China-Style Livestream E-Commerce: How Relevant Is It for Russia?

Billionaire Robin Li, founder of Baidu. Dong Mingzhu, the “Queen of Home Appliances” and CEO of electronics manufacturer Gree. Lu Yunhao, CEO of smartphone manufacturer Smartisan and a promoter of video bloggers. Over the past several months, a number of prominent figures have entered China’s livestreaming industry.

Livestreaming has a very broad reach in China. Initially a low-budget, grassroots phenomenon, it became an essential part of marketing in China as a result of COVID-19.

“As e-commerce and content merge into a single whole, commerce and livestreaming platforms have become frenemies.”

Livestreaming is closely connected with e-commerce, short videos and gaming. China’s livestreaming-based market grew to RMB 61 billion, or approximately $8.6 billion, in 2019. According to forecasts by research firm EqualOcean, it was expected to grow at a compound annual rate of 12% and could reach RMB 100 billion, or $14 billion, by 2023.

Among the various segments, livestream e-commerce has developed into a major monetization model for local players and a key marketing tool for businesses seeking to reach Chinese consumers digitally. The livestream e-commerce market was expected to reach RMB 23.6 billion, or $3.3 billion. An EqualOcean report stated that livestreams were already being watched by 520,000 users in 2020.

Video Blogger or Salesperson?

Popular livestreams are hosted by celebrity KOLs — key opinion leaders and streamers — who build loyal audiences through QVC-style online shows. The best-known personalities, such as “Lipstick King” Li Jiaqi, go far beyond sales: they become meme celebrities, and even pets are named after them.

At the same time, thousands of less prominent streamers are becoming virtual salespeople, presenting products to potential customers. One example is Lu Lu, the owner of a virtual vegetable shop on Taobao Live. Once an order is placed, the livestream shows the seller weighing the product and preparing it for shipment.

Many livestream e-commerce hosts resemble virtual sales assistants more than celebrities. They patiently explain product features on camera and answer viewers’ questions in real time. When browsing a product page — for example, for an electronic toy or face cream — customers will often see a link to a live or recorded stream in which a host demonstrates the product.

The growth of livestream e-commerce has also brought significant challenges. Users have complained about misleading advertising, vulgar content and exaggerated product claims. As a result, from July 1 the Chinese government began introducing rules requiring advertising information in livestreams to be “complete, truthful and accurate.” Streamers were prohibited from misleading consumers through exaggeration or inappropriate content. Violations were to be handled by the China Advertising Association.

Pandemic-Driven Boom

COVID-19 unexpectedly had a positive impact on online commerce in China. Many brands and retailers turned to livestreaming to mitigate the impact of the pandemic and avoid losses. This enabled companies heavily dependent on offline showrooms to conduct online events, including automakers such as Nio and Tesla.

According to China’s Ministry of Commerce, more than 4 million e-commerce livestreams were held in the first quarter of 2020. This was precisely the period when China was under lockdown due to the COVID outbreak.

Compared with entertainment livestreaming, e-commerce livestreams have a greater chance of converting occasional viewers into regular customers, creating new marketing opportunities for brands and improving the shopping experience for consumers.

MARKET PLAYERS

Virtually every company interested in livestream e-commerce has attempted to bring together two types of platforms: e-commerce platforms such as Alibaba, Pinduoduo and JD, and short-video platforms such as Douyin and Kuaishou.

With its experience and extensive user base, Taobao is the proverbial “elephant in the room” to which all other players are responding with varying degrees of success. As competition intensifies, each platform is trying to differentiate itself by targeting different groups of consumers and brands.

It is difficult to determine precisely how the competitive landscape is taking shape because data on this phenomenon remains limited, but the overall picture is approximately as follows.

Taobao Live

• As one of the pioneers of the “livestreaming + e-commerce” model, Alibaba’s Taobao Live was the undisputed market leader, with 2019 gross merchandise volume estimated at RMB 200–250 billion, or $28–35 billion.
• It was one of the largest livestreaming platforms regardless of seller scale, user base or sales volume.
• In 2019, the platform accounted for almost 80% of all purchases made through commercial livestreams.
• During China’s largest annual shopping event on November 11, 2019 — Singles’ Day — Taobao Live generated RMB 20 billion, or $2.8 billion, in gross merchandise volume, equivalent to 7.5% of Alibaba’s total sales of RMB 268.4 billion, or $37.8 billion.
• Taobao Live was available both as a section within the Taobao marketplace app and as a standalone application.
• Like Taobao itself, the most popular Taobao Live product categories were women’s clothing, skincare products, food and jewelry.
• The platform also sold high-value products, including cars, real estate and consumer electronics.
• The prominence of these categories reflected the fact that women and younger consumers formed the platform’s core audience.
• According to a Taobao report published in Chinese, around 70% of the Taobao Live audience were women, while most users belonged to the generations born in the 1980s and 1990s.
• Sales on the platform were driven to a large extent by leading KOLs such as Viya and “Lipstick King” Li Jiaqi, backed by highly sophisticated MCNs — agencies managing streamers.
• Professional content agencies, of which there were already more than 6,500, were a major force driving China’s livestreaming boom.
• According to the 2020 Taobao service-provider white paper, the top 20% of MCN agencies on the platform — around 140 agencies — generated almost 75% of Taobao Live traffic and 80% of its gross merchandise volume.
• However, Taobao’s dependence on professional MCNs came at a high cost for sellers.
• According to Everbright estimates, marketing costs on Taobao Live consumed around 20% of revenue, with 70% of expenditure going to MCNs, while Alibaba marketing platforms Alimama and Taobao Live accounted for 10% and 20%, respectively.

