What the West Can Learn From China’s Live Commerce Success

Ask someone in the West about livestreaming, and they may look back at you blankly — that is, unless they are under 25, in which case they may likely mention gaming or TikTok. Ask someone in China, and you’re more likely to hear about e-commerce.

Livestreaming simply refers to online media broadcast in real time, like a webinar (think a Zoom lecture) or game play (think Twitch). When you combine livestreaming and e-commerce, you get live commerce, where real-time interactions between shoppers and sellers take place. It is basically a refresh of the old late-night TV infomercial, except, unlike infomercials, it is dynamic, exciting, and occurs in prime time.

In China, where live commerce is huge, a good host can generate millions in sales in just a few hours. In 2019, the Chinese live commerce market was estimated to reach 440 billion yuan (around $63 billion), according to Everbright Securities. By March 2020, the number of live commerce users had reached 265 million, accounting for 29.3% of the country’s total number of internet users.

And that was before COVID-19 hit.

Lockdown conditions across China boosted live commerce in early 2020, when consumers were unable to visit shops. In February, Taobao Live, a livestreaming platform run by Alibaba, saw numbers jump 700% compared with the previous month. Seeing the domestic success of live commerce, Alibaba launched AliExpress Connect on its global e-commerce platform AliExpress in May 2020. The platform allows content creators and influencers to work directly with AliExpress to monetize their creativity and talent. In response to a survey by AlixPartners in early October 2020, two-thirds of Chinese consumers said they had purchased products via live commerce over the past 12 months. In China, it is common for brands to livestream weekly, or even daily.

Live commerce also played a significant role in China’s Singles’ Day on Nov. 11. The 2020 holiday — the world’s biggest shopping day, on which the uncoupled purchase gifts for themselves — saw a number of Western brands joining in. For example, hemp and CBD product company Uncle Bud’s ran a live commerce event hosted by NBA legend Magic Johnson. Cartier hosted its first jewelry show on Taobao Live, unveiling more than 400 timepieces and jewelry items, netting a virtual audience of nearly 800,000 people.

Western platforms are also starting to make bets on live commerce. In 2019, Amazon launched Amazon Live, which features livestreamed video shows from brands and influencers talking about and selling products. Facebook and Instagram have also experimented with the format. H&M-owned fashion brand Monki debuted livestream selling on its own site last year, representing one of the first major Western retailers to experiment with live commerce outside of China.

So far, it hasn’t taken off.

There are a few reasons for this failure, and they all relate to fundamental differences between how the internet is used in China and in the West and how this has played a role in consumer behavior.

Difference 1: The history of web usage in the U.S. and the West differs compared with China’s. The foundations of the web platform in the West are around information access and retrieval. Today, more than 30 years after the World Wide Web was invented as a forum for scientists and universities to share information, it is still fundamentally an information platform. It is no surprise that Google is the most popular website.

In contrast, the Chinese web’s roots are less in information access than they are in gaming and communication. Since the country’s traditional state-run media was often seen as “boring” and heavily censored, people in China turned to the internet for fun. According to a large study in 2005, mainland Chinese used the internet more for entertainment and socialization than for working or studying. Tencent’s QQ and later WeChat became dominant online ecosystems by successfully combining communication, gaming, and live entertainment. Despite the ever-watchful eye of the government, it is natural in China today to add entertainment and gamification to anything found online, including commerce. In the West, commerce is still rather static and serious. Despite the benefits of low prices and great service on Amazon, it’s not a lot of fun to shop there.

The key difference between live commerce in China and traditional e-commerce in the West is the emphasis on entertainment. Like Black Friday and Cyber Monday in the West, China’s Singles’ Day offers low prices and aggressive discounts. But beyond the pricing incentives, Chinese consumers are inclined to participate and celebrate the day through games and entertainment in a fun and social way, which keeps them engaged and willing to buy.

Difference 2: The U.S. and Western countries lack cross-functional platforms. Leading from the first point, in the West users gravitate toward different platforms for different objectives. E-commerce sites like Amazon and eBay grew independently from social media sites like Facebook, Instagram, and Twitter. Entertainment sites like YouTube and TikTok established themselves independently of information sites like Google and Wikipedia. In the West, users see these platforms as belonging to different categories — one site is for commerce, another one for social media, and another for entertainment. Attempts by these platforms to bridge the gaps, like Facebook’s move into e-commerce or Google’s launch of a social media site, have largely failed. So it is not surprising that people might be averse to a mixture of commerce and entertainment.

