Ep. 54: Influencers, KOLs, Idols, and the Future of China E-Commerce
Transcript
(Y: Ying-Ying Lu; R: Rui Ma )
[00:00] R: Hey everyone, we are back! We took last week off to recover from the week of back-to-back meetings that we had in our first ever TechBuzz China Investor Trip. Let me just say, it was a great success! Thank God! We were able to visit companies that we’ve covered on the podcast, like Ximalaya, Xiaohongshu, Ruhan, Xiaomi, China Renaissance, Tiger Brokers, and others, as well as a bunch of new companies that we have yet to write about in detail, like Ctrip, Mogujie, Qutoutiao and Bilibili. Thank you again, everyone, for hosting us and of course thanks to those of you who joined us, especially the fans who came to our Happy Hours in Shanghai and Beijing!
Y: Yes, that was really good to meet you guys and thank you so much to everyone on the trip who met with us. We learned a ton, and today’s episode is somewhat inspired by the conversations we had with those companies this month, as well as topics we’ve been keeping an eye on for a while. Luckily for us, the conversations confirmed rather than disproved all that which we’ve been sharing with you on TechBuzz so far. Rise of the rural consumer, increasing focus on B2B, the dominance of Alibaba and Tencent … all these things are definitely true.
R: Something else that’s true? The rise of the influencer and idol economies in China, and how they are changing the face of Chinese tech, especially ecommerce. We’ll give you some famous examples of what it’s like to be a Chinese influencer, or what a dedicated Chinese fan really does, and how this whole new ecosystem that they’ve created may be re-directing how large Chinese internet companies operate.
Y: Personally, while the KOL story might be more relevant currently, I find the idol story much more interesting and bizarre and more uniquely Chinese. So we’ll tell you about both, and you can let us know, after the show, which one you enjoyed more.
[2:27] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!
Y: We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.
R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.
Y: And I’m your other co-host, Ying-Ying Lu. We’d like to acknowledge our partners DealStreetAsia and SupChina, creator of the Sinica Podcast Network! In addition to TechBuzz, you can also find Sinica which covers current affairs, NuVoices and Ta for Ta on women, the business-oriented ChinaEconTalk, and the Caixin-Sinica Business Brief from China’s leading business magazine.
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[4:12] Y: Oh, and one more thing before we start, we want to tell you about a brand new Master’s program nearby, at the University of San Francisco. USF’s Master’s in Applied Economics combines econ training with the practical skills in data analytics that you really need to understand today’s new digital economy. Their curriculum covers skills like R and Python, machine learning, and experimental design. To learn more and to get a fee waiver for the Fall 2020 class, please go to usfca.edu/techbuzz.
[4:52] R: So, first off, let’s give everyone the stat that I think that always surprises me, no matter how many times I hear it, and that is the percent of total retail sales in China that is taking place online. While I’ve seen it as low as 24% in some places, the one most often cited is eMarketer’s projection that it will be 35% this year of total retail sales, after growing 30% from last year.
Y: There aren’t too many 2-trillion dollar markets growing 30% annually, but Chinese ecommerce is one of them. Compare that with US ecommerce though, which hasn’t pushed much beyond 10% of total retail in the last few years. Knowing that, it shouldn’t surprise us that ecommerce in China is often more innovative than its Western counterpart, just on account of its scale and rapid rise.
R: The main innovation in the past few years is selling via livestreaming, and the two groups that have enabled this to happen are influencers, AKA KOLs, which stands for Key Opinion Leaders, and idols, or celebrities. KOLs are responsible for the bulk of the action currently, but celebrities are also jumping in. Livestreaming shopping is exactly what it sounds like, which is people selling stuff while streaming video. Think like TV shopping, except much more interactive, because you are basically also in a giant chatroom with all the other people also currently viewing this livestream.
Y: Strictly speaking, since here at TechBuzz we try to follow the latest tech-related headlines in China, this one is a little late, because we’re basically telling you about a series of stories that have come to the forefront since this summer, and that is the number of A-list celebrities who are experimenting with livestreaming.
[6:50] R: Celebrities like Vicky Zhao and Aaron Kwok, who have all been A-listers for decades. So the Hollywood equivalent would be like if Julia Roberts or Brad Pitt suddenly started hawking wine or shampoo on TikTok from a random studio in downtown LA. And if you are thinking these celebrities are old-school and don’t pique your interest, well think again, because in China, the younger, hipper ones are also selling. I don’t want to date myself or reveal just how uncool I am, so let’s just say the Chinese equivalent of Taylor Swift also does livestream ecommerce. And she’s maybe selling lipstick, or jewelry, or even less sexy things like toothpaste.
