The first quarter of 2020 saw the COVID-19 outbreak extend from China to more than 200 countries around the world, leaving a trail of economic devastation in its wake. The UN estimates that global economic losses could amount to USD 2 trillion, as China’s GDP growth for Q1 2020 fell by 6.8% year-on-year—its first time since 1992 when official quarterly GDP records began.
The outbreak has altered consumer behavior, which will have a profound impact on the digital landscape in China. Here are six key sectors that offer us a glimpse of a digital future in post-COVID-19 China this year.
During the outbreak, daily time that Chinese netizens spent on mobile devices grew by 30% to 5 hours per day in Q1 2020 compared to 2019. “Games”, “Entertainment”, and “Photo and Video” were the 3 largest categories by consumer spending.
Video platforms like Douyin and Kuaishou had unusually high traffic. One report found that between January 20 and February 2, 574 accounts on these platforms each gained between 100 and 500 thousand new followers, with government organizations and state-run media accounts experiencing the highest growth, as people followed updates about the outbreak.
Streaming platforms have been used for all kinds of user engagement, from official announcements to leisure and entertainment. On Kuaishou, the WHO updated the public on the evolving pandemic while medical professionals shared life-saving tips. On the other hand, several movies premiered on iQiyi, as well as Douyin, which together with Bilibili (NASDAQ: BILI), even organized cloud raves and online music festivals. For the first time in history, the Shanghai Fashion Week also took place in virtual catwalks.
The 2020 outlook for streaming platforms is positive although digital advertising is expected to slow to 13% annual growth, down from the 15.2% forecasted last year. The combined advertising revenue for both Douyin and Kuaishou is expected to surpass RMB 100 billion (USD 14.1 billion) in 2020, as streaming platforms continue to pursue new revenue streams, including expansions in audience profile, content type, and monetization method.
Video: Chinese netizens are increasingly turning to livestreaming during the COVID-19 pandemic
Douyin, Kuaishou, Bilibili, and Youku are all enhancing their collaborative models with creators to produce high-quality content and expand into less familiar territories like education and music. This could lead to an increase in paid content on video platforms, thus reducing their reliance on advertising revenues. These platforms have also been aggressively integrating e-commerce, as Kuaishou, Douyin, and Bilibili all added retail features that support influencer marketing to further monetize their throngs of influencers and followers. Their model of e-commerce livestreaming is expected to deliver RMB 400 billion (USD 56.5 billion) in gross merchandise value (GMV) this year.
Social Networks and Online Communities
The COVID-19 outbreak highlights the distinct roles of China’s two largest social networks. Weibo has seen a surge in traffic by users looking for news and credible information from the platform’s verified accounts. WeChat, used by more than 1 billion people, has been instrumental in tracking people’s health status via QR codes, especially when students started to return to school and for contactless interactions by consumers or even law enforcers.
“Social e-commerce” became a buzzword in the past year as Pinduoduo (NASDAQ: PDD), once a mini program within WeChat, began clocking sales volumes that even turned Alibaba nervous. WeChat is shoring up capabilities in this area by upgrading its mini program feature and official accounts to support brands, facing the growing competition from video platforms that are aggressively moving into e-commerce.
China’s social media scene will also become more competitive as last year, tech giants Tencent (HKG: 0700), Alibaba (NYSE: BABA), Sina (NASDAQ: SINA), ByteDance, and JD.com (NASDAQ: JD) launched their own social networks. Some of these have more narrow target audience profiles, signaling an evolution in the social media universe where content is more personalized and curated for specific audiences and verticals. For instance, Alibaba’s Real is targeted at college students and Kuaishou’s app for teenagers is education-focused.
With stores shuttered and consumers staying at home, the first two months of 2020 saw declines in previously high-growth categories like apparel. However, online sales of food items increased by 26.4%, compared to 20.2% during the same period last year. The beginning of the year also saw e-commerce players, which have invested in smart logistics, expanding their use of autonomous delivery robots to ensure contactless deliveries, and improve safety, KrASIA reported.
A study by market research institute GfK shows the number of first-time users in lower-tier cities shopping online during the outbreak doubled those in top-tier cities. This highlights the immense potential of rural consumers, as JD.com and Alibaba seek new growth. Alibaba’s Rural Taobao program aims to cover 1,000 counties and 150,000 villages across China by 2021, targeting not only consumers but also creating a direct supply chain connecting rural merchants with urban consumers.
