Until hit by regulators, Viya (left) and "Lipstick King" Li Jiaqi (right) were China's top livestream sales promoters. (Credit: Taobao)

China’s Singles Day, the world’s largest online shopping holiday, smashed sales records in November 2021—but one sales figure in particular stood out.

“Lipstick King” Li Jiaqi and “Livestream Queen” Viya, China’s two most famous livestreaming stars, sold a total of $3 billion (RMB 19 billion) worth of goods in their separate livestreaming sessions on Oct. 20, the first day of the 20-day shopping festival.

The two were dubbed the “winners” of Singles Day 2021, their record-setting sales reflecting the booming popularity of e-commerce livestreaming in China. The sales and marketing format rapidly embraced by consumers and brands, and are now an essential part of the country’s retail landscape.

But Li’s and Viya’s opening salvos on Singles Day also highlighted a less commendable feature of China’s livestreaming industry: It has been dominated by a small number of celebrity livestream hosts.

That is now set to change. Within two months of Singles Day 2021, the livestreaming world was flipped on its head when Viya, whose real name is Huang Wei, was fined more than $200 million for tax evasion in late December. Her livestreaming and social media channels, which had over 100 million followers, have been shut down ever since. 

The dethroning of Viya came shortly after similar penalties were handed out to singer Cherie, the third most popular livestreamer on Alibaba’s Taobao Live, as well as to Lin Shanshan, another high-profile livestreamer.

The crackdown on these star influencers has cast uncertainty over one of China’s most dynamic sectors, with some commentators describing the industry as “fragile.”

I have a different take.

Over-reliance on enormously powerful celebrity livestreamers was not a sustainable model for brands or platforms. Furthermore, recent regulatory moves will incentivize brands to work with smaller-scale presenters and build their own livestream teams. As a result, the livestream market will fragment as newcomers face lower barriers to entry and smaller-scale operations see growing demand for their services.

10% of all e-commerce sales

Over the past few years, Chinese livestreaming experienced rapid growth and achieved enormous scale. These two features are crucial starting points for analysis.

To put this growth in perspective, across all of 2017—the year after Alibaba kickstarted the livestreaming e-commerce revolution by launching Taobao Live—livestreaming in China generated roughly $3 billion in gross merchandise value (GMV).

Fast forward four years, and Li and Viya moved the equivalent GMV on Taobao Live in a single day.

Last year, annual GMV for livestreaming exceeded $300 billion, representing more than 10% of all e-commerce sales in China. Total livestreaming GMV is expected to reach over $400 billion in 2022, according to McKinsey. These figures make China the world’s largest e-commerce livestreaming market by far. The United States, by comparison, saw $11 billion in livestream sales in 2021.

The growth of livestreaming has been accompanied by the emergence of a robust industry of studios and agencies employing on-screen presenters and their support staff. By some estimates, several million people are employed by this industry.

Too much star power

However, an outsized portion of livestreaming revenue has been earned by a few star livestreamers and their teams, with many smaller operations squeezed as a result. In 2021, Li’s and Viya’s Taobao Live channels alone accounted for roughly one-fifth of all livestreaming sales across China’s e-commerce platforms.

Kuaishou’s and Douyin’s livestream ecosystems are also highly concentrated, with GMV numbers falling off dramatically after sales by the top handful of stars.

Concentration of this space has happened due to a confluence of factors from brands, consumers, and the top-tier livestreamers.

Since livestreaming stars can facilitate instant brand exposure and conversions with millions of shoppers, they have strong negotiating power to charge brands sky-high prices. They usually earn a 20% commission on all direct sales, on top of a service fee. They also have the leverage to insist that brand partners offer huge discounts to their viewers. That’s often the lowest possible price on any online or offline channel.

When these trusted star livestreamers claim that they are offering the lowest guaranteed price for a given product, that fuels traffic for their shows. This further increases their bargaining power with brands and raises the barriers to entry for smaller livestream operations who cannot demand such exorbitant discounts.