Y: And as we’ll explain, it’s not just Chinese ecommerce, but multiple pieces of the entire consumer internet landscape overall that’s changing, especially if it has anything to do with content. And all of these changes are being driven, as you would expect, by Gen-Z’ers, i.e. those born in the mid 1990s and later. But first let’s start — what makes a KOL?
R: A KOL, or influencer, as opposed to an idol or celebrity, is someone who is presumably “normal” before they became famous online. That is, they often had a job or identity outside of the entertainment industry, but because of either some fluke or good luck or by sheer effort, they began to build a distinctive audience that follows them for some specific expertise. It could be in romantic relationships, or fashion, or travel, or one of the many other interests that people want to know more about.
Y: That’s pretty much the same as in the US. But we can also give you some hard numbers around influence and reach, although these are always a moving target. Based on one recent article, though, apparently you’re a KOL if you have more than 300K WeChat Official Account fans, half a million Weibo fans, 1 million TikTok or Kuaishou fans, 50K Xiaohongshu fans, or 50K Bilibili fans.
[9:13] R: That sounds right, since those are the most social and community oriented sites in Chinese internet. And just by the magnitude of followers required, you can get a sense of the size of each platform, and the relative engagement on them. Only 50K fans needed for Xiaohongshu, for example, versus 1 million for Douyin / TikTok. Obviously, Xiaohongshu is a lot smaller, but its users are also highly motivated to shop, and primarily go onto the app to discover what to buy, whereas people are just looking to be entertained on Douyin.
Y: An online survey of a few hundred brands showed that 60% chose KOL marketing as a main channel for advertising, making it the most popular choice. And of course there is good reason to be so bullish. One of the most famous KOLs, Taobao’s 薇娅 AKA Viya, sold over $45mm of goods last year on Single’s Day, most of it in the first two hours of her 15-hour marathon livestream. For comparison, that’s on par with a global brand like Uniqlo.
R: And don’t you think that it’s just female influencers who are breaking records, although they do make up 80% of streamers. 李佳琦, Austin Li, a man who used to sell makeup at department store counters, now livestreams cosmetics ecommerce. He once sold 23,000 lipsticks in 5.5 hours, and is so popular that he even got Jack Ma to engage in a livestreaming lipstick-selling contest with him. Yup, just imagine Jack Ma selling lipstick. All to promote Taobao’s Single’s Day Extravaganza of course.
Y: For many of the top influencers, they have their own Tmall store and have revenue splits with brands that are performance based. Some even design their own goods, of course. But for those who don’t have the capital or audience to create their own physical brand, they’re mostly just spokespeople for new products seeking exposure, and it doesn’t always work as intended.
[11:27] R: For example, recently there was a scandal where this one angry ecommerce entrepreneur who hired a so-called fashion KOL to promote his product showed screenshots displaying that he had sold $0 of goods despite paying $5000 for a sponsored video and post.
Y: The video ended up with over 120K views and nearly 1000 comments and retweets each, but produced $0 in GMV. But is it really the fault of the KOL? First of all his product, a device that was supposed to eliminate menstrual pain, already sounded far-fetched, but also the MCN that managed the KOL responded by saying that they had abided exactly by the contract that was signed, which only had terms around how much to spend on the video and promotion.
R: I think he’s just going to have to suck it up, he should have signed a smarter contract. But wait a minute, you might be asking, what is this MCN that we speak of? Well, it stands for multi-channel network, MCN, although you might have previously heard of it being referred to as online video studio, or maybe even YouTube Network. Effectively, it is an organization that works with channel owners, ie content creators, and content platforms, ie social media companies, and what they do is that they take care of all the business dealings that might take place between the two, like finding product, organizing programming, ministering advertising, and more.
Y: That’s a lot of work, right? Well, a Chinese-style MCN does even more than that. Many also incubate KOLs, meaning that they find high-potential accounts and lavish resources and training on the creators so that they can grow their fanbases. This means that they are constantly scouting for new talent, much like Hollywood or athletic scouts. And of course, when the time is ripe, they do the matchmaking between brands and KOLs and may take a healthy cut of the transaction, also not unlike talent agencies.
[13:41] R: In recent years, MCNs have experienced explosive growth in China. Part of that is due to the fact that Chinese social media platforms have legitimized them by signing on “official MCN partners.” Douyin / TikTok, Weibo and Kuaishou have all signed official framework agreements with professionally run MCNs giving them priority and resources. As early as 2016, Weibo was working with over 200 MCNs. I’m sure that number has increased many fold since then as there are now more than 5,000 MCNs in China.
