How to correctly view local life live broadcast?

This article first talks about the fact that the mobile Internet has entered a dull state in recent years, and whether there are still new things. Then it discusses whether local life live broadcasting is a new thing on the Internet, and finally talks about the decisive factors of local life live broadcasting. This article is suitable for people who want to understand or step into local life live broadcasting.

1. Will there be anything new in the mobile Internet market in 2023?

Strictly speaking, the Internet has been in a "dull state" in the past two or three years. Apart from a small climax brought by ChatGPT, the rest is just gossip about "where did the big guys go" and "the big guys are back". The big companies are languishing, the middle class is withering, and many people are beginning to believe that there will be no new stories in the Internet industry, and maintaining the status quo is the greatest happiness of this industry that once dominated the world.

In a sense, the superposition of multiple cycles such as macro and industry has made the "growth myth" of China's Internet (Chinternet) no longer sustainable. Looking further ahead, we can even think that the growth story of mobile Internet ended long after the rise of Pinduoduo. Even the story of mobile Internet's transformation, transformation, and "empowerment" of various industries is almost over. The Internet platforms that once dominated the world will inevitably become "traditional industries" or even "public utilities", which is the fundamental reason for their poor stock price performance this year.

Is this really the case? I have no intention of refuting those who believe that China's Internet growth has ended (after all, their views are not without reason). I just want to cite several recent macro and industry figures, which tell us another way to understand the facts:

The first data is the semi-annual report of the national economy. In the first half of 2023, the added value of the service industry increased by 6.4% year-on-year, while the GDP market increased by 5.5% during the same period, and the service industry exceeded the market by nearly one point. The added value of the service industry accounted for 56% of the GDP, and its contribution to economic growth exceeded 60%. Since August this year, the National Bureau of Statistics has begun to release service retail sales data. In this period of complex economic situation, the service industry has undoubtedly made contributions.

Another piece of data seems a bit "strange". In QuestMobile's mobile Internet report for the first half of the year, four companies have more than 1 billion deduplicated users, namely Tencent (1.212 billion), Alibaba (1.183 billion), Baidu (1.105 billion), and Douyin (1.011 billion). The highest year-on-year growth is Alibaba (9%). The highlights are in the 500 million to 1 billion user echelon, namely Ant (863 million), Pinduoduo (793 million), Meituan (783 million), and JD.com (704 million). Among these four companies, the fastest growing is not Pinduoduo, but Meituan - its deduplicated users have increased by as much as 30.2%, and it is an absolute leader among the top Internet platforms. You know, Didi, whose APP was just re-listed in the first quarter of this year, has only increased its users by 41.1%!

If you think about it carefully, there is nothing strange about it: this year is the first year after the full liberalization, and it is also the year when various places have taken measures to boost consumption. Offline consumption scenarios including catering, leisure and entertainment, and travel have recovered relatively vigorously. The "Zibo BBQ" that was popular in the first half of this year is just a microcosm of this. When the era of wild growth of mobile Internet came to an end and many companies faced bottlenecks in traffic growth, people suddenly discovered that the local life field where Meituan was located suddenly became a "hot commodity" and even became a battleground for strategists.

In the past, the capital market has been questioning the slow growth of local life traffic. Meituan has been established for 13 years, and the daily active users of the main app have just exceeded 100 million, which is far lower than mainstream e-commerce apps such as Taobao and Pinduoduo, not to mention social content apps such as Douyin and Kuaishou. But now, everyone has finally realized the "stability" behind the "slowness": whether during the epidemic or during the difficult recovery period in the post-epidemic era, the life needs of "eating, drinking, playing and having fun" have basically remained stable. After all, this is the most basic need of human beings.

In the past, the capital market had questioned the commercialization capabilities of local life, and the topic of "how low is Meituan's commercialization ceiling" has been debated for many years. For a long time, local life businesses such as group buying and food delivery were questioned as capital games that burn money to please the market. Now, with the massive entry of Douyin, the question of whether local life can make money has been refuted - with two "money printing machines" of advertising and live e-commerce, Douyin's entry into local life is obviously not for charity, but a sincere recognition of the commercial potential of this market.

Douyin is not the only Internet giant to enter the local life. Many people are worried that competitive pressure and slow recovery in the post-epidemic era will constrain Meituan, but Meituan's revenue still shows a stable growth curve, and its market share has not been significantly affected. By the way, on the just-passed Beginning of Autumn Day, Meituan delivered 40 million cups of milk tea in one day.

