From Wind Rising to Wind Calming: Is Live E-Commerce a Feature or a Business Model? (Part 1) | Frees Fund

Like many others, we tuned in to several of Yonghao Luo's livestreams. FreeS Fund portfolio companies — the restaurant chain Xinliangji, ice cream brand Chicecream, and personal care brand Botaniera — all became hot sellers in Luo's livestream room.

There's no doubt that Luo's entrance made livestream e-commerce even hotter. As with any trending topic, reactions split between hype and criticism, generating plenty of noise. But to understand the essence and future of "livestream e-commerce," we need to return to the four characters themselves: "livestream" and "e-commerce." When we trace the evolution of livestreaming and dissect new e-commerce models, we find that so-called novelties never emerge from nowhere — there's always an underlying logic.

Before diving in, here are two of our key takeaways on livestream e-commerce:

• Livestream e-commerce currently enjoys three overlapping tailwinds: a time-allocation dividend from the recent pandemic, a user-experience dividend from the migration of information consumption to new media formats, and a traffic-allocation dividend from platforms. All brands should experiment with livestream e-commerce if they can — whether for inventory clearance, customer acquisition, or brand building, there's real upside to be captured right now.

Take Xinliangji, which we just mentioned. Previously a B2B supplier of pre-made seafood like crawfish to restaurants, the company faced operational challenges when the food service industry took a hit. But through Luo's livestream, it suddenly broke into the consumer market. It's now the top seller of pre-made crawfish across platforms — livestreaming deserves much of the credit.

• In the long run, we believe livestream e-commerce will become a standard feature for brands, but will rarely become the primary sales channel for most product categories.

Below, we'll explore this from two angles: livestreaming itself, and new e-commerce models. The article comes in two parts — this one covers the present; the next covers the future. In this installment, we'll examine the current dominant form of livestream e-commerce: "Juhuasuan with sound and color." In the next, we'll discuss a form that isn't mainstream yet but will grow increasingly important: "SMZDM with sound and color." Stay tuned — we hope to offer fresh perspectives.

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Livestream E-Commerce Through the Lens of Livestreaming History

The Last "Thousand-Platform War": Inke Started the Fight, Momo Won the Battle

Livestream e-commerce isn't the first time mobile livestreaming has hit peak hype. The previous wave, summarized in one sentence: Inke started the fight, Momo won the battle.

2016 was dubbed China's livestream social media year. Per CNNIC data, by mid-2016 nearly half of Chinese internet users — 320 million people — had watched a livestream. You probably remember the "thousand-platform war" diagram.

(Image from web)

That year also marked the peak for Inke, founded in 2015. After two funding rounds, its valuation hit 7 billion yuan. But the glory was fleeting. Per its prospectus, Inke's monthly active users peaked at 30.006 million in Q4 2016, then plummeted.

By contrast, social platform Momo launched its livestreaming business in 2015 too. Within four months, monthly active livestream users neared 30 million. By 2017, livestreaming became Momo's cash cow, generating $1.10 billion in revenue — 83.46% of total company revenue.

The diverging trajectories of Inke and Momo yield two conclusions about the livestreaming industry:

• Both started with "showroom" models — performance-oriented content that's hard to monetize offline, so moving it online addressed some user demand. But creating livestream content is difficult. Once initial novelty fades,同质化 low-quality content breeds user fatigue.
• Compared to Inke, Momo — focused on stranger social networking — already had over 200 million registered users when it launched livestreaming, providing fertile ground for showroom content to thrive. Video livestreaming complemented existing photo/text entertainment and social modes. With both supply and demand on-platform, the model was healthier — a key reason it broke through.

So the last livestreaming war offers a lesson for livestream e-commerce: on livestreaming itself, you need to create sufficiently unique, high-quality content. Otherwise, the market gets captured by players with traffic. The practical difficulty: video creation is harder, and quality supply will remain scarce long-term.

