Who will benefit if Taobao gets involved in MCN?

Guided by the strategy of revitalizing e-commerce, Alibaba's newly established Taobao Live E-commerce Co., Ltd. has issued a "star recruitment order" to provide in-depth full-hosting "nanny-style" services to stars, KOLs, and MCN agencies who are interested in starting a live broadcast on Taobao. Which groups will benefit from this? Let's take a look at the author's analysis.

Before the Spring Festival in 2024, Alibaba announced its unaudited financial report for the three months ending December 31, 2023 (Q3 of fiscal year 2024). Although Taotian Group achieved revenue of RMB 129.07 billion (approximately US$18.179 billion) in the quarter, the year-on-year growth rate of 2% ranked the lowest among all Alibaba business segments.

Image source: Alibaba financial report

After the financial report was released, Wu Yongming, the newly appointed CEO of Alibaba, said that the group's top priority is to rekindle the growth momentum of its two core businesses, e-commerce and cloud computing. In the coming year, Alibaba will increase investment in improving the core user experience to support Taotian Group's recovery of growth and consolidate its market leadership.

Guided by the strategy of revitalizing e-commerce, Alibaba's newly established Taobao Live E-Commerce Co., Ltd. quickly issued a "Celebrity Recruitment Order" after the Spring Festival, providing in-depth, fully managed "nanny-style" services such as anchor growth, platform guarantees, product services, and commercial marketing to celebrities, KOLs, and MCN organizations who are interested in broadcasting on Taobao.

Image source: Taobao

So, which groups will benefit from Taobao's full hosting service after it goes online?

1. Cultivate more “Li Jiaqi” and prosper the live streaming talent ecosystem

A duck knows first when the water in the river warms in spring. Merchants may have already sensed that Taotian Group’s performance growth rate was at the bottom in Q3 2024.

Wang Liang, who has been engaged in e-commerce for more than ten years, told Value Planet that the natural traffic of traditional comprehensive e-commerce platforms and live streaming e-commerce platforms is decreasing, and continuous paid traffic is required to bring high order conversions.

The reason why the platform enjoyed traffic dividends in the early stage was actually due to factors such as imperfect platform mechanisms, first mover benefits during the commercial trial period, and low penetration rates of some categories. However, when these factors gradually disappear, merchants face a continuous increase in promotion costs.

Wang Liang gave an example, saying that a certain through train keyword in the food category on Taobao was 1-2 yuan a few years ago, but now it has risen to 3-4 yuan or even higher. During the 618 and Double 11 shopping festivals every year, the leading companies in the industry need to boost sales and performance, so if they buy out the core keywords in the industry, the price is even more outrageous.

Based on this, many companies currently evaluate their e-commerce departments based on ROI. With the diversification of live-streaming marketplaces and the increasing fragmentation of traffic, merchants can only reasonably allocate promotion budgets based on the ROI of each e-commerce platform, which naturally poses a threat to Taotian Group's advertising revenue.

The rising promotion costs have forced merchants to actively seek change and regain offline channels. Considering that consumers will pay more and more attention to cost-effectiveness in 2023, their price comparisons are not only between different e-commerce platforms, but also in offline channels. And in order to better stabilize the interests of offline channels, many companies have pursued the same price across the entire network and the same price online and offline. Under the influence of the acquaintance economy in the sinking market, the prices of some commodities may be lower than those on online platforms. Under this choice of merchants, orders from e-commerce platforms have also been strongly diverted.

What Wang Liang said is a true reflection of the current beauty industry. For example, the price of YSL Saint Laurent Celebrity Lipstick Gift Box Small Gold Bar 2024 Nude Muse in the official flagship stores of JD.com, Tmall and Douyin is 1,260 yuan, and the counter price is also 1,260 yuan.

Image source: Douyin, JD.com, Tmall YSL official flagship store

Wu Yifan, general manager of Yangshengtang Cosmetics, pointed out that if you want to make high-priced products, you must try offline. Yan Ming, managing partner of Xiuyuan Capital and co-founder of Xiangyi Bencao Cosmetics, pointed out that it is a top priority for new brands to deploy offline.

Therefore, at the same price, Taobao and Tmall's orders will not only be diverted to other e-commerce platforms, but also to offline channels, which will naturally affect the growth of Taobao and Tmall's GMV. As beauty brands pay more and more attention to offline channels, user demand will not only be diverted to offline channels, but brands will also adjust their marketing budgets for Taobao and Tmall accordingly.

The more realistic problem is that in 2023, all major e-commerce platforms will pursue the "lowest price on the entire network", which means that other e-commerce platforms need to increase traffic and invest real money to continuously cultivate users' low-price mentality for the platform, and then "hard fight" with Pinduoduo. However, such long-term investment will affect the platform's revenue.