Local life has suddenly become the main battlefield of the mobile Internet. On the surface, this is a continuation of the borderless competition among Internet companies; but in essence, it is because all major platforms have set their sights on the "high-frequency and urgent demand value of local life", which is what major traffic ecosystems desire most when the overall traffic of the mobile Internet is exhausted.

Here, I would like to summarize three simple judgments:

1. The mobile Internet is entering a paradigm shift from "pursuing growth" to "pursuing rigid needs".
2. The "rigid needs" represented by local life are scattered and have a low online rate, which is an area that traffic-based companies are not good at, but they have no better choice.
3. "Value" (including traffic value and user value) will replace "growth" and become the core element of this stage.

Douyin mainly stirs up the local life market through live broadcasting. Soon after, Meituan also launched its own live broadcasting content. As a result, "local life live broadcasting" has become a rare new concept in the mobile Internet in 2023 that has attracted widespread attention. The question this article wants to explore is: Is the collision of high-frequency and rigid local life and live broadcasting a "new track"?

2. Local life live broadcast: Real sales may be more important than traffic

I have never thought that the "live broadcast economy" is a special business model. In the pan-e-commerce industry, live broadcasting is essentially an efficient tool for traffic marketing, which reduces the friction and shortens the path of transactions and fulfillment. As for whether the tool is efficient, it depends on who is using it and how it is used.

Before we discuss this issue in depth, we must first figure out what local life live streaming is and who is the protagonist.

In e-commerce live broadcasts, Li Jiaqi, Wei Ya, Luo Yonghao, Dong Yuhui, etc. are agents of platform traffic and endorsers of merchant credit. They rely on traffic authorization with the platform and use the trust and influence brought by their own IP to drive viewers to place orders. What merchants get in exchange for money is a position on the shelf in the live broadcast room (commonly known as a pit position). In addition to the above-mentioned KOL live broadcasts, there is also a form of "merchant self-broadcasting". Such merchants also have to pay high traffic and channel fees to obtain considerable live broadcast exposure to reach consumers.

You must have seen the live broadcast of "XX sauce wine" on the short video platform. I know that the profit of liquor is very high, but after a rough understanding of the cost of diversion, I really think that these wine bosses are also working for the platform. Whether in the KOL live broadcast or the merchant self-broadcast mode, the live broadcast room is essentially a counter in the mall. Merchants have to spend money desperately (whether through KOL or directly) to make their counters appear in the best position in the mall. In this process, merchants are not the protagonists at all. The platform and the top KOLs firmly grasp all resources and initiative.

The scale and concentration of merchants in the local life industry are far less than those of physical e-commerce. The merchants who can afford the high cost of live broadcasting and play "local life live broadcasting" are nothing more than national chain brands such as KFC and Luckin Coffee. Only these "big and powerful" brands have the ability to provide convenient verification for the coupons sold in the live broadcast room. Even if the price is low enough, they can concentrate the sales by occupying and locking in the scattered demand in advance - for them, this account is worth it.

However, in the entire local life market, small and medium-sized businesses outside of chain brands occupy the absolute majority, both in terms of business proportion and sales proportion. Until today, live streaming, as a tool to improve marketing efficiency, has not really served these local life protagonists. For platform companies, this is also a big opportunity: if live streaming can serve millions of small and medium-sized businesses, it will undoubtedly be able to pry Meituan's local life cake.

When Tony downstairs tried to trick me into applying for a credit card two days ago, I took the opportunity to ask their store manager, Xiao Zhao, a few questions and learned a lot from it. For these non-chain businesses, the location of the store determines the flow of traffic. Xiao Zhao has tried handing out flyers during openings or events, and asking store employees to go to the roadside or the entrance of nearby communities to attract traffic; there is some effect, but it is too labor-intensive, and it is not cost-effective to hire people specifically. Five of their own store employees were sent out at a time, and the pure labor cost per day was about 1,000 yuan, and the cost was that the work in the store was delayed again.

Xiao Zhao believes that online stores and group purchases are more reliable online marketing channels, but live streaming has not been considered. In addition to cost, the main reason is that the store can only cover the surrounding customer flow. For example, people who work in Pudong rarely go to Yangpu to perm their hair. Secondly, most of the users who watch live streaming are "blindly browsing" and do not clearly see the demand for hair washing, cutting and blow-drying. Even if they buy coupons at your low price, how many people will actually go to the store to redeem them? (Speaking of this, you can search for the actual redemption rate of local life group purchase coupons sold on live streaming platforms. I believe it will surprise you.)

