Is Tik Tok restricting influencers from promoting products?

In the past few months, Douyin has been imposing more restrictions on online influencers’ sales (whether live streaming or short videos), which include:

Starting from January 2020, the number of "videos with shopping carts" that all accounts can post will be restricted. The smallest account can only post one post a day, and the largest internet celebrity account can only post ten posts a day.

Starting from mid-February, all accounts that have opened e-commerce permissions must undergo "four-factor verification" (name, ID number, mobile phone number, and face) and pay a deposit of 500 yuan; the deposit must be paid by the individual and cannot be paid from a public account.

Starting from the end of 2019, after clicking on the product link in Douyin content, users will no longer be automatically redirected to third-party platforms such as Taobao, but will be redirected to a Douyin internal information flow interface; of course, users can eventually jump to Taobao to place an order.

Douyin imposes strict restrictions on influencers’ sales activities

Among MCNs and internet celebrities, there is a scary rumor circulating: Douyin may gradually cut off or even completely stop CPS sales on third-party e-commerce platforms (mainly Taobao/Tmall) within a few months.

In the opinion of the leader of the Phantom Thieves, the above statement is a bit exaggerated, but not impossible. From the perspective of Douyin and even ByteDance as a whole, it is a very rational choice to implement strict control over online influencers’ sales (regardless of whether the transaction is completed on Taobao or within Douyin).

We estimate that, based on GMV, Douyin is the third largest online influencer sales platform in the country - Taobao Live is first and Kuaishou is second. Behind it is the newly emerging Pinduoduo live streaming, the cautiously testing the waters at Bilibili live streaming, and Xiaohongshu, which does not encourage direct live streaming of goods. Although Douyin is not the largest platform for selling goods, it has no pressure to remain in the top three; if it wants, it can also try to challenge Kuaishou's position.

The question is: What is the significance of the business of influencers selling products to Douyin? Can what Douyin gets from it really cover all the costs?

Financially speaking, the answer is clear - the traditional CPS model (leading to Taobao transactions) is not worth it for Douyin. During the entire process of selling goods, Douyin paid for traffic, bandwidth and technical support, but could only get single-digit technical service fees.

The biggest beneficiaries are the internet celebrities themselves, followed by third-party platforms such as Taobao/Tmall, and finally Douyin. If the user time consumed in live streaming e-commerce is used to watch general entertainment short videos, more advertisements can be inserted, bringing in higher revenue.

So, is it possible to kick out third-party e-commerce platforms and let Douyin do e-commerce itself, consuming all the traffic internally? Unfortunately, this is still not possible in the short or even medium term. In the course of more than ten years of development, Taobao e-commerce has built a complete shelf, deep-rooted user habits, and a good fulfillment system, which is not something that ByteDance or any other company can replicate in the short term.

It can be seen that Douyin’s restrictions on online influencers’ sales activities are the same for everyone - even if the transaction is made within the Douyin showcase, the restrictions cannot be avoided. We can only assume that Douyin has lowered the priority of influencer sales in its overall business.

All girls...next sentence?

Not only Douyin, but Kuaishou is also thinking about the significance of internet celebrities’ sales promotion behavior. We estimate that Kuaishou’s monetization rate of GMV is likely to be lower than that of Douyin. However, Kuaishou’s biggest advantage is that its sales traffic distribution model is purely private and does not consume the platform’s centralized resources.

Specifically, ByteDance’s three major short video applications - Tik Tok, Volcano, and Xigua - all have centralized live broadcast traffic distribution venues, such as home page recommendations and tabs. Li Jiaqi’s ability to sell 1 billion products on Douyin in one day is inseparable from the official influence of Douyin. Since it is a centralized traffic diversion, it will consume official resources and must pay attention to the return on investment.