In the face of various difficulties, if Taotian Group wants to restore its previous high growth, it naturally needs to focus one of its business on live streaming e-commerce.

Star Map data shows that during the "Double 11" promotion in 2023, the total online sales of comprehensive e-commerce platforms represented by Tmall, JD.com, and Pinduoduo was 923.5 billion yuan, a year-on-year decrease of about 1.1%; while the sales of live streaming e-commerce represented by Douyin, Kuaishou, and Diantao reached 215.1 billion yuan, a year-on-year increase of about 18.6%.

Zhang Zhen, manager of a domestic Taobao agency service company, told Value Planet that Taobao still retains "Taobao Hot Search", while the reason behind Tmall putting "Find the Same Item" on the first-level menu is essentially due to users' strong search habits when using Taobao.

"Therefore, when we operate Taobao on behalf of our clients, we usually focus on search-oriented traffic channels such as Gravity Cube, Through Train, and Vientiane TV, and there is no need for high-frequency live broadcasts," said Zhang Zhen.

Image source: Taobao, Tmall

This habit of users has also caused Taobao to face the problem of insufficient ecological content. The "second half" of live e-commerce requires more content to strengthen the "anchor personality".

Liu Wei, head of an MCN agency in Shandong, told Value Planet that the market often says that the essence of live streaming e-commerce is low prices, which is both right and wrong. Low prices can easily lead to explosive sales in live streaming rooms, but as the homogeneity of live streaming products increases and brand merchants are controlling prices, low-price explosive sales are facing greater pressure.

Based on this, the anchors currently operated by Liu Wei's company often start from a certain detail that can impress users based on their personal characteristics, conduct in-depth content operations, and continue to cultivate emotional connections between the anchors and fans, thereby preparing for subsequent live broadcasts to bring goods.

As Liu Wei said, behind the "Dong Yuhui essay incident" that caused a stir last year, it was actually the migrant workers who saw themselves in Dong Yuhui. Young people from small towns come to big cities to work hard and treat their work conscientiously. Not only do they have to endure unfair treatment in the workplace, but sometimes they cannot get corresponding reasonable compensation.

This emotional resonance among consumers, coupled with Dong Yuhui's personal talent, has kept the "Walking with Hui" live broadcast room popular and with high sales. On the tenth day of the Lunar New Year, the first broadcast of "Walking with Hui" achieved over 18.95 million viewers and sales of over 20 million, topping the list of live broadcast sales.

Image source: Dadodo

In addition to the lack of content ecology, Taobao obviously lacks decentralized traffic compared to Douyin. This can be indirectly confirmed by the fact that "Douyin is permanent, but Internet celebrities are changing", and the fact that last year, "Taobao's No. 1" Li Jiaqi was pushed to the forefront of public opinion many times, but he is still the top flow of Taobao.

Based on this, Taobao has personally entered the field of "MCN", using more anchors to continuously enrich the platform's content ecology. On the one hand, it cultivates users' mental barriers to Taobao live streaming, and on the other hand, it creates more "Li Jiaqi" to prevent the platform from being controlled by top anchors. This may be the "optimal solution" at the moment.

2. Merchants and MCNs may benefit from this

It is undeniable that Taobao does have many advantages in personally engaging in live streaming e-commerce, and MCN and merchants may benefit from it.

Liu Wei told Value Planet that with the fierce competition in live e-commerce in the past two years, self-broadcasting by merchants + multi-account matrix live broadcast has become a trend, and the living space of MCN agencies is being continuously squeezed.

First, in order to avoid users' aesthetic fatigue in live broadcast rooms, the algorithm push mechanism of live broadcast rooms of major e-commerce platforms is constantly adjusted dynamically, and it is not easy to maintain the popularity. This means that MCN organizations must not only have an advantage in commodity prices, but also arrange special operators to follow up and study the algorithm adjustment mechanism of the platform in real time.

In addition to the platform's own adjustments, the major platforms have different user groups and usage habits, and the corresponding ecosystems and traffic algorithms are also different, so the live broadcasting techniques and methods are naturally different. This is also the reason why there are few successful cases despite the fact that the top anchors have always emphasized multi-channel live broadcasting in 2023.

As Liu Wei said, taking Oriental Selection as an example, although the performance of Oriental Selection’s first Taobao show in August last year reached 175 million yuan, according to the data collected by celebrities, whether it is sales volume, sales revenue or number of views, the live broadcast room of Oriental Selection showed a clear downward trend.

Image source: Red People Point Collection

Secondly, in addition to strict price control, big brand merchants also offer low commissions. Some clothing brands also restrict styles, which naturally affects the MCN agency's income from bringing goods.

