Kuaishou APP Seeks Beyond E-commerce "Solutions"
In recent years, the perspective for measuring the maturity of Kuaishou's commercialization has always been on the performance of its e-commerce business. However, under new circumstances, the perception of Kuaishou "driving the whole with e-commerce as the axis" may need some adjustment.
In Kuaishou's financial report for the new quarter, the most eye-catching and stable performance is the number of active users. The average daily active users of its application is 407.5 million, a year-on-year increase of 5.4%; the average monthly active users are 714.1 million, a year-on-year increase of 4.3%. This is the first time Kuaishou's average DAU has exceeded 400 million.
At present, the traffic of Internet app applications has entered a period of normalized narrowing growth. According to CNNIC statistics, by the end of 2023, the scale of China's online video users reached 1.067 billion people, accounting for 97.7% of the total netizens. Among them, the scale of short video users reached 1.053 billion people, accounting for 96.4% of the total netizens.
The overall increase in volume is hard to find, and the dividend is fading. The competition for user time between platforms has also entered a "zero-sum game". As a leader in the industry, Kuaishou can still increase user data through a series of business strategies (brand effect, technical capabilities, and content innovation) under the trend of increasing traffic concentration. Of course, this is also accompanied by increased sales and marketing expenses.
Advertisement
The just-ended Q3 covered the Paris Olympics. At present, Kuaishou's operation of sports IPs is very skilled. The combination of copyright broadcasting, self-made content, and interactive gameplay has achieved an exposure of 310.6 billion for related content on Kuaishou during the Olympics, effectively driving a wave of traffic. In terms of increasing usage frequency, the platform has also optimized mechanisms such as content mixing and traffic distribution. In the third quarter, the average daily usage time of Kuaishou's daily active users was 132.2 minutes, and the total user usage time increased by 7.3% year-on-year.
With abundant traffic supply as the foundation, using live broadcasting to enter the e-commerce scene and driving the growth of internal cycle advertising, this is the logic chain of Kuaishou's commercialization. But the current looseness in the chain is that e-commerce growth is slowing down, and the advertising business that was previously bound to it is developing more "external assistance"; the position of the industry leader has delayed the impact of the traffic plate seeing the top, but the pressure to efficiently monetize is objective. We have also seen the platform more frequently introduce AI as a solution to improve efficiency.
E-commerce businesses, once regarded as the ceiling of Internet monetization, may no longer be able to provide the imagination of "going ashore" for traffic platforms.
01, Binding and Unbinding
Kuaishou clearly defined the concept of "internal cycle advertising" in 2021, referring to advertisements placed by merchants and hosts who live broadcast and sell goods on the platform, allowing traffic exposure and product guidance to directly form a closed loop within the domain. At that time, Kuaishou's pillar business of live broadcast rewards was on a downward trend, while Douyin was a step ahead in running through the live broadcast e-commerce model.
According to a report by "LatePost" in 2022, in the first quarter of that year, both Douyin and Kuaishou had more than 1/3 of their advertising revenue belonging to "internal cycle revenue". Byte's advertising revenue thus became the first in China, and Kuaishou's advertising revenue was only 1/4 less than Baidu's. In the first quarter of 2021, the advertising revenue contributed by the internal cycle to Kuaishou was less than 25%, and a year later, this proportion has exceeded 35%.
The growth of internal cycle advertising is highly bound to its e-commerce GMV revenue, but in the second quarter of this year, Kuaishou's e-commerce GMV growth rate fell below 20%, and the GMV in the third quarter increased by 15.1% year-on-year, which is the same as the second quarter.
The slowdown in social retail growth and the slow recovery of consumer demand are the big backgrounds. Superimposed on this, starting from last year, the two major "factions" of e-commerce have delved deeper into each other's territories, with shelf e-commerce strengthening content construction and content e-commerce exploring the transformation of general shelves. We mentioned in our previous articles that this has to some extent pulled the battlefield, leading to more direct competition. In the third quarter, Kuaishou's general shelf GMV accounted for 27% of the total e-commerce GMV.
Considering that the third quarter is the off-season for e-commerce, we will continue to pay attention to the performance covering the major promotion cycle of the fourth quarter. However, according to QuestMobile's "Double 11" insight report for 2024, this trend of mutual integration is still continuing, with content e-commerce platforms participating more deeply in major promotions through "live broadcast + shelf" methods; comprehensive e-commerce platforms are also countering, continuously increasing the support for live broadcasts.
On the other hand, the presence of external cycle advertising revenue has been significantly enhanced in the financial reports of recent quarters. In the third quarter, Kuaishou's online marketing service revenue was 17.6 billion yuan, a year-on-year increase of 20%. Given that the growth rate of internal cycle advertising is usually in sync with its e-commerce GMV growth rate, it can be seen that external cycle advertising plays a role in driving.
The financial report mentioned two key factors. One is the efficiency optimization brought by tool optimization, providing differentiated Universal Auto X (UAX, fully automatic delivery solution) for different industries and scenarios, which has improved the stability of customer marketing delivery. The official data shows that the total marketing consumption of fully automatic delivery solutions in the quarter accounted for 50% of the overall marketing consumption of external cycle marketing customers.
The other is a short drama. According to iResearch Consulting, in 2023, more than 90% of advertisers chose short video/live broadcast platforms for delivery, and more than 90% of advertisers expected to increase their delivery budget for this type of platform in 2024. As a new form of marketing mainly relying on short videos, the marketing budget for short dramas is relatively sufficient. Kuaishou itself has a certain first-mover advantage in the short drama industry, but the business model has always been in the exploration period.
