Today we’re deep-diving into a company that managed to drive hundred of millions of RMB of e-commerce sales by combining videos and social e-commerce on WeChat. The company is called Yitiao and it’s an impressive case study.
Company overview
About the company: Yitiao is a short-video focused content producing brand on WeChat started in 2014. It started to focus on e-commerce in 2016. By Jan 2017, Yitao had produced 800 short videos.
WeChat followers: 21 million
Funding: by 2016, Yitiao raised B+ round of 100 million RMB investment.
Annual revenue (by 2016): 100 million RMB from advertising; 200 million RMB from e-commerce
Valuation: 200 million USD
Average video view rate: 100k to 3 million views
Team size (by Jan 2017): 30-person content editing team; 50-person technical team; 180-person e-commerce team.
Target audience: Chinese middle class
Average e-commerce order size: 800 RMB
Here is an interview with Yitiao’s CEO Husheng Xu conducted by 36Kr. Content was edited by WalktheChat.
Q: Who is your target customer?
A: The 500 million Chinese middle class, and it’s growing at an insane speed. We see this strong trend by working in the e-commerce industry. A lost of these people now earn 10-20k RMB monthly salary. It means they now want to change everything at home (to higher quality and better designed products).
From e-commerce platform perspective, Taobao is still the leading platform. The second wave for purchasing better products is happening on Tmall, JD.com, VIP.com, Mogujie (蘑菇街), Meilishuo (美丽说), and Xiaohongshu (小红书). And currently we are looking into the 3rd wave to e-commerce experience. Yitiao and Yuanxuan (严选) are part of this revolution. We are focused on providing more customized and exclusive experience for the middle class.
Q: What’s your major channel?
It’s mainly 21 million WeChat Official Account followers. Our video is also our best marketing asset.
Average view for each Yitiao video is between 100k to 3 million.
On Yitiao’s Official Account, the first article usually got over 100k view with around 800 likes.
Q: Besides fast growing, what else is special about today’s Chinese middle class about the way they make purchasing decisions?
A: They cares about quality. We collaborate with the Forbidden City to launch a 499RMB 18k gold jewelry. We reached 3 million sales within 10 hours of it’s launch. My readers demand higher value products, they asks for 24k jewelry.
Q: In 2014, you spent around 1 million in Tencent advertising. That was not a conventional investment at the time.
A: Yes, in 2014, an Official Account with 20k followers was considered a big WeChat account. We were the only account willing to spend 1 million in WeChat advertising back then. It’s proven to be a good investment.
Q: Why did you stop investing into WeChat advertising now?
A: Cost per follower is relatively high today. Especially for a 21-million follower Official Account. It’s much easier to grow followers from 0 to 1 million with WeChat ads. For us, growing the next 10 million followers is much more expensive and we rely more on social sharing for growth as this stage.
Q: Yitiao was founded in 2014, but only started e-commerce in 2016. Was e-commerce always your goal for the company?
A: No, we didn’t want to do social e-commerce at the beginning because everyone says it’s hard. We talked with a lot e-commerce business owners on Taobao, Tmall and other e-commerce platforms, most of people were skeptical about social e-commerce. In 2016, we tested to sell some products internally with a team of 5 or 6 people. It turned out to be a good success. That’s why we decided to focus on e-commerce.
Q: Has your e-commerce revenue already surpassed your advertising revenue?
Yes, e-commerce revenue is around 10 x of the ads revenue. (In 2016, Yitiao’s ads revenue was 100 million RMB).
Q: What’s your goal for Gross Merchandize Value for 2017?
A: We want to reach 10 billion RMB in GMV in 2017. And among which, we want to have 1.5 billion of income. Our target is to have 15% margin.
Q: How do you charge brands?
A: It’s purely on revenue sharing model. We can sell a lot of products: we can sell more than 10k boxes of F&B products; several thousands of electronic products. Our sales usually can make up for 1/3 or 1/4 of the brand’s annual sales volume. This way brands are very willing to work with us.
Q: Who handles the distribution?
A: The brands will be in charge of packaging, storage, and shipping. Yitiao is only responsible for marketing. Marketing is what we do best, and that’s what we should focus on.
I visited the IKEA hometown in Sweden about a decade ago. They have 20k square meter photo studio, several hundreds of photographers, and distributing more than 200 million IKEA catalogues every year.
IKEA is the largest media company in Europe. IKEA catalogues is their marketing channel.
We want to become IKEA. We now have 3,000 square meter photo studio.
Q: How do you choose the product for social commerce?
A: The first principle to sell to Chinese middle class is it has to look pretty. We won’t sell products that are not visually appealing. For example, we judge a book by its cover; we only choose 1-2 best looking mooncakes out of hundreds of options; we tend to pick green or organic products; high-tech products; coffee’s with best coffee beans. These are concepts favored by the Chinese middle class.
Products sold on Yitiao
For example, Yitiao’s average order value is 800RMB. When most other e-commerce are selling books costing 20-30 RMB, Yitiao is focused on selling 400-500 RMB premium packaging books.
How good the product looks is our first criteria for sourcing. Quality and usages are the second criteria.
Q: Is sourcing your major competitive advantage?
A: Yes, but we also rely on expert’s recommendations. For example, we consider mainland and Taiwanese tea experts’ recommendation to source the best tea. We also pick the best product in overseas markets that’s not yet known by the Chinese middle class.
Q: Do you wish to go for IPO?
A: We will start to prepare for IPO next year.