Social Media

Taobao Live’s most serious competitors were not other e-commerce companies but livestreaming platforms. As livestream e-commerce developed, social-media players Kuaishou and Douyin increasingly captured traffic and KOL resources through their content.

These efforts to gain market share initially took the form of partnerships with e-commerce platforms to test real-time commerce functionality. Later, companies gradually created their own marketplaces and terminated partnerships once pilot projects became full-scale services capable of keeping users inside their apps throughout the purchasing process.

Kuaishou

• Kuaishou launched livestreaming in 2017 for a relatively gender-balanced user base concentrated in smaller third- and fourth-tier cities.
• In 2019, Kuaishou’s livestreaming gross merchandise volume reached RMB 35 billion, or $4.9 billion. It planned to increase this figure to RMB 250 billion, or $35.2 billion, in 2020.
• Livestream e-commerce accounted for 19% of Kuaishou’s total revenue of $7.7 billion in 2019, although 60% of revenue still came from virtual gifts associated with traditional entertainment livestreaming.
• These figures reflected the platform’s KOL-oriented online culture, in which users addressed one another as laotie — roughly “buddy” or “brother,” a colloquial expression used in northeastern China to describe an especially close bond.
• Thanks to its close relationships with users, Kuaishou’s e-commerce conversion rate was five to ten times higher than that of its competitor Douyin, according to a report by Frees Fund.
• However, products were mainly low-margin and low-priced. Sales of products priced below RMB 50 accounted for 63.3% of total sales, compared with 41.5% on Douyin.
• The most popular categories included personal care products, cosmetics, clothing, local food products and alcoholic beverages.

Douyin / TikTok

• Douyin did not place much emphasis on livestreaming until 2019. Since then, the business grew rapidly, encouraging KOLs to move their followers from short videos toward livestreaming and online consumption.
• Douyin projected gross merchandise volume of RMB 200 billion, or $28.2 billion, in 2020.
• Unlike Kuaishou, Douyin relied on the quality of short videos and attractive products rather than on relationships between fans and content creators.
• Douyin users were concentrated mainly in higher-tier cities, where stronger purchasing power translated into larger orders.

Other e-commerce players remained in a more grassroots segment of livestreaming. Taobao’s e-commerce partners had significantly smaller user bases and sales volumes on video platforms compared with Taobao, primarily because their business models emphasized value for money rather than trend-driven impulse purchases.
Nevertheless, Pinduoduo and JD had developed meaningful, albeit smaller, livestreaming user bases.

Duoduo Live

• Since entering the market, Pinduoduo grew rapidly through its distinctive model, which encourages users to team up with friends to purchase products in bulk.
• Livestream e-commerce attracted little attention from Pinduoduo until relatively recently, when pandemic-driven sales growth began to slow.
• The Shanghai-based company officially introduced Duoduo Live as an in-app feature in January 2019, following testing of livestream functionality in November 2018, although at that point there was little indication it would become a market leader.
• According to the company, more than 1 million of Pinduoduo’s 5.1 million active sellers had launched livestreaming sessions.
• Users aged 20–35 made the largest contribution to growth in gross merchandise volume.
• Pinduoduo’s approach to livestreaming differed radically from Alibaba’s. Because of its distinctive C2M — consumer-to-manufacturer — model, the company relied heavily on the personality of the virtual seller.
• Duoduo Live viewers were likely already considering a purchase before opening the stream — for example, because they had been attracted by a discount or referral — but used the livestream to obtain additional information before making a final decision.
• Duoduo Live focused primarily on the product itself, making the service cheaper for suppliers than MCN-driven livestreaming on Taobao Live.
• Streamers were generally non-professional KOLs with a direct interest in the product: manufacturer CEOs, government officials promoting agricultural products from their cities, or sellers themselves.

JD Live

• Livestreaming was not an obvious fit for the JD brand, which differentiated itself from other platforms through ease of use.
• JD Live was still trying to catch up with Taobao Live by following a similar high-value-added approach. Many livestreaming platforms used an “expert + celebrity + host” format, combining rich content, professional expertise and a link to the purchasing platform.
• The platform also served as a means of educating users and increasing brand awareness.
• As with Taobao, the livestreaming model involved significant costs for sellers.
• JD Live cooperated with Douyin and Kuaishou to leverage their traffic and KOL networks while also developing “super-KOLs” to promote premium products.
• In May of that year, JD announced a new agreement with Kuaishou allowing Kuaishou viewers to purchase JD products without leaving the app.
• Like Taobao Live, JD Live diversified its product categories, moving beyond consumer electronics, cosmetics and food into high-value products such as real estate.

