Alibaba challenged as TikTok generation starts shopping on short video apps

With his sharp suits, oiled hair and slick sales patter, Dong Wenming sells gold necklaces and diamond rings to his 18m fans every day, straight through Douyin, China’s version of TikTok.

Increasingly, Chinese users of the video app find live shopping broadcasts from internet celebrities such as Dong sandwiched between cat videos and new dance crazes — a version of television shopping for the mobile generation.

Now the live-streaming shopping market, which was first pioneered by China’s online shopping giant Alibaba in 2016, is disrupting Alibaba’s main businesses, Taobao and the more upmarket Tianmao.

The value of goods sold through livestreams will double this year to Rmb2tn ($313bn), according to analysts at PingAn Securities, while more traditional online shopping grows at 15 per cent.

Leading the way, alongside Alibaba’s own efforts, are China’s two biggest and fastest growing video-sharing apps, Kuaishou and Douyin, which is owned by ByteDance. Their growth is coming as Alibaba faces attempts by antitrust regulators to break up its iron grip on China’s 782m online shoppers and as Alibaba warned that its growth was being hit by “softer market conditions”.

“It’s not as fun to spend time on Taobao as Kuaishou and Douyin,” says Jessy Zhang, an ecommerce analyst at the Chinese market analysis company Daxue Consulting.

For Douyin and Kuaishou, which have 600m and 320m people scrolling through their videos each day, respectively, converting a small number of those people to buying customers quickly adds up. The gross value of all the goods sold on Kuaishou in the third quarter grew by 86 per cent to Rmb175.8bn in the third quarter, year on year.

Some of the livestreaming merchants pay fees to Douyin and Kuaishou to boost their reach, but if their content is engaging enough, it will automatically be pushed out more widely by the app’s algorithms. Meanwhile, merchants using Taobao have to spend an average of Rmb187 on advertising and paying for higher search listings for every new consumer they acquire, according to research by Founders Securities.

Alibaba is still the largest ecommerce company in China, but its market share is slipping as rival platforms take advantage of the break-up of its monopoly. Antitrust regulators hit Alibaba with a record $2.8bn fine in April after finding that it had hindered fair competition in online retailing by forcing merchants to sell on its platforms exclusively.

Taobao and Tmall’s share of the overall gross merchandise value (GMV) — the total value of everything sold on the site — declined after they were forced to halt practices that enabled it to fiercely guard its leading position.

In the first half of 2021, Taobao and Tmall collectively accounted for 48 per cent of China’s overall ecommerce GMV, down from 62 per cent a year earlier, according to research by Daxue Consulting.

The livestreaming model is geared towards high volume. “Shoppers love it because you can find so many special deals on bulk purchases and discounts,” said one 20-something shopper in the southern province of Guangdong, adding that the format is particularly loved by students, who have free time to scroll through videos.

But the sort of goods that are particularly popular with livestreamers are also some of Alibaba’s biggest earners: skincare, women’s fashion, cosmetics and perfume.

“Livestreaming is particularly conducive to beauty and apparel, which happens to be Taobao and Tmall’s strengths,” where they collect the highest commissions from merchants, said Michael Norris, senior research analyst at Shanghai-based consultancy AgencyChina.

Daniel Zhang, Alibaba’s chair and chief executive, blamed a slowdown in clothing sales for the company’s “single-digit” GMV growth at last month’s gloomy earnings.

To fight back, Zhang told investors that Alibaba was training more influencers to add to their retinue of online stars, which includes Viya, who sold $311bn of goods to her online fans last year, according to internet research firm iiMedia.

“Alibaba will catch up with changing consumer taste,” said one 41-year-old shopper in Beijing. “A company this big will not sit around and wait to die.”

Shifting further into commerce could also prove dangerous for the disrupters. “They risk diluting the entertainment value of their apps if the user’s individual feed becomes endless livestreams of people promoting their products,” said Norris. Less engagement from users could hit display advertising, still the primary source of revenue for Douyin and Kuaishou.

Meanwhile, Alibaba has the advantage of the years it spent building a reliable and trusted platform, and of managing complex supply chains and logistics.

Sellers on Douyin, including Dong, have come under fire for false promotions and refusing to accept returns.

Alibaba faced the same criticism in the early days of its move into ecommerce but has since invested money in bolstering consumer protections against merchants that sell fake and faulty products.

Douyin is trying to gain consumer trust with a protection fund that settles disputes between the vendor and shopper and by taking down problematic products from its app.

“I don’t trust live-streaming shopping,” said the Beijing shopper. “The products don’t come with any guarantees. Some of the live-streamers on Douyin have had an amazing performance, but still, it is difficult to shake Taobao and Tianmao from their commanding position.”