Y: By the way, you know which company we’ve covered in the past is an MCN and indeed labels itself as such on its own corporate website? 如涵 Ruhnn from Episode 41, the company behind China’s “Kylie Jenner.” We actually visited Ruhnn and spoke with the CFO this month on our inaugural investor trip, and saw for ourselves the whole floor of employees dedicated to their top influencer Zhang Dayi 张大奕.
R: It’s hard to make money as an MCN though, and few have grown to be as big as Ruhnn, because only 6% of MCNs make over $14mm in annual revenues. Most of them are still very small businesses. But that hasn’t stopped investors from jumping in of course. In 2018, 60% of the MCNs surveyed purported to have raised funding. Of course, most of that was Series A and below, as the industry is still in its infancy.
Y: OK, MCNs are basically one-stop shops that act like a super-agent, finding latent KOLs, nurturing them, investing in them, and pairing them up with a steady stream of customers. Of course, MCNs don’t just cater to ecommerce, as there are also ones focused on esports, for example, but they’re pretty easy to understand and just a bit more involved than what you’d see here in the US. What about this idol business though? That’s way different, right?
[15:52] R: Yeah, if KOLs operate roughly like what you’d expect, idols and celebrities probably do not. I’m not sure if it’s uniquely Chinese, because I think there are some crazy fans in Japan and Korea as well, but organized fan groups of the scale you see in China just don’t seem to be the norm in the US as far as I can tell anyway. And we’ll pick one specific example to illustrate what we mean.
Y: First of all, we should probably explain the nuance between idol, or 爱豆 and celebrity or 明星. While the latter basically means what you would expect — actors, singers, tv hosts, etc. — idols are a subgroup within celebrities that originally referred to good-looking and personable celebrities from outside of China, most often Japan or Korea.
R: By personable we actually mean that they have carefully manufactured appearances, personalities and personal narratives — 人设 — and these are meant to attract the most number of fans. And most of these idols are very, very young, often breaking out as teenagers. And I think anyone familiar with Japanese and Korean popular music and culture will verify that this mostly works.
Y: China, to a large degree, has imported this way of producing new pop entertainers. One of the best examples is the ridiculously popular girl-band reality TV show called Produce 101 funded by Tencent, and itself a spinoff of a South Korean show created by the entertainment conglomerate CJ.
[17:33] R: The show basically whittled down 101 hopeful contestants to a final group of just 11 girls and relied on such well-known gimmicks as audience voting to create user engagement. Season 1 had more than 4.3Bn views and 90mm mentions on Weibo and propelled dozens of girls from unknowns to real stars, at least in the “idol” sense.
Y: Take the phenomenon 杨超越 Chaoyue Yang. Yang’s claim to fame, is that well, she is aggressively mediocre. No, really, and even that might be too generous an assessment. That’s why we pick her as an example, because her continued popularity is honestly somewhat baffling, and so is an exceptionally good example of the power of the internet. As far as we know, she was, and continues to be, a bad dancer, a bad singer, and just massively untalented compared to the tens of thousands other girl-band hopefuls in China, many of whom, by the way, have been training for the industry since a very young age. And she admits to this!
R: The reason that Yang is so unqualified though, is simple. She grew up in rural China, without much education, and because she was young and pretty, and also tall, I may add, she was able to join an entertainment agency and do odd jobs such as being the cosplay girl at video game conventions, instead of, say, going to work at a factory. But she never got proper entertainment training.
Y: In many ways, she’s lucky, because there could have been plenty of other less savory outcomes for someone who looks like her, but she ended up on Produce 101 and all her weaknesses actually became her strengths. Many people became her fans precisely because she had such a humble background, something they could identify with, not because she was actually talented. But they wanted her to have a chance.
[19:34] R: And so they self-organized into fan groups for her, voting for her, holding fundraisers for her, and sometimes literally directly giving her money, either money to buy luxury goods for herself, or pooling together money to buy gifts for her.
Y: Some fan groups even challenged each other to hold fundraisers for their idols, for no reason other than to show who’s more popular. In many of these self-organized contests, the winner raised over $200K. And all this, by the way, is in addition to the many duplicate Tencent Video or iQiyi VIP memberships that they may have bought in order to cast extra votes for their idol.
R: Casting votes to win the contest seems normal, even if they’re gaming the system with the extra memberships. Less scrupulous to me is when certain brands have taken advantage of the fans and said that they would only sign the idol on as spokesperson if certain sales records were met, effectively getting the fans to pay for their idol to be hired. And let’s not even talk about when fans have organized large-scale fundraisers to rent giant billboards, entire building faces, for their idols’ birthdays. There is definitely a special obsession with idol birthdays.