WHO WILL DOMINATE LIVESTREAM COMMERCE?

As e-commerce and content increasingly merge, commerce platforms and video platforms are becoming “frenemies.” On the one hand, they depend on one another: video apps have traffic and content, while e-commerce platforms have brands and supply-chain capabilities. On the other hand, they compete to build the leading platform for this new model.

Alibaba has combined the strengths of both sides, allowing Taobao Live to become an independent e-commerce platform and a market leader.

Competing e-commerce platforms, however, do not have a single integrated technology stack, creating a dilemma. For JD and Pinduoduo, integration with video applications means handing over some of their most valuable assets — control over advertising, product search and customer databases. It is therefore unsurprising that such partnerships may break down.

Power appears to be shifting toward video platforms. Previously, video apps directed users to e-commerce applications such as Taobao and JD to complete purchases.
However, because the new agreement between Kuaishou and JD allows users to purchase JD products without leaving the Kuaishou app, JD effectively gives up some of its own brand visibility among its customers in order to stimulate sales through Kuaishou.

THE LIVESTREAMING ECOSYSTEM

As livestreaming becomes an integral part of e-commerce, there is also a growing need to regulate this rapidly expanding sector. This is not only because streamers often use methods that are not entirely fair or objective to persuade inexperienced consumers to purchase products.

As the range of products sold through KOLs expands, demand is also growing for professional streamer training so that hosts can effectively perform the roles of both salesperson and PR manager.

Rules published by the China Advertising Association on June 24, 2020 required e-commerce platforms such as Taobao, JD and Pinduoduo, livestreaming platforms such as Douyin/TikTok and Kuaishou, and MCN agencies to participate actively in streamer training.

Against this background, a new trend emerged in China: specialized incubators designed to teach streamers how to properly create and manage accounts across major livestreaming platforms, build audiences, promote their own brands and sell clients’ products.

• Such incubators were often established by existing creative agencies with experience managing talent, by universities and colleges attended by potential streamers, or directly by sellers and marketplace platforms.
• Regional Chinese officials also used modern livestreaming trends to address strategic objectives established by the central government.
• During the COVID-19 epidemic, when traditional sales channels proved ineffective, livestreaming platforms became an important driver of economic recovery.
• Local farmers, industrial factories, automotive companies and even travel agencies and hotels sold their products and services through streamers.
• The rapid increase in the number of incubators was driven by their relatively simple business model. Incubators generally acted as intermediaries between streamers and e-commerce platforms, providing training, premises and equipment.
• Both independent streamers and entire MCN agencies participated in incubator programs. According to Eurasia Development estimates, establishing an incubator for 50 streamers required an average investment of RMB 500,000, or $70,000, while each streamer could generate up to 100 orders per day for local manufacturers.

DOES LIVESTREAM E-COMMERCE HAVE A FUTURE IN RUSSIA?

Despite the popularity of video apps such as TikTok and Instagram among Russian users, Russia did not yet have livestreaming platforms that combined video functionality with an integrated marketplace.

• The closest existing format in Russia was popular bloggers briefly discussing a sunscreen or pair of headphones they had recently liked during one of their regular streams.
• Such a format could create a positive brand image among the blogger’s followers, but conversion into purchases remained relatively low — below 1%.
• This was partly because users watching a blog did not expect to be offered something to buy. In many cases, potential customers would not even remember the advertisement.

The distinctive feature of the Chinese livestreaming sales model is that consumers deliberately turn to streamers in order to make a purchase, because streamers can offer discounts that would not be available through conventional stores.

Users also do not need to switch to another platform to place an order: the video application is already integrated with the user’s wallet, meaning that a single click is sufficient.

• The purchasing model described above was still unfamiliar to Russian consumers. This was also related to the relatively young e-commerce market in Russia.
• Russian users could also be skeptical of the Chinese livestreaming model because of associations with television shopping channels, where intrusive advertisements between programs attempt to persuade viewers to buy unnecessary products.
• Livestreaming channels, however, differ significantly from television shopping. Visiting a livestream resembles visiting a conventional store, where a customer can ask the salesperson questions and even watch the product being used.
• In practice, purchasing through a livestream differs little from buying through Yandex.Market or Wildberries. The main difference is that instead of static images, the customer sees a live broadcast by the seller.

Given the continuing threat of epidemics and the growing popularity of online services, it is entirely possible that the spread of livestream commerce in Russia is only a matter of time.

International technology giants such as Amazon and Google were already developing services similar to Taobao Live and Douyin/TikTok. It was therefore possible that leading Russian IT and e-commerce companies would eventually launch their own solutions.
The development of such services could become even more relevant in light of the priorities set by the President of Russia for regional governments — supporting small businesses, stimulating consumption and developing domestic producers.

Innovative business models such as livestream commerce could potentially become a new driver of Russia’s economic development. In this respect, China’s experience may prove highly valuable.