Unmasking L’Oreal 

This dynamic came into sharp focus shortly after Singles Day, when Viya and the androgynous Li publicly criticized French cosmetics giant L’Oréal. On their record-breaking first day of the shopping festival, Li and Viya both held promotions for a L’Oréal mask product, claiming to offer the lowest price of the year. Days later, consumers became angry when they discovered that the same product was available at lower price on a different livestream produced directly by L’Oréal.

In response, Li and Viya released separate statements explaining that L’Oréal had promised them the lowest price. Facing a loss of credibility with their fans, Li and Viya demanded that L’Oréal refund the price difference to consumers who purchased from their shows, since they did so under the impression of a best-price offer. Given the power of these stars, the firm ultimately obliged.

The most immediate impact of the penalties on three of China’s top livestreamers—and the pressure that other top livestreamers are likely feeling as a result—has been a weakening of their market power over brands. That has created more space for smaller-scale livestream operations.

Many brands have viewed livestreaming primarily as a tool to generate large sales volume in a short period of time. However, high-profile livestreaming engagements have become so expensive, and such steep discounts must be offered, that the entire profit margin is often eroded.

Niche seller edge

With China cracking down on the misconduct of public figures more broadly, there are risks for brands that rely too heavily on endorsements from celebrities, including star livestreamers.

At WPIC Marketing + Technologies, we have been working with our brand partners to use livestreaming in a more precise and creative way for years. One cost-effective tactic is to partner with smaller-scale livestreamers. These pitch people are often KOLs (key opinion leaders) or KOCs (key opinion consumers) in a specific category—such as baby care or nutrition—and have a dedicated following of consumers interested in that category. Additionally, repeat livestream placements inside of a particular space enable brands to build up exposure and stickiness among target consumers. A star livestreamer might help a brand reach more viewers overall, yet not be particularly effective for sales.

Another benefit of working with niche KOLs or KOCs is that they are highly familiar with products in the category. They thus can make more authoritative recommendations and cultivate trust from viewers. In contrast, star livestreamers like Li and Viya promote all sorts of products, ranging from makeup to food to a literal rocket launch service.

A second tactic is to self-produce regular livestreams that are broadcast on a brand’s flagship stores. Self-produced livestreams allow brands to directly gather information on viewers, who can then be re-targeted with other advertisements. They also offer brands more control over content. Product placements on star livestreaming shows are often only minutes long. 

300 million buyers and growing

On the other hand, if they produce the livestream themselves, brands can stream product demonstrations for hours. Moreover, search algorithms on the platforms reward flagship stores that generate livestream content, so brands that make their own livestreams are more likely to be discovered by users.

On the consumer side, perhaps some of livestreaming’s recent growth can be attributed to pandemic restrictions in early 2020, but the format has proven to have staying power. According to eMarketer, over 300 million Chinese people purchased goods from a livestream session in 2021, up 30% from the year prior. And this was in a year when most people in China were not subject to social distancing policies. 

For consumers, the benefits of livestreaming are numerous. Livestreaming sessions transform the purchase of any consumer product into a fun, interactive, and sometimes even educational experience. Perhaps most importantly, livestreaming is a highly efficient method of shopping. It empowers consumers to purchase a high-quality product at a reasonable price in a short span of time.

Regardless of audience size, livestreamers must cultivate trust among their followers to make sales, so they typically vet the quality of the products they promote. People buying from a trusted livestreamer feel confident that they are getting a great product at a competitive price.

In other words, even as the livestreamer market is shaken up, consumers will continue to enjoy the benefits of livestreaming.

Onto a sustainable path

While commentators have debated the motivations behind the crackdown on top-tier livestreamers, in my view, one clear outcome is that it sets the industry on a path of sustainable growth.

The old model, in which top-tier livestreamers wielded enormous power, was too expensive for most brands and prevented newcomers from succeeding. In the future, brands will continue to rely on livestreaming as as a sales and marketing channel, but will increasingly work with smaller-scale livestreamers and produce their own livestreaming content.

Ultimately, the livestreaming market will become more competitive and consumers will continue to enjoy the benefits.