[21:42] Y: Yeah, remember when Kris Wu’s fans swamped US iTunes in advance of his birthday and basically had his new album sweep the charts? Yeah they totally gamed the system unethically, but still, it was funny to see so-called experts tweet that OMG, this is another example of China taking over! Clearly they don’t know the first thing about this whole ecosystem of economic activity produced by fans, AKA 饭圈. For example, in Kris’s case, his fans self organized to collectively game various channels in addition to iTunes, such as Google Play, Spotify, and Apple Music. Actually that’s a really impressive level of self organization. But OK, you are probably asking us now, as crazy as these fans are, what do they do that might actually affect these technology companies?
R: Well, for one, there’s probably a lot of fake data that’s generated by these overeager fans. Just like “trending on Twitter,” the Chinese social media equivalent Weibo has the concept 热搜, or “hot searches.” Getting your idol to the top of the hot searches list or 热搜榜 is considered a huge achievement that requires much coordination. But fan groups attempt to do it on a regular basis, and not for any particularly good reasons either, like we said, it’s mainly to demonstrate their idol’s continued popularity.
Y: Yeah, that is, it isn’t always for promoting new albums or movies or anything like that. Often, it’s just to “show strength.” For example, another one of Produce 101 starlet’s fans, not 杨超越, decided that they would try to get her birthday trending for no reason other than to well, show that she’s popular. They got the tweet to be retweeted 6.3mm times.
[23:33] R: How did they do that? Well, obviously by using a ton of fake accounts and systematically logging into each one and retweeting from there. This explains why when you look at the actual replies on many of these popular idols’ social media accounts, there are a ton of empty ones that were clearly made by volunteers to 刷榜, or to flood the platforms to get their idols trending.
Y: So if you think zombie accounts and fake engagement on Western social media platforms are a problem, imagine how much of a headache it is for Chinese platforms for whom many Gen-Z fans, supporting their idols by showing the best social media stats is basically a blood sport. They’re doing it for no reason other than being able to say that their idol is on top– and sometimes, because of pure superstition that doing so will bring them good luck.
R: Could you really say Weibo and other such platforms are not encouraging this type of behavior though? By one count, there are 77 such “Trending Lists” that idols could top at any given moment. I think the platforms are well aware of what creating such lists do for the rabidly competitive fans, but they keep on adding oil to the fire because they benefit too from all these headlines proclaiming millions of views and forwards.
[24:54] Y: And many others have also seen the business opportunity in all this chaos. Given the large amount of coordination — logistics, payments, travel — that these campaigns all require, wouldn’t it make sense to make software to take care of the admin? Of course someone has thought of that already. One of the most famous such apps was called 星援 Xingyuan, which meant, “help star.” And sure enough, it allowed you to help your star by purchasing fake accounts, starting at a fraction of a cent.
R: Earlier this year though, it got in trouble and was delisted from appstores because I guess finally it pissed off some stakeholder badly enough to be banned. But even though it was one of the biggest, there are dozens of apps just like it still floating around.
Y: In terms of e-commerce, almost one-third of Gen-Z respondents said that they’d be willing to buy products that their idols endorsed, or the same products that their idols used, and a fifth would be willing to attend their idol’s livestream and buy virtual gifts. Apparently 6% said they would be willing to spend money on their idol, every, single, day. Upwards of almost $1,000 a month. And a Sequoia China report showed that one in six born post 2000, that is, people– mostly girls by the way– still in their teens and younger, considered themselves “starchasers,” meaning that their primary hobby was supporting their idols.
[26:23] R: This entire phenomenon has been dubbed 粉丝经济 or fan economy. As many have noted, as soon as people saw that there was money to be made from these 流量明星, or pop idols with lots of internet traffic, there was bound to be large scale abuse. We don’t know the exact numbers for China, but an estimate by an American economist predicted that fake followers will cost brands about $1.5Bn in advertising dollars this year, or 15% of the total $8.5Bn that’s currently projected.
Y: I would definitely not be surprised if that number is higher in China, but at least there are real sales happening. But that doesn’t mean the sales aren’t problematic. Although some livestreamers are actually selecting and selling products through their own shops, or even creating them as their own branded products, in the case of some of Ruhnn’s top influencers, many are just selling other people’s stuff. Meaning that they aren’t taking care of returns or customer service, and they may not know the product very well, or at least aren’t incentivized to tell you the truth about the product.
R: Yeah, which is why some of the best-selling KOLs and idols are more protective of their reputations and only hawk products they know well and can vouch for. As for the lesser KOLs? I wish their customers luck because they may not have even picked out those products themselves but instead been assigned to sell them by the MCN.