From Esports to Showrooms to E-Commerce: Owned Traffic Determines a Host's Value and Survival Space

Whether in showroom livestreaming discussed above, or the esports streaming wave around 2014, we see the same phenomenon: livestreaming maximizes individual energy, yet after the peak, only a handful of hosts maintain million- or ten-million-yuan valuations. Compared to the boom-time buzz, many leave due to plunging income, while others become "ordinary" hosts — treating it as just another job or work format.

In March 2020, Zhaopin and Taobao Live jointly released the "2020 Spring Livestream Industry Talent Report." It found that in the month after post-holiday work resumption, while overall corporate job postings and hiring dropped 31.43% and 28.12% year-over-year, livestream-related job postings surged 83.95% and hiring jumped nearly 133%.

If you know the history of esports and showroom hosts, you can probably guess where these rising curves are headed. Though livestream e-commerce looks tempting now: there are veterans like Viya and Austin Li who fought their way up from Taobao, Xin Youzhi who blew up on Kuaishou, Yonghao Luo rising from Douyin, plus countless ordinary entrants. Per Taobao Live's report, since 2020, over 100 professions have pivoted to Taobao livestream rooms.

Yet, most likely as in the past, livestream e-commerce won't remain lucrative for enough people for long enough.

Will some heads survive? Yes. Then who ultimately becomes a head? This brings us back to the critical question of traffic.

Take esports hosts: why are the few surviving heads so valuable after the shakeout? Because they genuinely have fans who will follow them to whatever platform they join. That traffic is truly theirs. When they recommend a game, it brings substantial new users — so they're genuinely worth that money.

But livestream e-commerce is at a different stage. Consider: merchants pay hosts to sell goods. What exactly are they buying with that commission? Frankly, traffic and users.

Here's the question: are these new users the host's fans, or platform traffic funneled to the host?

Currently, major traffic platforms including Taobao, Douyin, and Kuaishou are actively building livestream e-commerce, giving head hosts abundant traffic and operational resources. Platforms actively promote head host livestreams in high-traffic areas to expand their influence — using head hosts to drive user participation and conversion, while attracting new hosts to enrich the ecosystem.

But as livestreaming becomes a universally accepted e-commerce feature, platforms will likely gradually withdraw free traffic support. At that point, how much genuine user influence and trust each e-commerce host actually commands will become clear. To keep charging advertising fees or sales commissions, hosts will need to prove their created value matches their earnings.

What's certain: long-term, only a tiny minority will justify high commissions and survive as personal brands — and they'll become prized targets for platforms.

Having covered livestreaming, let's turn to e-commerce. Related e-commerce models can be roughly divided into two types: group-buying e-commerce and deal-guide e-commerce. Today we'll explore the evolution of group-buying e-commerce, which most closely resembles current mainstream livestream e-commerce.

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Livestream E-Commerce Through the Lens of Group-Buying History

From 2008 to today, reviewing group-buying's development, we find that survival and prosperity for group-buying companies depended mainly on mastering traffic and supply chain.

From Groupon and Gilt to Meituan and Jumei: Service Group-Buying Faded, Physical Goods Group-Buying Thrived

In 2008, group-buying pioneer Groupon launched. Post-financial crisis, depressed consumer demand left massive inventory buildup; online group-buying could stimulate consumption while clearing inventory — the engine behind its rise. Two years later, in 2010, Meituan launched.

Both started with service group-buying: haircuts, skincare, dining, etc. We know how this ended. Groupon lost its luster; Meituan long ago escaped the group-buying fortress. The core reason: service group-buying isn't a massive, sustainable business model.

Services are non-standardized, not strongly replicable — ten more customers doesn't cut per-customer service costs fivefold. Deep discounts can't last. Rather than inventory clearance, services need precise customer acquisition: small batches of repeatable consumers. Customers drawn by deep discounts rarely convert to long-term clients.