In contrast, there is a lot more bridging among services in China. While Alibaba has its roots in e-commerce (Tmall and Taobao), it is also a leading player in content discovery (Xiaohongshu or Weibo, in which Alibaba has a stake), content broadcasting (Taobao Live), payment solutions (Alipay), logistics (Cainiao), and even purchase financing and insurance (Huabei). While Tencent’s roots are in gaming and communication, its WeChat application can be used for almost anything, including e-commerce. People are much more willing to blend experiences within platforms in China than they are in the West.

Difference 3: There is greater fragmentation in Western e-commerce. Amazon is a giant in Western e-commerce. It accounted for 37% of all U.S. e-commerce in 2019. Yet, beyond Amazon, the picture becomes a lot messier. In second place is eBay, with 6.1%, followed by Apple and Walmart, with 3.9% each. Most of the rest is accounted for by branded retailers selling on their own sites, like nike.com or lululemon.com. In other words, the Western e-commerce ecosystem is highly fragmented, and shoppers often visit multiple different websites to find what they want. This means that beyond a few larger players, scale is hard to come by. In the case of Monki, only people who use the app can access the live commerce feature. Thus, in the West, live commerce remains more of an engagement tool than a new sales and marketing channel to drive traffic and sales.

This is not the case in China, where three companies — Alibaba, JD.com, and Pinduoduo — account for almost 80% of e-commerce (with 56%, 16%, and 7%, respectively). As a consequence of scale, these Chinese giants can afford to experiment, and since they already have a lot of experience with entertainment from other channels, they have been quick to integrate live commerce.

Difference 4: The West trails China in live e-commerce talent. The West certainly doesn’t lack for celebrities, but being famous doesn’t necessarily make you a good live commerce host. This is a new kind of celebrity — the live commerce spokesperson who is famous because of their ability to sell things online — that doesn’t really exist in the West as of yet. It is also not an easy skill to build — being able to engage and entertain broad audiences while maintaining the focus on the products being pitched, without being too salesy.

In China, many influencers (known as key opinion leaders, or KOLs) have emerged from special-purpose incubators such as Ruhnn. These incubators teach skills that go far beyond taking beautiful Instagram-worthy pictures or making short YouTube videos. They help livestreamers become world-class spokespeople who can build a strong following among shoppers. The industrialization of KOLs has yet to develop in the West, where most influencers learn by trial and error, building followers a few hundred at a time. Indeed, 81% of active Instagram influencers have followings that number between 15,000 and 100,000 — which is extremely small by Chinese standards. Although brands are starting to work with these influencers to promote their products and services, most Western influencers remain focused on content rather than commerce.

The Social Dimension Is the Key for Future E-Commerce

There is little doubt that the converging trends of entertainment and commerce will expand across the globe. Already, 11.6% of total retail e-commerce sales in China is driven by social commerce, according to eMarketer. In Thailand, a surprising one-third of total e-commerce takes place on social media.

To get ready for the rapid escalation, brands in the West must recognize what live commerce really means and be willing to experiment with it. It won’t be easy. There is no super-app like Taobao or WeChat in the West, and customers are accustomed to buying directly from brands.

Yet, despite these challenges, early signs are promising. Card game manufacturer Watch Ya’ Mouth increased daily visits to its product detail page by 500% and significantly grew sales after it livestreamed on Amazon Live. And a livestreaming program featuring product highlights and flash deals helped boost online furniture company Wayfair’s per-day sales by 325%.

Some foreign brands have also achieved good results collaborating with KOLs in China. Luxury brand Tod’s collaborated with influential fashion blogger Mr. Bags to sell 3.24 million yuan ($470,000) worth of handbags in just six minutes. Chinese brands are also experimenting in partnering with local influencers. Shenzhen-based smartphone maker Umidigi collaborated with a well-known Japanese product blogger and sold about $55,000 worth of phones in the company’s first AliExpress show.

According to a recent report released by KPMG and Ali Research, live commerce was predicted to surpass 1 trillion yuan (around $158 billion) in 2020. Western brands need to invest in engaging live commerce hosts and interesting content on an ongoing basis. Live commerce has opened a new chapter in e-commerce in China. Western brands should try to overcome their cultural and historical barriers and get on board.

Read more: sloanreview.mit.edu

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