Hainan is my second hometown. Lao Chen is my eldest brother in Hainan. He is an "old tourist" who has been working in the industry for more than 20 years. Now he mainly provides hotel and travel packages. Lao Chen has always insisted on building live broadcast channels on various platforms. His hard work has paid off. The sales in the live broadcast room now account for 30%. Before this, Lao Chen paid a lot of tuition fees. At the worst time, he spent a lot of money to invite experts to live broadcast. The scene was lively, but in the end, the write-off rate was less than 5 points. In the end, the real money was exchanged for two lessons. Live broadcast only looks at two points: one is how many real transactions it can bring, and the other is how much real (new) traffic it can bring to the store. In the words of Lao Chen, "Other things have nothing to do with you, so don't think about it."

Combining the information from Lao Chen and Xiao Zhao, and some interviews with merchants, I think it is difficult for these small and medium-sized merchants to do local life live broadcasts because of the offline nature of local life itself. There are three core reasons:

First, small and medium-sized businesses are rooted in local areas and have strong regional attributes.

These businesses tend to have offline stores as the main outlets. Generally speaking, the physical radius of the stores is their business scope, which can be as close as a few hundred meters or as far as three to five kilometers. If they do live broadcasts, they want to focus on covering potential consumers around the stores. This means that businesses in Beijing do not want the traffic in their live broadcast rooms to come from Nanjing, and businesses in Haidian do not need traffic from Chaoyang or Daxing.

Second, in the "nearby traffic", it only targets potential users with clear consumption intentions.

The focus of local life live broadcast is to accurately segment users with the help of LBS. Geographic location is important, but it is equally important to clarify consumer demand. This determines the source and distribution mechanism of traffic. Merchants do not need more traffic, but rather they crave for accurate traffic with significant demand. Only with accurate traffic can there be real transactions. Just like offline, why are the most "fitness and swimming" flyers distributed at the gates of office buildings and Internet giants? Because this is the target customer flow, and the probability of transaction is high.

Third, difficult businesses are more sensitive to the costs of live streaming.

In the local life track, no matter which sub-industry, it is almost a hard business. Rent, labor, water and electricity... the cost is there as soon as the door is opened. The gross profit margin of the merchant is low, and the sales expenses that are willing to be shared with the channel are also low. It is obviously unrealistic to let a barber shop or a gym hire people to make short videos, broadcast live, and buy traffic. It is more likely that they can broadcast anytime and anywhere, with a simple form, but simple and effective content.

The above three characteristics determine that most local life live broadcast merchants do not need general and universal traffic, but more precise traffic with many adjectives in front of it. The evaluation indicators they want are the accuracy of traffic and the final conversion rate, so that these traffic can be turned into real sales.

In addition, because the investment in live broadcast equipment and personnel will not be large, and there will not be much room for profit sharing through low prices, the significance of local life live broadcast to small and medium-sized businesses is to attract new customers to a small extent, and more to effectively obtain group purchase orders to achieve "volume sales."

3. Winning Points: Traffic Density and Monetization Rate

Now that we know what local life businesses value, the next important question is: What does local life live streaming need to do?

For example: flow is the crude oil input into the refinery, the final profit that merchants want is the refined oil, and the refinery is the merchant tool of local life live broadcast. To produce more refined oil, three conditions are required: first, the crude oil input into the refinery has less water and high density. Second, the supporting pipelines of the refinery are low-loss and efficient. Third, the processing cost of this refinery is best controlled within a certain range.

Let me start with the first point: Where does high-density, high-quality traffic come from? I saw a case like this in an interview with a local lifestyle merchant: a manager of a mid-to-high-end bathhouse complained, "Our user profile is a group of people who are not very sensitive to price." The most typical example is business people who are traveling on business trips. They spend a lot of money on a short video platform to buy a lot of exposure, but the general traffic and low-priced group purchase packages attract "wool parties"; not to mention the low write-off and repurchase retention rates, the buffet area was once paralyzed, lowering the overall customer experience, causing some old customers to request a refund, which was not worth the loss. However, guests attracted by live broadcasts such as Meituan that rely on search and nearby recommendation logic can stay.

The complaint of a nail salon owner is also worth referring to: some customers who made impulse purchases due to low prices only found out after arriving at the store that the environment and styles were not what they wanted, and asked for refunds on the spot. The business was not successful, but the store, which originally had only three employees, had to spend nearly half of its time to receive customers. This is easy to understand. For such low-frequency consumption, but for merchants who need to segment the population and clearly label their products, high-density and precise traffic is valuable. The general traffic attracted by low prices and impulse will become a burden.