Later, group-buying mainstreamed toward physical goods, branded as "limited-time sales." Two typical variants: category-specific (e.g., cosmetics) and mid-to-high-end (e.g., luxury). Common thread: high margins. Notable companies emerged: "American flash-sale pioneer" Gilt, 2010-founded Jumei International Holding Limited, etc.

How are these former physical goods group-buying stars faring now?

Take Gilt. Like Groupon, Gilt (founded 2007) initially rose thanks to the financial crisis. Luxury brands faced severe inventory buildup and needed clearance channels; Gilt fit the bill.

But this was temporary. For luxury, lowering posture is far harder than maintaining it. As sales normalized, Gilt's growth re-constrained. Failing to secure supply chain and stable long-term sourcing, decline was inevitable. Jumei, focused on luxury cosmetics group-buying, faced the same challenge.

Physical Goods Group-Buying's Transformation and Advance: VIP.com Chose the Right Category, Pinduoduo Leveraged Social Chains — Both Caught the Moment

Speaking of Gilt, we must mention another domestic physical goods group-buying company: VIP.com.

VIP.com, launched December 2008, was directly inspired by Gilt. Founders Xiaobo Hong and Ya Shen hoped to import luxury flash-sales to China. But initial months saw poor sales. Top luxury brands were cautious about online channel authorization; luxury e-commerce couldn't secure enough supply. Into 2009, internal and external pressures mounted.

Against this backdrop, in March 2009, VIP.com pivoted: abandoning luxury brands, targeting mid-tier apparel brands more familiar to Chinese consumers. The cleverness: most Chinese mid-tier brands then relied heavily on distributors for inventory and sales, leaving inventory ratios often at 20% or higher — especially in apparel.

Per a 2014 Southern Weekly report, VIP.com's pitch to apparel brands had four main points: we'll help clear tail-end and off-season inventory; we'll provide free brand advertising; our limited-time, limited-quantity flash-sale model won't disrupt your offline pricing, and can test new products; and we'll pay quickly, without pressuring suppliers on payment cycles. This became key to VIP.com beating competitors and winning more supplier partnerships.

Beyond the product pivot, VIP.com simultaneously expanded its target consumer base, positioning itself for the just-beginning upgrade of tier-two through tier-four city populations — capturing mid-city consumers' first consumption upgrade. 2014 data showed VIP.com's tier-one city orders around 13%, tier-two provincial capitals at 30%, with tier-four cities and counties each exceeding 20%.

Thus, with both user base and supply chain secured, VIP.com became a mid-scale e-commerce player.

But compared to Taobao, VIP.com didn't nurture new brands — it stopped at being a merchant tool for customer acquisition and promotion. And this model limited the platform mainly to apparel: highly personalized, inventory-prone, with sufficient margin space.

Then came 2015's Pinduoduo. Like VIP.com, Pinduoduo rode huge momentum from lower-tier cities' consumption upgrade. The difference: leveraging WeChat's social traffic — due to barriers between WeChat and Taobao — Pinduoduo evolved deep-discount physical goods group-buying into social group-buying.

Group-Buying's "Top Player" — Juhuasuan in the Alibaba Ecosystem

Overall, group-buying's biggest player remains Taobao and Tmall's Juhuasuan. Founded in 2010, Juhuasuan grew rapidly: by 2011, annual group-buying transaction volume exceeded 10 billion yuan, capturing "half the mountain" of China's total group-buying industry that year.

Later, Juhuasuan underwent personnel and model changes, yet its industry position was never shaken. 2012 annual transaction volume hit 20.75 billion yuan; 2013 rose to 35.4 billion. While numbers climbed, by 2019 Juhuasuan also shouldered Alibaba's flag in attacking the lower-tier market.

Juhuasuan's strength rests on Alibaba's full-chain ecosystem. In other words: merchants and brands in one hand, massive consumer base in the other. As a key weapon in Taobao-Tmall operations, Juhuasuan helps merchants solve core problems of new customer acquisition and marketing, while helping users discover discounted goods.

