4/26/22: Chinese Ecommerce Framework #2: Intent-Based Vs. Not (Search Vs. Browsing / Livestreaming)
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Insider Digest 4/26/22: Chinese Ecommerce Framework #2: Intent-Based Vs. Not (Search Vs. Browsing / Livestreaming)
Housekeeping / Announcements / Fun:
A reminder that I will be taking maternity leave beginning June 15, and will be putting your subscription on pause at that time. We’ll play by ear how it goes, but I plan to keep open the Discord server and try to be active there, but you will not be charged for anything while I am on leave (3-4 months). We may have some guest posts here and there, but I will be pausing payment for that time period.
Fellow Insider Yunfei Liu and I did a session targeted towards institutional LPs on risks in investing in China tech on Monday. Unfortunately, due to our speaker’s request, attendance was limited to institutional LPs. However, with permission, I hope to share some learnings with you over the next week.
What You Missed on the TBCI Discord
Ant Group taps top Democratic firm for US government relations
Chinese firms increasingly focusing their energies abroad
Goldman Sachs' latest report on China tech and analysis of individual stocks
Thanks Pete for sharing!
Mexico to nationalize lithium mining and may cancel a Chinese company’s contract there
Separately, CATL, the EV battery maker, has dropped 23% in the last month on a variety of concerns, including price spike in core materials
Ctrip founder James Liang wrote for a SOE magazine on how the govt shouldn’t let Zero Covid destroy the economy … it looked hopeful maybe this discussion could be had, but the article has subsequently been deleted
Beijing is headed into lockdown, I’m sure you’ve seen the tweets of empty shelves already
I tweeted this, but Will Genghong Liu, a 49-yr-old Taiwanese singer, has suddenly shot to fame by accumulating 40mm+ fans on Douyin for his workout livestreams, prompting many to ask, is there any place for verticalized content platforms such as Keep? (Of course, Keep, which has filed for an HKSE IPO, actually gets most of its revenues from hardware sales …)
Will was briefly censored 3x (it seems, probably by machine?) for his bulging pecs / male cleavage, resulting in him donning a parka and going even more viral
ICYMI, this video (with English captions), called Voices of April, promptly censored in China, filled with audio collected thus far from the Shanghai lockdown, made quite a splash in China over the weekend. Probably 60% of my feed was composed of folks sharing it on their WeChat Moments.
4/26/22: Chinese Ecommerce Framework #2: Intent-Based Vs. Not (Search Vs. Browsing / Livestreaming)
This writeup is partly inspired by some of the comments made on a recent episode of a Chinese B2C focused podcast called Crazy Capital, and partly by a noticeable divergence in e-commerce analysis that I’ve observed over the past few years between China and the West. You guessed it ... if the title didn’t give it away already, I’m referring to the difference between search-based / intentional consumption, and its opposite — unintentional consumption, which basically reduces down to two primary modes right now, browsing and livestreaming.
You’ll notice that in the West, the typical conception of e-commerce is still very traditional. Sure, there are distinctions like centralized (Amazon) vs. decentralized (Shopify) but like I wrote about in my last post of “near vs. far ecommerce,” it’s still really about aggregating more supply than you could ever fit onto retail shelves and selling them to more customers you can ever fit in your stores, 24-7, expand, rinse and repeat. It’s all about more, more and more. You win by ubiquity and amount of products, not quality of content. (Quality of service is a different matter.) And don’t get me wrong, Amazon, who is the best example of “traditional ecommerce,” is my personal favorite place to shop. But there are many other types of consumption needs that a platform like Amazon doesn’t fulfill quite as well, and the important questions are —
What do those “non-traditional” ecommerce needs look like?
What kind of companies and business models may best serve them?
How big is this market, ultimately?
So first, what do those non-traditional ecommerce needs look like?
Clearly ... no. Let’s use an example from Jack Ma himself. Jack said in 2019 in a speech to African entrepreneurs that **17mm users were browsing Taobao every night not to shop, but to kill time.** It’s a bit like the US equivalent of just going to the mall, or a lot of home shopping in the West, where people vaguely have the inclination to shop but aren’t looking for anything in particular. That’s about 10% of total DAU (~1/3 of 550mm MAU), and that’s not interacting with any real content, but just the product listings themselves, which you could view as content of the most primitive kind. The logic goes then that if the goods are actually packaged as real content — say, in the form of livestreaming ecommerce, interactive and immersive — then it would make sense that the % of users who might partake would be a lot higher.
And that’s what this non-traditional need is. Unintentional / browsing-based shopping that has more of an entertainment bent than fulfilling a clear need. Thus the demand is not rigid, and unlike the “community e-commerce” of the last post, it is less likely to be a daily necessity. To put it another way, this is your typical “want” versus “need” distinction. Instead of scaling up both supply and demand, it’s more about scaling up the most demand with a limited amount of supply. Many boutiques, versus a giant Everything store.
OK then, what kind of companies and business models may best serve them?
Let’s look at each of the major platforms and see how they serve this need, ranked from worst to best:
JD — While JD does actually have a livestreaming function, when’s the last time you’ve heard of it? Maybe their disastrous session with singer Wang Feng back in 2020? Look at the categories they excel in — appliances and branded gear. People are not going on JD to idly browse but to find exactly what they’re looking for, and then to get the best after-purchase customer service.