[28:00] Y: OK. So don’t just buy anything you see in a livestream, and don’t always believe the KOL’s answers about the product, no matter how sincere they seem. What else did we learn today, Rui?
R: Well, for one we learned that one-third of China’s total retail sales are taking place online, making its ecommerce platforms some of the most innovative and advanced in the world. And in recent years, the one bandwagon that everyone has jumped on is livestreaming ecommerce, or 直播电商.
Y: Alibaba had disclosed earlier this year that it sold over $15Bn worth of goods through its 4,000 livestreaming hosts in 2018, an increase of more than 400%. Why are they so popular? Well, viewers get to view the goods in 3-D, and get their questions answered in real time. Those are the utilitarian benefits, but if you listen to some of the streams, the influencers or KOLs who host them are downright entertaining and well-informed, and so their charisma and sales skills are just as important.
R: In China, KOLs are being manufactured by MCNs, or multi-channel networks, which are organizations that take high-potential influencers when they’re just starting out, and build them into serious businesses by pairing them up with brands and advertisers. But it’s not just the KOLs, who are basically normal people with a specific expertise, who are getting into livestreaming ecommerce. Celebrities, including some A-listers, are also getting into the game.
[29:40] Y: The culture of celebrity worship in China is more similar to Japan and Korea than to the US, though. While there are diehard fans everywhere, Gen-Z’ers in East Asia take it to another level by organizing these intense fan groups that will do whatever it takes to keep their idols on top, whether that means buying fake social media accounts and retweeting until their idol is trending, faking positive reviews, or buying votes for their idol, or straight up crowdfunding money to give to their idol, for luxury items, for celebrations, for whatever reason.
R: That’s all on top of buying the albums and concert tickets of course. In the US, buying merch and posting about your favorite artist would already be considered pretty involved, but in East Asia, fans have apps and organized systems for this, where everyone is assigned a task and everyone has to screenshot what they did for their idol that day as a daily check-in to be accountable to the group. And this behavior might be increasing, not decreasing. When I asked a group of Chinese college students this month what they felt distinguished those born post 1995 from those born post 2000, 95后 vs 00后, a common distinction used in China, the 95 后 or post 1995 almost universally said that the post 2000s tended to spend a lot more on their idols, a statistic that is supported by various surveys.
Y: One point we want to leave you with though is that livestreaming e-commerce isn’t going to just stay contained within China. Whether or not it will import successfully into the US, it’s hard to say, although there’s no shortage of people who are actively trying to test it out here, seeing how successful it’s been in China. What we do know is that Chinese platforms are actively trying to export it to other parts of Asia.
R: The topselling Taobao livestreamer we mentioned earlier, Viya, has already tried her luck in South Korea, where she apparently sold an average of one product per second. Pretty good, right? And in Southeast Asia, Alibaba-owned Lazada is already using local stars to try their hand at what they’re calling Shoppertainment, AKA livestreaming ecommerce.
[32:08] Y: As for within China itself, the question is not whether livestreaming ecommerce will stick around — it definitely will, when you’re Alibaba and you’re seeing statistics like 32 items put into the shopping cart for every 100 livestream. The question is whether idols and celebrities with huge amounts of fan followings will find more success, or whether microinfluencers will start picking up more business because of their more targeted audiences like we’ve seen in the west.
R: One thing we’ve seen in China that’s different from the West is actors’ and singers’ willingness to well, sell stuff. In a way, it’s almost a requirement to have this secondary career because censorship is always hovering in the background and can delay or even cancel a project you’ve been working on for a while. So selling stuff is just a relatively safer way to monetize your fame. I mean, even the blacklisted Fan Bingbing has found a new way to survive by launching her own beauty brand on Xiaohongshu. So I’m personally bullish on celebrities taking a bigger share.
Y: Alright, Techbuzz listeners! What do you think? Will microinfluencers gain more of the pie or the top idols? Or will there maybe be segmentation by demographic and older users will be more drawn to “normal” influencers while the young continue to get caught up in the fan economy and take out their wallets for the best looking stars? And what will be the longer term impacts of the amplification of “她经济” or “her economy”? Tweet at us to let us know what you think!
[33:57] R: OK, that’s all for this week folks! Thanks for listening. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter at thepandaily, at techbuzzchina, and my personal Twitter account is RUIMA.
Y: And my Twitter is spelled GINYGINY. Techbuzz China by Pandaily is powered by the Sinica Podcast Network on SupChina. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Shaw Wan and Kaiser Kuo. Thank you for listening!