Chinese Ed-Tech Pivot to Social Commerce Sales

ByteDance and New Oriental creating Social E-commerce traction in China

Hey Guys,

You’d think that China’s E-commerce appetite would be satiated by Alibaba, JD.com and Pinduoduo, who are giants in their own right.

But when Chinese regulation dashed the hopes of ByteDance, who was investing in Ed-tech significantly at that point and New Oriental, something extraordinary occurred. They both pivoted hard into E-commerce.

Ever since China abruptly cut off the bulk of income for most private education companies last summer, the businesses have had to make some difficult decisions. For New Oriental, once the leader of the sector, it meant letting go of most of its tutors for the K-9 grades and setting up a new livestreaming e-commerce unit to make up for some of the lost income. 

ByteDance already a leader in social commerce, became even more ambitions in their E-commerce ambitions. In 2022, it’s a changing of the guard year as consumer-apps companies are doing better in social commerce than anyone ever dreamed.

Chinese short video platforms like ByteDance-backed Douyin and Kuaishou are quickly taking away the market shares of e-commerce giants like Alibaba, JD, and Pinduoduo, thanks to their widely popular social content. The West in years behind in E-commerce sales from social apps.

You could easily argue that Chinese mobile consumers are much more sophisticated with a richer ecosystem of apps, and not just Amazon or Walmart, like we see in America.

New Oriental has bene a weird surprise. I thought their business would completely fail when the Ed-Tech rules abruptly changed in China. I have to say though that New Oriental’s fortunes are looking up. It all changed after the firm’s hosts, all former tutors, started to teach English while selling goods over their livestreams. 

Just how profitable as Douyin become as an E-commerce power-house? Douyin’s gross merchandise value (GMV) surged 320% year-on-year in the year ending in April as the company sold more than 10 billion products, president of Douyin E-commerce Wei Wenwen said (in Chinese) at a Douyin e-commerce conference in late May, 2022.

We actually shouldn’t ignore Kuaishou either, while their overall financials are not great their traction in social commerce is becoming more impressive. The online marketing services business is the largest revenue contributor for Kuaishou, accounting for 54% of its total Q1 2022 top line. Revenue for Kuaishou's online marketing services business grew by a robust +33% YoY from RMB8.6 billion in Q1 2021 to RMB11.4 billion in Q1 2022, as per the company's most recent quarterly results announcement.

• Douyin

• Kuaishou

• New Oriental

These three new players are putting pressure on Alibaba, JD.com and Pinduoduo who are quite successful and dominance and it just goes to show you how incredibly competitive, mobile penetrated and popular E-commerce is in China as a whole. China is literally years ahead of the world in how they combine live-streaming and E-commerce in every possible way imaginable. YouTube and Instagram barely made any traction on this in all of these years.

China Leads in Social Commerce

Social commerce is when social media and E-commerce are combined in live-streaming. As TikTok enables live-streaming with subscriptions, it is already unlocking a potentially huge revenue source for the company even as its Advertising grows in leaps and bounds. But Douyin (TikTok’s mainland version) is already so incredibly successful people don’t realize.

China’s blooming livestream e-commerce sector has become increasingly crowded as thousands of Chinese celebrities and online personalities flock to commercialize their followers or cash in on online fame. Only those with relatively unique selling points or characters are able to stand out and attract buyers’ attention.

ByteDance is also becoming more dominant in Search and mobile search. For instance Douyin hopes to highlight its ability to attract consumers through multiple channels such as short videos, livestreaming, its search function, and more, said Wei at the conference. There’s some rumors ByteDance will spin-out Douyin into its own company that would go IPO soon.

Meanwhile how China’s Ed-Tech and tutoring business are trying to pivot is just so wild. New Oriental is among several tutoring companies pivoting to new business ventures after China’s crackdown on the private tutoring industry last July (2021). Edtech giant Zuoyebang has looked into developing a printer business, while tutoring unicorn Yuanfudao tried to invest in an outdoor down jacket business last year.

What’s clear is that in China E-commerce and live-streaming is leading to great traction in a utilitarian and growing influencer economy where China’s own version of the “Creator Economy” has already been thriving for some years. China has many video centric companies many outside of China have never even heard of that are terrific GenZ centric companies. Bilibili is so good it could become the YouTube of China and even WeChat has the opportunity to reinvent itself or a younger generation to become outdated.

While China’s crackdown on Ed-Tech and Gaming really hurt the likes of New Oriental, ByteDance, Tencent among dozens of others, they are finding ways to adapt and grow their businesses more globally. ByteDance is already more diversified than Facebook ever was, even at a younger stage of its business maturity cycle. ByteDance has become one of the most aggressive global suitor of talent.