Pinduoduo — In some ways, Pinduoduo is a great example of “unintentional” shopping. Its two prominent features are gamification and a recommendation engine whose core purpose is to get you to buy things you didn’t “need.” I don’t know what the mix is now, but early on its life, supposedly half the purchases were from search, and the other half from browsing. Most early PM teardowns of the product noted how the platform “weakened search,” by having it show up in only one spot, and replacing it with categories that users have to wade through instead. Remember, this made sense because PDD was primarily targeting cash-poor, time-rich consumers. However, its focus on price made it less successful at livestreaming. There’s simply not enough margin to attract the best streamers, and the popular products themselves aren’t interesting visually nor really benefit from curation / explanation. Now that the platform is focusing on agriculture — it’s not the worst category, but if Douyin’s success tells us anything, it will be beautifully packaged items that do well, not straight up produce, and PDD’s low AOV may be an obstacle here. While it’s true that many livestreams are actually efforts at getting rid of excess inventory ... PDD’s core product already does that more efficiently than anything else on the market.
Alibaba — By virtue of its popular categories, apparel and cosmetics, as well as lower AOV, Alibaba is better suited for browsing. Yet we see that its livestreaming business has been quickly overtaken by Douyin, who started 4 years after Alibaba. Even though Alibaba has the bigger stars in the form of the now-deplatformed Viya and Austin, it now lags Douyin in total livestreaming GMV. In fact, many analysts blame Alibaba’s strategy of running the livestreaming business too much like traditional ecommerce, too “efficiency focused,” as the reason for why its ecosystem is imbalanced and slower to grow today. After all, it is easier to just dump traffic onto the most talented livestreamers than to try to grow a more sustainable ecosystem. To prove or disprove this would require too much data I don’t have, but I think it is a fair hypothesis, based on what we see in terms of creator dominance on the 3 leading livestreaming platforms.
Kuaishou / Douyin — These two content platforms are obviously the most successful at “unintentional” ecommerce. Their hook for the user began with the promise of entertainment, and then the ecommerce component was slapped on top of it. Since they weren’t ever trying to serve the traditional, efficiency-focused ecommerce consumer, it was never about saving time. What is time-saving about having to get onto a livestream at a specific time to buy the product you want? Nothing. Most of the time you don’t quite know you want a product before you log on. You just know that the livestream may contain things you want, just like you might want to tune into your favorite Late Night Show because you’re a fan, without even checking who’ll be on, even though the guest list is posted in advance, just like how many livestreams tell you the product list in advance as well. (Austin posts his every day, for one.) And because of this affinity and aimlessness which makes you more prone to being manipulated by sales tactics, the conversion rate is a lot higher. (TF Securities claims a conversion rate of 6-18% for top streamers, and >5% for many, as opposed to <0.5% for traditional ecommerce.)
Ultimately, as we can see, Alibaba is the only platform that has really been successful at servicing both types of shopping behaviors. This tells us that it’s not impossible for an Amazon to repeat it, although it would be very difficult, because effectively these are two different products. Not impossible, but very difficult. Others seem to fall into one camp or the other, and it is difficult to see how any of them could make much headway into both, because there is already such strong competition there. But if I had to pick, I do think it is easier for a Douyin/Kuaishou to move into “traditional” search-based e-commerce than the other way around. We already see Douyin / Kuaishou and WeChat make some inroads into search (Douyin was 1/6 of Baidu volume in Q1 2021), but it’s been much harder, as we’ve seen, to have a JD move into content.
How big is this market ultimately?
Well, we can only use China as a case study, because it is the only market where this kind of consumption behavior has been able to establish mature channels. As of 2021, total ecommerce in China is supposedly around $2.5Trn. Livestreaming ecommerce ended up being almost 22% of all the physical goods ecommerce sold in China, up from just over 10% the year before. On Alibaba’s platforms for FY2021 (ending March 2021), live ecommerce accounted for 6.7% of total ecommerce GMV. While total ecommerce growing at a healthy but tepid 15% in comparison, livestreaming ecommerce is at triple digits. But will it grow this way forever?
Obviously, not. But let’s use 25-30% as a steady-state contribution from live, “unintentional” entertainment-centric ecommerce as a % of total e-commerce. (It’s a very rough estimate looking at discretionary spending in the US which is around ~30%, and a breakdown of per capita Chinese spending here, which suggests that this is is a reasonable if optimistic assumption.) Then, if total ecommerce gets to nearly $4Trn or so in the next 5 years as some analysts have optimistically predicted, we’re looking at a potentially $1Trn+ livestreaming ecommerce market, which is up to 5x more than what we have today, and of course growing a lot faster than the overall sector.
Is it possible that livestreaming is not the final product format that best fills this ecommerce need? Absolutely, and that’s why I hesitate to label it as simply “live commerce,” even though at the moment, it is the most successful method to date in China. Nothing beats it in terms of immersive entertainment quality and interactivity. (Short video certainly falls short, as we went over in Livecast Ep. 13).
What are your thoughts?
Reply here on the Circle forum
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