But "Juhuasuan" is no longer Taobao-Tmall exclusive — platforms large and small now have "Juhuasuan" sections, morphing into various limited-time specials and brand subsidies, becoming important tools for brand promotion and sales.

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Livestream E-Commerce — "Juhuasuan with Sound and Color": Three Tailwinds and Efficiency Challenges

Looking at current livestream e-commerce, doesn't it resemble flash sales or group-buying? A telltale sign: virtually every sales king shouts "lowest price on the entire internet," "limited quantity," "flash sale." These keywords mirror group-buying's typical traits: deep discounts, bulk purchases, impulse buying.

But compared to Taobao-Tmall's Juhuasuan, livestream e-commerce's video format is more "vivid and lively" — hosts performing on camera, plus comprehensive product displays. So we can view this livestream e-commerce as "Juhuasuan with sound and color." This is currently the mainstream form.

Since "discount" is this model's foundation, following group-buying e-commerce's path, reaching the top in livestream e-commerce similarly requires two capabilities: supply chain mastery and traffic mastery.

In the near term, livestream e-commerce's three tailwinds are clear.

First, the dividend from evolving expression and media formats. Engaging more senses than text/images, it delivers more information and impact; unlike early TV shopping, it adds interactivity for better experience.

Second, pandemic-induced inventory buildup has made merchants willing to experiment with video livestreaming, offering abundant deep-discount flash sales and group-buying opportunities.

Third, traffic platforms are supporting livestream e-commerce as a new monetization path. Whether traffic platforms like Douyin and Kuaishou, or e-commerce platforms like Taobao, all are investing resources to cultivate head hosts on their platforms. You've seen their "star-making campaigns."

However, efficiency challenges for livestream e-commerce are already emerging.

An analogy: two hours of watching, host pitches 20 products, you fancy two (if you can snag them), spend one or two hundred yuan. Terrible time efficiency. To buy those same two items, maybe five minutes scanning a "Juhuasuan" discount page would suffice.

The underlying issue: unlike text/image era's quick scanning, video content consumption requires watching frame-by-frame, start to finish, to grasp all information. We're glued to screens, waiting for desired items to appear — and they're likely interspersed with others.

So long-term, who wins in this Juhuasuan-style livestream e-commerce?

Beyond a few head hosts getting a slice, to some degree, the biggest closed-loop opportunity still belongs to full-chain e-commerce platforms like Taobao.

Whether back-end supply and analytics capabilities, front-end initial livestream reach, seamless ordering during livestreams, or post-order logistics and service — e-commerce platforms' years of accumulated systems and ecosystems can create the most efficient livestream e-commerce experience.

Summary

1 For livestreaming itself, hosts need to create sufficiently unique, high-quality content; otherwise, the market gets captured by players with traffic. With multiple overlapping tailwinds, how much genuine user influence and trust an e-commerce host actually commands remains to be proven. What's certain: long-term, only a tiny minority with sufficient platform-proven strength will survive as personal brands.

2 With group-buying's typical traits — deep discounts, bulk purchases, impulse buying — current mainstream livestream e-commerce can be viewed as "Juhuasuan with sound and color." To reach the top in this category requires "traffic kings with supply chain capabilities"; otherwise, hosts or other intermediary service providers face value compression from both users and platforms.

3 Livestream e-commerce will ultimately become a universal feature on most platforms, but a business model for only a few. Once near-term tailwinds are consumed, the biggest closed-loop opportunity still belongs to full-chain e-commerce platforms like Taobao, with sufficient back-end supply chain resources and front-end stable traffic.

4 Whether livestream e-commerce can deliver long-term, massive impact on brands and sales warrants a cautious view.

Discussion

Q: In this wave of livestream e-commerce, is there opportunity for independent e-commerce platforms on the scale of VIP.com or Pinduoduo to emerge? Tap "Like" and reply "livestream" in our backend for our preliminary answer.

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