Thanks for the great analysis. There are some interesting tensions that's driving much of the uncertainty at the minute.
Kuaishou stands to potentially benefit from its greater market share in the lower-tier cities and rural regions, in which consumers, unburdened by heavy mortgages, would be more willing to spend, and where there is more room for incomes to grow.
However, short videos and streaming are by nature very influencer-driven, and pop culture tends to percolate down from higher tier cities to lower tier cities, which advantages TikTok / Douyin. This means that a lot of it will come down to how well Kuaishou would be able to defend its share, with the major battleground in Tier 4+ cities.
Another dynamic is that in smaller towns, people know each other better, and most businesses would come from repeat customers. So they tend to have less need for advertising or promotions; instead the value creation opportunity for these platforms would shift from driving everyday traffic to principally discovery for cross-regional visitors.
The ecommerce business would remain relevant and up for grabs, since competition will not be bound by geography. This means that it will now become a five-horse race across BABA, JD, PDD, Douyin and Kuaishou.
BABA would of course come under pressure, but ironically PDD may also be vulnerable since they have been shifting ad spend and their best teams to focus on the Temu business, even as BABA buckles down.
Douyin is well ahead of Kuaishou for both advertising and ecommerce, though the latter will often be able to fill in the gaps of where Douyin finds it difficult to penetrate. This means that Kuaishou would be able to retain relevance if it can defend its share of viewers (and viewing time) – this it might well be able to do, since management would be less distracted by the international business than BABA, PDD or Douyin.
WeChat is of course the dark horse in the room, but culturally and organizationally, it is unlikely to attempt a direct bid for the ecommerce sector in our view. Instead, it will fight it out for the advertising space, where Baidu would be highly vulnerable.
Fully agree with you that streaming is less sustainable as a business, especially since there is so much key person risk. This is also why as it is currently structured, Douyin is likely more sustainable than Kuaishou, since the traffic driver is the platform itself and not so much the influencers.
Boss Zhipin's ($BZ) latest earnings call confirms lower-tier cities as China's growth center.
''There is another driver: lower-tier cities. Many other companies have successfully shown this by starting in first-tier cities and then further penetrated into lower-tier ones.''
Thanks for the great analysis. There are some interesting tensions that's driving much of the uncertainty at the minute.
Kuaishou stands to potentially benefit from its greater market share in the lower-tier cities and rural regions, in which consumers, unburdened by heavy mortgages, would be more willing to spend, and where there is more room for incomes to grow.
However, short videos and streaming are by nature very influencer-driven, and pop culture tends to percolate down from higher tier cities to lower tier cities, which advantages TikTok / Douyin. This means that a lot of it will come down to how well Kuaishou would be able to defend its share, with the major battleground in Tier 4+ cities.
Another dynamic is that in smaller towns, people know each other better, and most businesses would come from repeat customers. So they tend to have less need for advertising or promotions; instead the value creation opportunity for these platforms would shift from driving everyday traffic to principally discovery for cross-regional visitors.
The ecommerce business would remain relevant and up for grabs, since competition will not be bound by geography. This means that it will now become a five-horse race across BABA, JD, PDD, Douyin and Kuaishou.
BABA would of course come under pressure, but ironically PDD may also be vulnerable since they have been shifting ad spend and their best teams to focus on the Temu business, even as BABA buckles down.
Douyin is well ahead of Kuaishou for both advertising and ecommerce, though the latter will often be able to fill in the gaps of where Douyin finds it difficult to penetrate. This means that Kuaishou would be able to retain relevance if it can defend its share of viewers (and viewing time) – this it might well be able to do, since management would be less distracted by the international business than BABA, PDD or Douyin.
WeChat is of course the dark horse in the room, but culturally and organizationally, it is unlikely to attempt a direct bid for the ecommerce sector in our view. Instead, it will fight it out for the advertising space, where Baidu would be highly vulnerable.
Fully agree with you that streaming is less sustainable as a business, especially since there is so much key person risk. This is also why as it is currently structured, Douyin is likely more sustainable than Kuaishou, since the traffic driver is the platform itself and not so much the influencers.
Thanks for the comment! Very insightful.
I included your parts 1 and 2 in my Monday links post, Emerging Market Links + The Week Ahead (May 20, 2024) https://emergingmarketskeptic.substack.com/p/emerging-markets-week-may-20-2024 plus added your Substack to the front page of my website at https://www.emergingmarketskeptic.com/ - I guess you will be regularly writing and updating your Substack?
Thanks I appreciate it. Yes, I will be regularly writing and updating my Substack to provide consistent content.
thank you! very interesting
Boss Zhipin's ($BZ) latest earnings call confirms lower-tier cities as China's growth center.
''There is another driver: lower-tier cities. Many other companies have successfully shown this by starting in first-tier cities and then further penetrated into lower-tier ones.''