are based on the different demands of different markets. This is a reflection of the “different voices in different places” phenomenon in the consumer field. To put it simply, the difference in lifestyle between residents in first-tier and second-tier cities is far less significant than the difference between county towns and rural areas. Urban culture is consistent, so Internet celebrity stores can be opened all over the country; in the sinking market, cities, towns, and villages, each level is a layer, and consumer goods vary greatly.

The term "sinking market" became popular around the time when Pinduoduo went public, and the term "three giants of sinking" also appeared. By the end of 2019, the term "sinking market" was more replaced by private domain. Because the entire sinking market is actually a collection of countless small private domains, which are both interconnected and divided. There is a market in the sinking market, but it is not a big market.

In 2019, Kuaishou worked hard to enter the first and second-tier cities, and Douyin adopted a sinking strategy, based on information services to break the so-called "inside and outside the fifth ring" barriers. The actual effect is actually coming to an end. Back to live streaming sales, the reason why "Internet celebrity BAization" has become mainstream is because Internet celebrities are a shortcut to private domains. However, the popularity and consumer trust of internet celebrities are built on long-term content and social maintenance. No one can maintain popularity just by selling goods. Li Jiaqi’s transformation into an artist is an example of this.

7. Thoughts on e-commerce live streaming

Regarding e-commerce live streaming, the stakeholders, business models, and retail changes involved are a very complex and unsystematic issue. This article is not complete and there are many issues that are not included, such as:

• Is it e-commerce live streaming or live streaming e-commerce? What's the difference?
• Is live streaming sales a dealer’s mindset or an e-commerce agent’s mindset?
• Is live streaming sales a consumption upgrade or a consumption downgrade?
• Can e-commerce live streaming impact the manufacturing end of the retail industry?
• Against the backdrop of slowing growth in the entire retail industry, is e-commerce live streaming merely a battle for existing market share?

The following are some fragmented but valuable thoughts:

1. Whether it is Taobao or Douyin and Kuaishou’s live streaming sales, they cannot break through their own platform positioning. From this, it can be inferred that Kuaishou's live streaming sales will encourage both self-built and external e-commerce models, while increasing advertising share; Douyin's short video marketing is stronger than live streaming sales, and it will remain an advertising growth strategy in the long run; Taobao Live APP must rely on Taobao's continuous traffic diversion, and it is difficult to make it a separate consumer platform, but it can be made into a tool.

2. According to Taobao data, about half of the merchants have used Taobao live streaming to sell goods. From an operational perspective, gradually improving the form of merchants’ self-broadcasting will become an important means to balance costs and operational growth.

In fact, whether it is Taobao Live or other content platforms or brands’ live streaming sales, this kind of “de-internet celebrity” live streaming sales has become quite common. From an employment perspective, the de-influenced store clerk sales model is the onlineization of traditional BAs. The ceiling will not be very high, but it will be sustainable. In addition, don’t be too superstitious about the effectiveness of live streaming. Taobao Affiliate, Taobao Alliance, Jingzhuntong, etc. still have good channel effects, and can even attract traffic to WeChat and mini programs to make transactions. The key is cost control and overall efficiency improvement.

3. The impact on the consumption sector due to differences in urbanization, lifestyle and popular culture cannot be ignored. Even in cities, there are constant commercial and brand innovations hidden, such as Cha Yan Yue Se, which has not yet left Changsha. The birth and development of a new consumer brand should bring vitality to the consumer market and enrich our urban culture.

4. The efficiency of e-commerce live streaming in matching people, goods and places should be evaluated on the basis of e-commerce. The onlineization of many industries in the current epidemic stage is a last resort. We are still waiting for an opportunity to return to the offline consumption space, not for "retaliatory consumption", but for a more realistic life.

5. The low-price strategy of e-commerce live broadcasts is hidden in the connotation of promotions, so it is difficult to change. The platform-led low-price is C2M on the other end, but it is difficult to understand whether it is the C2M model.

In the not-too-long history of retail industry development, "factory goods" often refer to "final goods" (the sound of factory bankruptcy in Wenzhou, Zhejiang is still there), and C2M still needs to be verified by consumer culture, which may lead to differentiation of consumer groups and categories. For example, it is basically difficult to make C2M in clothing. Even the basic model is the same as the brand, different brands have their own connotations; for example, the joint model that Uniqlo was stolen, consumption is not only a purchase, but also a kind of self-expression. From this perspective, C2M may not be as good as the pseudo-factory model of OEM, ODM, and OBM.

6. The two fundamentals of consumer business are: one is manufacturing and the other is retail. Innovation in retail models is inseparable from the progress of manufacturing. Only more efficient and benign manufacturing development can bring about real consumer surplus. “Consumer surplus is an important indicator of consumer welfare.

Author: Blue Whale Muddy Water

Source: Blue Whale Muddy Waters (ID: hunwatermedia)