Continued development of autonomous delivery technologies will also facilitate deliveries in rural areas. In 2016, JD.com made its first drone delivery to a remote village in Jiangsu and expanded its reach to remote regions in Hebei and Shaanxi during the epidemic. Alibaba’s logistics arm, Cainiao, has partnered Beihang Unmanned Aircraft System to develop a delivery drone that can fly 1,500 kilometers with over a metric ton of cargo.
Traditional e-commerce players will face new challenges from social e-commerce rivals. While Alibaba’s immediate concern lies with Pinduoduo, the aggressive expansion of social networks like WeChat, Douyin, and Kuaishou into e-commerce will intensify competition in the space.
As offline entertainment and retail shuddered to a halt during the COVID-19 pandemic, foreign brands traditionally successful in the Chinese market in the apparel sector, consumer tech industry, and sports brands, including the NBA, have all pivoted to Chinese short-video apps to maximize their reach and increase sales.
New Retail and Automated Stores
The new retail concept, epitomized by Freshippo supermarkets, has changed the way people shop, promoting entirely cashless shopping through the use of mobile wallets and biometric technologies like facial recognition. Chinese consumers who used to favor fresh produce that they could see and feel, now trust Freshippo to deliver the same quality when they order online — the portal saw an explosion in demand up to 6 times the normal volume during the COVID-19 outbreak.
Having a physical supermarket might have built consumers’ confidence in the “freshness” of Freshippo’s products but there is more to this. By increasing their physical footprint, e-commerce players hope to complement their digital presence and become integral to consumers’ modern lifestyle. Freshippo has created different store formats that cater to various consumer tiers and needs, from supermarkets to mini-stores and lifestyle malls. Similarly, JD.com launched a new lifestyle brand called Seven Fun, under its division 7Fresh, to cater professionals in central business districts with fresh produce, groceries, wine, and craft beer. The company also manages 7Fresh Life, which offers convenient fresh food in neighborhoods.
Convenience stores are also going fully automated, although with varying degrees of success. Bianlifeng, one of the first smart convenience store operators in China, has digitalized its entire value chain to speed up expansion, targeting 10,000 stores in 3 years. Compared to traditional retailing, new retail formats like Freshippo and Bianlifeng have the advantage of consumer data, which is critical for improving business indicators as well as customer experience. Interaction with a knowledgeable service staff may be missed but only time can tell how much this truly impacts people’s shopping experience.
On-demand Lifestyle Services
The coronavirus pandemic brought on-demand lifestyle services, which required human contact, to almost a standstill. Consumers abandoned cooked food deliveries in favor of grocery—70% of Meituan-Dianping’s orders were for grocery instead of meals. However, the food business is expected to rebound quickly once the situation stabilizes, analysts said.
To boost its financial position, Meituan-Dianping will likely increase advertising fees this year. High-end restaurants that can afford the fees will be promoted, giving consumers quick access to better quality food choices. Last year, Meituan-Dianping created a university in partnership with institutes of higher learning to provide professional training in lifestyle services, ranging from food and wine to wedding and delivery services.
Recently, Alibaba, which has been aggressively building its on-demand services, also announced an educational platform that provides people working in the on-demand industry with training in digital skills. All these initiatives point to a growing focus on service quality as competition intensifies in this sector.
Remote Collaboration Tools
The outbreak forced many white-collar employees to work from home and students to embrace online learning. According to research firm App Annie, both Alibaba’s DingTalk and ByteDance’s Lark saw downloads of the apps surge over 350% during Chinese New Year week compared to the previous week, while Tencent’s comparable product WeChat Work surged by almost 70% during the same period.
The outbreak has blurred the lines between enterprise and consumer collaboration apps. While supporting users working at home, DingTalk has also been adapted for online learning, used by more than 600,000 teachers and 120 million students across China. The app’s “private circle” mode, which allows users to form private social groups within the app, is equally valued by enterprise and education customers alike.
Read more: As millions are forced to stay at home, China’s office apps battle for market share
Conversely, WeChat Work, and ByteDance’s Lark, went from social networks to acquiring enterprise users. WeChat Work shares a communication experience that WeChat users are familiar with, as it provides business support tools for critical social marketing and retail activities on the platform. Lark, which is modeled after Google’s G-Suite, has helped 9,545 companies nationwide launch official Douyin accounts to kickstart their online marketing and sales.
As the concept of the workplace changes, demand for enterprise software is expected to grow to RMB 65.4 billion (USD 9.2 billion) by 2021, providing the impetus for consumer-focused tech companies to speed up efforts to serve corporate clients. Increased competition in this space will accelerate new product and service development to support businesses in a dynamic economic climate as China begins its recovery from the COVID-19 pandemic.