Verdict takes a look inside the new world of short-video driven ecommerce sales as seen in China, which may soon upset the traditional Western search-and-click experience.
Happy 618!
If you don’t know what that is, don’t worry – this one hasn’t made it big (yet) outside China. There, however, June 18 has become an annual cybershopping extravaganza. First introduced by Chinese ecommerce giant JD.com, the event has now been adopted by virtually every online retailer in the country. The shopping frenzy kicks off as soon as May ends, with major ecommerce platforms competing to gain customers’ attention with steep discounts and exclusive offers.
It might not come as a surprise that China has introduced yet another online shopping festival. After all, ecommerce is booming in the country. According to GlobalData’s analysis, China has the highest rate of ecommerce of any country and it experienced an even bigger boost during the Covid-19 pandemic. Estimates project the market to be worth $1tn in 2020, up from $862bn in 2019.
Something that may come as news, however, is the speed at which short-video apps and live streaming ecommerce are taking over. Relatively new to the 618 game are social media platforms Douyin (China’s version of TikTok) and similar apps Kuaishou and Xiaohongshu, which are rapidly making their mark in the world of ecommerce.
These apps have achieved something that traditional online retailers have long neglected: seamlessly merging shopping with entertainment. Chinese netizens are increasingly turning to social media platforms to make purchases. In the West, TikTok is not yet widely associated with the idea of ecommerce, but this may soon change.
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By GlobalDataRecently, TikTok announced that it had entered into partnerships with several companies, including Walmart, Shopify and L’Oréal, to bring the app’s ecommerce platform to a Western audience. We may soon find a cohort of Millennials and GenZs not only learning their latest dance moves from TikTok but also buying their daily products, a trend that may threaten well-established ecommerce behemoths such as Amazon.
Moreover, social media platforms have introduced new forms of cybershopping. Soon short-video advertisements and live broadcasts may replace the traditional search and click model of online retail.
Ecommerce short video: Coming to you live
One of the market leaders for entertainment ecommerce is ByteDance-owned company Douyin, and online events such as 618 are ideal arenas for the platform to showcase its unique approach to social shopping.
In 2021, the company announced that it would again join the shopping festival and proudly said that its short-video broadcasting approach put forward the concept of “interest ecommerce”, which keeps consumers engaged and makes online shopping fun.
This year, for instance, Douyin introduced the short video challenge. Using the hashtag #douyin681goodsfestival, shoppers could send in creative videos highlighting how they were engaging with the event. Winners would receive coupons that they could exchange for goods during the festival period.
Another 618 trend that is taking China’s ecommerce by storm is live stream sessions. In a way, these are similar to product videos in that they show product details up close. Some retailers may even feature live stream clips as product videos on product detail pages. However, there is one big difference: live streams are interactive. This makes the process a highly efficient and entertaining way to learn about new products and ask questions.
“Live streaming seems to be the newest craze in China and has received a boost from COVID-19. The biggest ecommerce players in China have all been involved and Approximately 300 million Taobao users watched live streams during the 11.11 sales period from November 1st through November 11th,” said Luke Gowland, GlobalData analyst and ecommerce specialist.
In a way, it’s a lot like walking into a physical store. The host may greet you, ask what you are looking for and provide recommendations. Though users can’t speak to the host directly, they can send text messages, which show up in the chat history for everyone in the room. Clothes sales, for example, feature an option to mimic in-store try-on experiences. Users can ask models to wear a particular item and walk around displaying the piece.
During the 618 festival period, Douyin launched tens of thousands of ecommerce related live broadcasts, festival-themed live broadcast rooms, and brand live broadcast rooms. Over the span of two weeks, the app will host countless live events featuring numerous brands from different sectors and a whole array of celebrities to promote the products.
“It’s clear that this trend is gaining significant traction in the Chinese market, and western tech companies are taking note,” says Gowland.
The amalgamation of ecommerce and social media – a form of social ecommerce if you like – is blurring the lines between online entertainment and online shopping, a trend that may soon become more widespread in other countries.
In 2019, Amazon launched Amazon Live, Facebook has introduced live shopping, and Walmart has partnered with TikTok to launch live stream shopping.
“I think that the Walmart/TikTok partnership will be a threat to Amazon. It’s no secret that Walmart sees Amazon as its biggest rival and getting a leg up on live streaming would be advantageous if live streaming in the US mirrors the success of China,” said GlobalData’s ecommerce expert.
Another widely used short-video social media app turned ecommerce retailer is Kuaishou. In January, the company made its stock market debut in Hong Kong, raising $6bn: the city’s largest initial public offering (IPO) so far this year. In addition, there is Xiaohongshu, also known as RED, another popular social networking ecommerce platform tailored specifically to a female audience.
