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China’s ‘Lipstick King’ leaves Alibaba with a livestreaming dilemma

Written by Nikkei Asia Published on   6 mins read

The live-selling influencer’s outburst highlights perils of relying on stars.

When China’s top online influencer, Austin Li Jiaqi, lost his temper during a recent live sales event, many of his followers were shocked and hurt. Some were angry enough to ditch Li and boycott the brand he was pitching.

Nicknamed China’s “Lipstick King,” Li has around 75 million followers on Taobao Live, a live-selling platform run by e-commerce giant Alibaba. Over the past few years, he has cultivated an image based on thoughtfulness toward his followers, mostly girls and women looking for bargains.

But in a session in mid-September, when a user complained about the cost of a RMB 79 (USD 11) eyebrow pencil from a domestic brand, Li snapped. “Expensive?” he yelled. “It’s been the same price for so many years, don’t lie through your teeth!”

Li went on to question the work ethic of his viewers, seeming to forget that per capita disposable income in the country has fallen sharply amid economic headwinds in recent years. He lost more than 1 million followers overnight.

The spat is not just a headache for China’s biggest e-commerce company and the eyebrow pencil maker caught in the crossfire. It also underscores the high stakes—and potentially higher risks—for companies attempting to cash in on the booming live-selling sector at a time when traditional e-commerce is losing steam.

Livestreaming influencers typically charge a 20% commission on direct sales, along with a service fee to the brands they promote. As their follower numbers grow, they can gain significant bargaining power to negotiate discounts for their viewers. Hundreds of thousands of streamers have become rich overnight, and some top influencers like Li have even become billionaires.

One effect of this model is that smaller livestream operations that cannot wrangle such deep discounts face steep barriers to entering the market and growing their viewership, according to Jacob Cooke, co-founder and CEO of Beijing-based e-commerce consultancy WPIC Marketing and Technologies.

Another consequence is an overreliance on a few star names.

This is not the first time that Li has run into trouble. Last year, he disappeared from public view for around three months after he presented an ice cream and cookie cake shaped like a tank during his show on the eve of the anniversary of the Tiananmen Square crackdown. The bloody event, when troops and tanks poured into Beijing’s biggest public square in June 1989 and shot pro-democracy protesters, is one of contemporary China’s most taboo topics. Li did not make an explicit reference to the incident but rumors swirled nonetheless.

“Overreliance on enormously powerful celebrity livestreamers has never been a sustainable model for brands or platforms,” Cooke said. “The stars charge exorbitant fees and demand exclusive discounts, which can entirely erode profit margins.”

Li, originally a grassroots shopping mall cosmetic salesman, rose to fame on the back of Alibaba’s vast resources and ample traffic support. His status as the face of Taobao Live was further cemented when prominent competitors, including two known as Viya and Cherie, were suspended from livestreaming due to tax evasion scandals.

His latest woes come as Alibaba grapples with a slowdown in its traditional online sales and challenges from newcomers like Douyin, owned by ByteDance, and Kuaishou, which have aggressively expanded into the e-commerce sector.

Taobao is still China’s biggest e-commerce platform in terms of the gross merchandise value (GMV), a preferred indicator of platforms as it includes both sales and canceled orders. But the combined GMV of Taobao and Tmall, another Alibaba platform, stood at 7.17 trillion yuan in 2022, down 7% year-on-year.

And despite being an early player in live commerce, Taobao Live has faced significant pressure from Douyin and Kuaishou.

Douyin’s GMV in 2022 was reported to be between RMB 1.4 trillion and RMB 1.5 trillion, up more than 75% from the previous year, while Kuaishou posted a total GMV of RMB 900 billion. For both companies, most transactions come via live commerce.

Taobao Live, by contrast, logged a GMV of around RMB 770 billion, according to a report by 100ec.cn, an e-commerce research firm.

This is where Li’s popularity has become a double-edged sword for Alibaba.

Chinese media previously reported that Douyin once attempted to poach Li but he chose to stay with Alibaba after the e-commerce conglomerate made a better counteroffer.

“Taobao definitely doesn’t want him to leave, yet it also doesn’t want him to monopolize live sales on the platform. Both still need each other until a better alternative emerges. Breaking up immediately would certainly have more drawbacks than benefits for both sides,” said a senior manager from Alibaba, who asked not to be named.

Unlike Taobao, Douyin and Kuaishou started out as content platforms, with daily active users of over 600 million and 370 million, respectively. This gave them a ready-made base to tap into when they decided to venture into live sales. In addition, no single host dominates Douyin due to its complicated algorithm.

The tax scandal involving Taobao’s top influencers Viya and Cherie helped convince Alibaba of the need to diversify its influencer landscape. It started to encourage brands to do live commerce on their own and stepped up support to smaller influencers, though Li maintains a clear lead in sales compared to other hosts.

Since the beginning of this year, Taobao Live has also followed Douyin’s lead in content creation, including emulating its smaller rival’s streaming style and even recruiting some of Douyin’s hosts. Taobao has also incorporated features such as tipping and interactive functions from Douyin. During the 618 shopping festival in June this year, Taobao invited Lionel Messi to pop up in its live room for a chat, although the Argentine soccer star did not do any selling himself.

However, several vendors told Nikkei Asia that the sales performance of content-driven livestreaming has been disappointing so far, as Taobao has not established itself as a social media platform for meaningful interactions and most users simply leave after finishing shopping.

Adding to the competition, Alibaba’s rivals in traditional e-commerce, such as JD.com and Pinduoduo, have both started live commerce too.

Even the government has recognized the potential. A report published this year by the State Council’s Development Research Center said the e-commerce model in the country is still evolving and predicted that livestreaming and interest-based online shopping would “greatly spur overall consumption growth.”

Domestic brands and manufacturers are also utilizing these new e-commerce channels to monitor consumer demands and adjust production accordingly, the report added.

Crystal Wang, leading partner of consumer business and retail industry in Deloitte China’s Financial Advisory Services, said that young people are more inclined to rely on channels like short videos and live streaming to make better use of their fragmented time and gather more brand information and fashion ideas.

“This trend has become particularly evident this year, especially after the pandemic,” she added.

A recent Deloitte report found that online content platforms have become influential information channels for luxury brands as Chinese consumers want to have a deeper understanding of these names, often through short videos and livestreams.

For luxury goods, 36% of consumers believe livestreams provide a more immersive experience and 28% feel that livestreams can generate stronger interaction with key opinion leaders compared with traditional online shopping, according to survey results in the report.

Deloitte predicts that Chinese consumers will account for 25% of global luxury consumption this year, following a brief dip in 2022, and 40% by 2030, surpassing European and American customers to become the largest single market globally. It said high net-worth individuals in China will continue to buy luxury brands despite the country’s otherwise soft consumption.

But, it remains clear that Alibaba faces some tough questions about its livestreaming strategy going forward.

“Li Jiaqi was an important partner for Taobao in growing livestreaming as a format, but his utility has decreased to the platform,” said Cooke of WPIC Marketing and Technologies.

“Alibaba earns more revenue if brands use their ad budget on a range of smaller-scale livestreamers combined with spend on in-platform marketing tools, rather than channeling most of that budget into expensive engagement fees with Li Jiaqi.”

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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