With China leading the world on digital adoption and data usage, it is of little surprise that e-commerce is leading in defining new ways of shopping and buying. This means that the rest of the world took note as live commerce began to make inroads in China. Live commerce (defined as live video streaming and e-commerce shopping services wrapped in one platform) enables consumers to log into an e-commerce website or social media channel and make real-time purchases while watching live demos and interacting with the host. The concept began in March 2016, when MOGU, a social media fashion content provider, embedded a shopping feature within its livestreaming interface, allowing customers to purchase while watching live content.
What started as an experiment to interact with consumers in a live show has transformed into a multi-billion-dollar industry in the space of few years. In early 2020, live commerce was set for solid growth which COVID-19 accelerated it. People in lockdown went online, spending time on social media and live streaming, while limited access to physical stores drove online shopping. By combining shopping and leisure, live commerce created an interactive at-home shopping experience for consumers. Data from China's Ministry of Commerce shows that over 10m livestreaming e-commerce programs were broadcast in the first half of 2020, generating over 50b views³. Taobao Live, which has a live commerce market share of around 80%⁴, generated over RMB400b (US$61.7b)⁵ in GMV in 2020.
Despite rapid growth, live commerce still accounts for less than 10% of China's retail e-commerce market. But with consumers growing in confidence, it has significant upside potential. According to the latest FCI survey⁶, 42% of respondents in China have already purchased through live broadcast, and 66% of the respondents are either satisfied or extremely satisfied with their live broadcast shopping experience. By 2021, all the major e-commerce platforms and social media channels had already jumped on the live commerce bandwagon.
A channel primed for further growth
The key enabler for live commerce is China’s integrated digital infrastructure. China has surpassed the world in digital development and adoption, especially in e-commerce and cashless payment. In the latest FCI survey, 77% of Chinese consumers responded that they expect that their experience of using technology will only improve in the future compared with the global average of 65%, while 71% of them intend to go cashless in the future.
The interoperability of e-commerce, social media and payment platforms enables seamless live shopping experiences in which users can engage with sellers and make purchases in real time without having to exit the stream they are watching. High levels of aftersales services such as quick and low-cost delivery, efficient returns management and effective handling of complaints have also bolstered trust in live commerce.
Another differentiating factor is that live commerce benefits from is its own network of influencers known as Key Opinion Leaders (KOLs), the most successful of whom have reached celebrity status. KOLs can transform a live stream into something that is engaging and entertaining. By elevating shopping experience, KOLs also drive sales making them highly sought after. Top influencers like Austin (Jiaqi) Li and Viya Huang can attract more than 35m viewers and generate millions in sales⁷.
As well as the growth of live commerce channels, there are further strategic benefits that they can bring. These include conversion rates that are six times higher than conventional marketing⁸, high levels of traffic generation (driving other revenue and brand opportunities), and options for smaller merchants to reach a broader audience with less investment. Additionally, many brands and retails often used live commerce platforms to clear excess inventory in bulk by offering discounts. However, many companies have gradually shifted toward a more holistic value creation strategy through product and channel differentiation.
Fast growth comes with pain points
Live commerce is promising, but challenges to the channel remain, particularly in achieving profitability and navigating mounting regulation. Despite overall growth, some companies face considerable margin challenges driven by high return rates and production costs. To drive up sales and viewer numbers, KOLs often negotiate with brands to offer substantial discounts on products or services for their shows. A lot of effort and money go into broadcasting a successful live commerce session. These factors cost money, and, when combined with the cost of returns and risk of unsuccessful live stream margins can suffer. Rapid growth has also increased misuse of the live commerce channel, forcing regulators to step in to curb malpractice and issue guidelines to improve measures.
The world is catching up
COVID-19 related lockdowns boosted shoppable streaming around the world encouraging global companies and platforms to join the movement, but live commerce outside China remains nascent. Digital infrastructure and shopping ecosystems in other countries are less integrated than in China and consumers are more resistant to new ways of shopping. The US live commerce market was estimated to be worth around US$6b in 2020⁹, less than one-tenth of China’s live commerce market. However, the trend is catching up, just as China reached a tipping point, so too would other countries in the coming few years.
Figure 3 Live commerce development timeline