Seeing ecommerce stars
One common theme among these social ecommerce platforms is the strategic use of China’s celebrity culture. During the 618 festival period, different retailers feature national celebrities to promote their products while entertaining users. In 2021, Douyin featured over 50 celebrities ranging from Chinese actors to international pop stars.
Meanwhile, influencers who made their fame through social media are also gaining traction. The so-called wanghong economy – literally meaning internet celebrity economy – is based on influencer marketing, which has also seen a massive boom during Covid times.
According to Chinese consultancy firm 1421, the Chinese influencer economy generated over 100bn yuan ($15.6bn) in 2019 and the industry is growing rapidly. Estimates suggest that the market tripled in 2020 under the impetus of Covid, hitting a new high of over 300bn ($47bn) in revenue.
The Wanghong economy business model is based on two aspects: online retail and social media advertising. Chinese social media apps such as Douyin and Kuaishou seemed to have found the magic formula that combines these two aspects.
Top influencers have their own shows and appear each night for several hours at a stretch from about 8 pm until midnight, prime-time so to speak. It is their job to sell highly curated products, often at steep discounts. Manufacturers get the chance to pitch the influencers, who get to decide which products get featured. With this amount of power, show hosts can negotiate with manufacturers to get the lowest prices possible.
These hosts are known as KOLs (key opinion leaders) and livestream ecommerce has turned them into well-paid national celebrities. They are compensated differently than in the US, where influencers are typically paid a flat fee for each post. In China, KOLs usually receive an appearance fee plus a significant commission on top for products sold.
TikTok, who’s there? Your delivery
This form of internet culture and ecommerce is now also expanding to other countries. TikTok has already announced various plans to introduce shopping features in North America and Europe.
It is understood that TikTok is running an ecommerce pilot in the UK and Indonesia to give brands a new way to drive sales directly through short videos and live streams: on their own TikTok accounts through a product showcase, or in collaboration with TikTok creators.
Just last month, TikTok in Europe said that it was testing in-app sales features. The company said that details would be revealed in due course but confirmed that streetwear brand Hype was one of the companies involved in the pilot.
In February 2021, the app announced the expansion of its partnership with Shopify to Europe, meaning that businesses in France, Germany, Italy, Spain and the UK will be able to create in-feed shoppable video ads directly with Shopify.
“The company is in an interesting position as it has managed to captivate the western markets in a way that other Chinese social media/ecommerce companies have yet to achieve. The Biden administration will also take a far less anti-TikTok stance than Donald Trump previously held, which will also be advantageous for the company,” Gowland explains.
TikTok is also experimenting with new commerce opportunities and testing new features with a limited group of merchants and creators in the UK, enabling merchants to engage customers through their TikTok account profiles, their organic video posts and by working directly with creators.
Over the past year and a half, with people all around the world quarantining at home because of the Covid-19 pandemic, TikTok saw an explosion in users, which shows no sign of slowing down despite countries slowly coming out of lockdown. In May, downloads for the app jumped 35%, continuing its streak as the world’s most popular social media platform.
The future is now
Social media ecommerce platforms will also change how we shop and how we search for items. According to Gowland, “there has been a discrepancy between mobile traffic and mobile sales. I think that things like live streaming and AR will help to bring traffic and sales closer in line.”
Moreover, algorithms will play an even more important role. Right now, it is still common to search for items you want to buy when going on Amazon or Walmart’s website, but soon the platform may know what you are looking for before you have even realised yourself.
Arguably, one of TikTok’s main selling points is its recommendation system. Almost like magic, the app’s “For You” page suggests videos specifically tailored to each users’ taste. Last year, the company gave more detailed insight into the workings of its algorithm, saying that “the system recommends content by ranking videos based on a combination of factors – starting from interests you express as a new user and adjusting for things you indicate you’re not interest in, too.” Now imagine it is not only showing you your favourite dog videos or dance trends, but exactly that item you were thinking of buying.
All of this will undoubtedly affect traditional ecommerce. For one, it might be a good turn of events for smaller brands and slow-growing sectors. As in the US, the shift from mega influencers to micro-influencers is benefitting less well-known brands that simply do not have the cash to hire major celebrities or create expensive ads.
TikTok’s move into the western market may also threaten well-established ecommerce giants, as Gowland explains:
“As it is the gatekeeper of the western ecommerce market, I think Chinese ecommerce companies entering the western market will be a significant threat to Amazon. The company struggled to compete against Alibaba and others in the Chinese market, failing to keep up to speed with same-day delivery and free shipping. With Alibaba facing regulatory headwinds in China, its next option to sustain its current levels of growth is to look to western markets.”