Kuaishou’s sales activities are “mostly private”, mainly appearing on the user’s follow page, and also appearing a little on the same city page. Kuaishou’s community culture and organizational model determine that it will not learn Douyin’s “algorithm is king” approach, so it can adopt an attitude of acquiescence or even encouragement towards online celebrities selling products. However, by the second half of 2019, the "wild growth" of Kuaishou influencers in selling products had basically ended, and the authorities began to impose more and more control.

Ultimately, no large traffic platform wants to work for Taobao e-commerce; but they do not have the ability to build a Taobao e-commerce platform themselves. Taobao/Tmall are certainly happy to see the model of influencers bringing products to consumers flourish. After all, this model was first created on Taobao Live, and it is still the model that Taobao Live is most adept at using. I would not be surprised if one day, the combined GMV of live streaming/video sales from internal and external sources exceeds 25% of the total GMV of Taobao e-commerce (with internal sources accounting for the majority).

Taobao live streaming remains the most important hub for influencers to promote products

Pinduoduo Live is clearly following the steps of Taobao Live: in the initial stage (that is, now) it is only a small-scale trial behavior, and there is no special area on the homepage; when the functions are mature and user habits are formed, it may be placed on the second screen of the homepage function list; when the ecosystem is fully mature, it will be placed on the first screen. Like Taobao/Tmall? Pinduoduo itself is an e-commerce platform with both traffic and supply. Developing live streaming to sell goods is a rational choice.

Interestingly, I once thought that Pinduoduo would definitely strengthen its cooperation with Kuaishou in terms of online influencers bringing products to consumers - the user portraits and tones of these two platforms are so consistent! However, Pinduoduo seems to be more keen on doing it on its own. This is easy to understand: Pinduoduo's traffic is still on the rise, and it is not hungry for traffic from third parties (except WeChat). It is also eager to extend user time. Once Pinduoduo's traffic reaches its peak, its strategy may change again.

In any case, for most e-commerce MCNs, the challenges in 2020 will be far greater than the opportunities: the market is becoming more and more crowded, the head effect is becoming more and more obvious, the two major platforms, Douyin and Kuaishou, are imposing more restrictions, and the entire e-commerce market has also been significantly affected by the overall environment. If the total size of a market does not grow, user habits do not change significantly, and there is no major innovation in the business model, then the Matthew effect will undoubtedly occur.

Of course, for the top few internet celebrities and their MCNs, now is their most glorious moment. Simba (Xin Youzhi Yanxuan), the top internet celebrity on Kuaishou, has a GMV target of 100 billion yuan in 2020, with apparel and beauty products being the mainstays. If one day Simba himself becomes a vertical e-commerce platform, or even gradually transforms into a mainstream e-commerce platform, it would not be too surprising.

Simba’s sales target for 2020

Of course, most of the super internet celebrities such as Simba, Viya, and Li Jiaqi and the MCNs behind them have nothing to do with A-share investors. They are very popular and have already attracted a number of US dollar VCs. They will most likely go public in the United States or Hong Kong in the future. A-share companies are also unlikely to acquire them because the valuations are too expensive.

To be honest, in the Internet industry and the primary market, the concept of MCN had been fully explored as early as 2015-17; MCN, which mainly focuses on e-commerce sales, also received sufficient attention and investment as early as 2018-19. It is somewhat strange that A-share investors suddenly started paying attention to this sector since the end of 2019. In any case, due to the A-share market’s cumbersome approval mechanism, weak financing capabilities, and no longer attractive valuations, the likelihood of the largest and most profitable MCNs eventually listing on the A-share market is low.

Of course, from a business model perspective, MCN may not have any fundamental advantages compared to previous artist management companies or even film and television content companies. It is still a highly concentrated and highly unpredictable industry; it changes too fast and has too many tricks for outsiders to keep up with the pace. Suddenly, so many secondary market investors came out to chase after MCN overnight. I still haven’t figured out the reason behind this.

It is very likely that many things in the world make no sense at all.

Author: Pei Pei, leader of the Phantom Thieves

Source: Internet and Entertainment Phantom Thieves (TMTphantom)