From the perspective of traffic density, the density of live streaming traffic is not high, and the efficiency is not high. If users simply find the live streaming room in the short video information flow and consume based on low prices and emotional impulse, the efficiency of the transaction can be imagined. You should know that the return rate of physical goods on live streaming platforms is much higher than that of traditional e-commerce platforms, not to mention local life services that are highly sensitive to geographical location! If the user himself has the initial intention to consume and finds a store that is broadcasting live near him, the probability of matching the demand is much higher, and the impulse at this time becomes more valuable to the merchant. In this regard, merchants do have a higher evaluation of Meituan Live.

Secondly, the efficiency of the traffic supporting pipeline (that is, the transaction system). Local life is closely connected to offline and online, and its complexity makes the digital services on the supply side not standardized and universal. To put it bluntly, the online transformation of the physical world must meet the strong offline attributes of local life, allowing live broadcast traffic to run smoothly in the transaction system, thereby doubling the value.

Unlike live broadcasts of physical e-commerce, the fulfillment of local life live broadcasts is mainly completed through offline takeout, in-store and other scenarios. It is particularly important whether there is a complete store transaction and evaluation system, and whether there is a complete instant delivery fulfillment capability as an infrastructure. If the answers to the above are all yes, the live broadcast shelves and daily shelves can be directly connected, which is equivalent to adding a catalyst to the traffic. The more sales and evaluations are accumulated, the more the traffic efficiency can be amplified, and the more conducive it is to promoting real sales. If the answer is no, both the merchant experience and the user experience may be discounted, affecting the final write-off.

There is a classic case that best illustrates the moat attribute of the underlying transaction facilities. Many catering merchants use Meituan's cash registers and POS machines for their front desk systems. Therefore, when verifying Douyin group purchase coupons, merchants need to prepare a separate mobile phone, which is annoying for service staff. Not only does it reduce efficiency, but the user experience is also affected. For merchants, if they want to change a system, they need to pay extra costs, which further affects their willingness to cooperate with Douyin.

This also explains why Douyin wants to cooperate with Ele.me, SF Express, etc. It does not want to start its own food delivery business (which is too difficult), but to improve its fulfillment capabilities through external delivery capabilities and thus increase its write-off rate. Therefore, in terms of offline fulfillment capabilities and the integrity of the transaction and evaluation system, Douyin still has a hard bone to chew.

Efficiently converting high-density traffic is the basis for Meituan, which is committed to local life, to seize the opportunity of local life live streaming with thousands of physical merchants. However, this is also a big test for the company's organizational capabilities.

4. Live broadcast of local life starts with local life

Back to the question at the beginning of this article, can live streaming subvert the existing pattern of the local life market? Is local life live streaming a new track? I think not, because local life has too strong a local flavor, and live streaming can only be a "suffix" as a tool.

To put it another way, for live streaming of local life, there must be local life first and then live streaming.

The local life industry is not sexy at all. If social networking, games, and short videos are the great plains in the eyes of Internet companies, then local life is the mountains and hills. Here are the heaviest and most difficult businesses, which are difficult to scale up with large machinery. When the Internet was the best time to make money, no one was willing to dig deep into it. Meituan was almost the only exception. It met and screened the high-frequency rigid needs of China's most consumer-capable users. Although other companies such as Douyin, Kuaishou, and Xiaohongshu are also trying local transactions, they have not caused substantial trouble for Meituan given the double barriers on both the supply and demand sides. Therefore, in the recent performance reports, Meituan has maintained steady growth.

This also constitutes the essential difference between local life live broadcast and e-commerce live broadcast - the traffic source, distribution mechanism and operation mechanism are different. The traffic of local life live broadcast must have location attributes, and it is inevitable that there will be differences in density and frequency due to different levels of demand. At the same time, the system that runs it also needs to have a sufficiently complete transaction system, that is, as mentioned earlier, the traffic coming in needs to be able to be converted into real sales, and it is best that sales and traffic can form a positive cycle and promote each other.

From this perspective, local life live broadcasting can hardly be called a new track, nor is it a new story of local life. It is more like the first generation of AR store browsing, which does not rely too much on platform recommendations. The location, reputation, and products of the merchant itself are enough to attract nearby consumers. It has a sense of content, but it is still more of a local hard business.

Under these conditions, Meituan, which has been deeply involved in local life, has a deep moat and is in the best position to do a good job in local life live broadcasting. Of course, it should also thank Douyin, the catfish. The world should be like this. Business competition is not a one-time thing, and new changes are always worth looking forward to - but there are still certain reasons for who wins and who loses.

Author: Pei Pei, leader of the Phantom Thieves WeChat public account: Internet Phantom Thieves