This means that for a live broadcast with a GMV of millions, after deducting the high user refunds, high traffic costs of the new anchor’s live broadcast room, and the depreciation costs of the live broadcast team, venue, and equipment invested by the MCN, the actual profit is negligible.

Finally, the competition for traffic among major e-commerce platforms is essentially a competition for user attention, that is, the time consumers stay on the platform. Not only do e-commerce platforms need to compete for user attention, but MCNs also need to compete for traffic during the training of new anchors.

The embarrassing point is that the top anchors can train new anchors through the mechanism of old anchors training new anchors and masters training apprentices. Non-top MCN agencies face great pressure in training new anchors because users' attention is extremely scattered and MCN agencies are becoming more and more competitive in content.

However, many organizations that have transformed from content to MCN still have their advantages in the content side. In terms of live streaming, they obviously lack experience in controlling product quality and supply chain. Once product quality problems are exposed, MCN organizations will hardly be spared.

Some of the problems Liu Wei mentioned are exactly what Taobao is good at. On the one hand, Taobao has more experience in controlling product quality and supply chain than MCN agencies; on the other hand, Taobao is more familiar with the algorithm mechanism of the platform and can cultivate new anchors in a short time. Moreover, Taobao provides venues and equipment for MCN agencies, which also saves the operating costs of MCN agencies to a certain extent.

In addition to MCN agencies, some merchants may also benefit from this. Wang Liang then analyzed that in the past two years, due to the frequent exposure of product quality issues in the live broadcast room, the anchors have become more and more careful about their reputation. When selecting products, they either directly consider big-name products, which is particularly evident in the men's clothing and beauty markets; or consider products with high sales and high praise on a certain platform. If these requirements cannot be met, many merchants' products will be excluded in the early stage of the anchor team's product selection.

Taobao's control over product quality will not only help anchors select more high-quality and cost-effective products, but may also benefit more white-label merchants in the women's clothing market and the category and non-branded food market.

3. Being both a referee and an athlete?

If merchants and MCN agencies want to truly benefit from Taobao's full-hosting business, Taobao needs to continue to complete resource integration.

Regarding the full hosting service, Taobao said that the project is not for profit, nor does it compete with other MCN agencies, but is only for training newcomers. However, in the eyes of some MCN agencies and merchants, the actual situation is not so.

Zhang Hang, the head of an MCN agency in Hangzhou, admitted that the Taobao project means being both an athlete and a referee. "If we sign our new anchors to Taobao, and they continue to grow with the support of Taobao, will they think of terminating the contract with us later? And among the three parties, what role does MCN play?" Zhang Hang asked.

The more realistic problem is that when consumers pay more and more attention to low prices, the commissions given by merchants to anchors will only get lower and lower, and it is difficult to see the previous high commission + high slot fee situation. With limited sales and corresponding low commissions for a live broadcast, how will MCN, Taobao, and new anchors divide the profits so that all three parties are satisfied? With the concerns of MCN organizations, how to obtain more high-quality new anchors may also become a major problem for Taobao's full hosting service.

Unlike Zhang Hang, e-commerce merchant Li Yang is worried that the number of users on major e-commerce platforms has reached its ceiling, and subsequent traffic is unlikely to experience explosive growth. In the past two years, it has been difficult for the market to produce super apps that aggregate traffic, such as Pinduoduo, Douyin, and Kuaishou.

If Taobao wants to expand its managed services, it needs to take out more traffic from the limited traffic on the platform and support the signing of new anchors. This will form a trust endorsement and continue to expand the market. But when Taobao officially dilutes more traffic on the platform, will it lead to a further increase in the promotion costs of merchants?

At the same time, compared with the cross-border e-commerce full-hosting service, full-hosting means that merchants are responsible for submitting goods and supplying goods, and the rest of the operation, logistics, after-sales and other links are all left to the platform. As Taobao's full-hosting business gradually grows, it not only requires Taobao to establish a closer cooperative relationship with suppliers and brand owners, but also puts forward higher requirements on Taobao's cloud warehouse supply chain integration capabilities.

Taking into account the full-hosting service experience of Alibaba International Station, Cainiao's high supply chain integration capabilities, and the mutual support of Alibaba Cloud, entertainment and other sectors, Taobao's full-hosting service may usher in a different development prospect. How to seek "change" and find more certainty in uncertainty will become the core keyword of Taobao e-commerce in 2024.

*This article is based on public information and is only for information exchange purposes and does not constitute any investment advice

Author: Guiqulai, Editor: Maji

Source: ValuePlanet (ID: ValuePlanet)