However, as the industry enters maturity, the IAP (In-App Purchase) model that used to dominate is gradually transforming towards a balance between IAP and IAA (In-App Advertisement). The upper limit of IAP is on the C side. Due to the relatively weak content payment awareness of domestic short video users, the IAA model associated with the B side is more accepted and can release more commercial value of free content. Kuaishou also mentioned in the financial report that the IAA short drama model was run through in the quarter, bringing a year-on-year increase in short drama marketing consumption of more than 300%.
The growth of external cycle advertising has been brewing for several quarters and has indeed played a role in balancing the overall situation when e-commerce growth tends to slow down. However, as the heat of a commercial "star" declines, Kuaishou is pushing another "star" onto the main stage.
02, All eyes on AI?
As an efficiency tool, AI has become an alternative standard for Internet companies, but different companies have different positions on it.
Integrating AI into the main business, a common practice for e-commerce platforms is to put it into the business process to improve efficiency and optimize resource allocation. The changes that consumers can perceive are mostly reflected in the satisfaction of personalized needs, such as recommending products based on user browsing history, purchase records, etc., or using its natural language understanding capabilities to develop AI tools based on question-and-answer interactions to solve users' vague needs. The "Taobao Ask" test by Taobao last September belongs to this category.
A broader application is on the business side. A part of the infrastructure of e-commerce platforms is to provide business support for businesses, but because the mechanism is complex, many small and medium-sized businesses will outsource this part of the business work to third-party operations. What AI can do is automate some processes, such as content generation, logistics optimization, data management, etc., reducing the threshold while reducing costs. In QuestMoblie's Double 11 report, it can also be seen that typical e-commerce platforms will provide AI support in the marketing link to achieve the purpose of cost reduction.
For platforms like Douyin, which enter the e-commerce business based on content, AI can also explore the content supply and traffic operation level. For example, the independent AI application Doubao has expanded the company's traffic window. The original CEO who transferred to lead the team, Jianying, is exploring the use of AI to assist in the creation to achieve a productivity revolution.
In short, how AI becomes a growth engine, platforms with the same core business as Kuaishou have all tried the water. Alibaba's domestic and foreign e-commerce business groups established a complete team around AI last year. Doubao is currently leading in download volume and daily active data and is trying to replicate the traffic growth route of super apps.
At the World Internet Conference, which opened on November 20, Yang Yuanxi, co-founder of Kuaishou Technology, mentioned in his speech that AI can create new formats, new scenes, and new models for the interaction between content and business, supply and demand, users, and communities. Since 2023, Kuaishou has successively launched a large language model, a recommendation model, and a video generation model, Keling, with application ideas not much different from the previous text, with one hand grasping the content ecosystem and the other hand grasping intelligent operations. However, as a relatively latecomer, there is also a need to use this to tell the market a new vision. Kuaishou AI wants to go further and needs to arm its most distinctive business with AI. At this point, short dramas may be the most suitable carrier. In February of this year, Sora guided the focus of the artificial intelligence track to the field of AI video generation.
In July, China's first AIGC original fantasy micro-short drama "Shanhai Qijing: Splitting Waves and Slaying Waves" was exclusively launched on Kuaishou, with its pictures completely generated by AI. Behind this was the technical support provided by Keeling. In September, Kuaishou announced the launch of the "Keeling AI" film co-creation plan, jointly launching 9 AIGC film shorts with 9 well-known directors, including Li Shaohong, Jia Ke, and Ye Jinzhi, with the content completely generated by AI.
Combining the previous information, the IAA model of short dramas has run through, and free content can obtain benefits through mid-roll advertisements. What the platform needs most now is to enrich the content library. It seems that increasing output with AI generation just makes up for this piece of the puzzle, but there are also two variables.
Content quality is one, and there are not many AI short dramas on the market at present, and it is impossible to estimate market evaluation. The more critical point is the cost. Taking Sora as a reference, under certain conditions, the calculation shows that Sora's training computing demand is 4.5 times that of GPT-4, and the inference computing demand is close to 400 times that of GPT-4. The large-scale generation of short dramas by AI is mostly for cost reduction, but to achieve this plan, it is still necessary to take technological breakthroughs as a prerequisite.
02, Write in the end
How to play the card of AI video generation well, Kuaishou seems to be waiting for some "public wisdom".
According to official data, since its release in June this year, "Keling AI" has more than 5 million users, generating more than 51 million videos and more than 1.5. Recently, Kuaishou launched an independent APP for "Keling AI" and gradually improved the membership payment system. As a content platform that started with UGC, opening tools to users and waiting for the community to naturally generate its own content and even culture is also Kuaishou's original "entrepreneurial story".
The Internet has long regarded e-commerce as the ceiling of monetization because it is closer to direct economic transactions compared to advertising, value-added services, and other models. With the traffic bonus of short videos, content e-commerce can take a shortcut in the monetization rate. When the growth encounters a bottleneck and the dividend is exhausted, introducing new technologies and new stories promptly can serve as a new stimulus.
However, as a platform essentially driven by traffic, the best position for AI in Kuaishou may also be a "golden assistant". It can expand the upper limit for businesses such as e-commerce and short dramas, provided that these businesses have a solid foundation and are adaptable.