Kuaishou IPO Chinese short video app

Kuaishou is much more than just another TikTok – behind the Chinese short video platform with the anticipated IPO

Thos who are not familiar with Kuaishou  may recognize it as basically another TikTok, which is known as Douyin in China. For foreign investors, Kuaishou might just be another Chinese tech unicorn that IPOs. For many Chinese urban dwellers, Kuaishou is considered a “tu” (unstylish) app filled with awkward content and unfashionable videos from rural China. However, users and content on Kuaishou represent “ordinary people” in China, those who work in construction sites, those who live in lower-tier cities, and those often untapped by media and companies alike. The Chinese short video app users are on the app for an average of nearly 90 minutes a day, and as of now, the videos are much less commercial than competing short-video platforms.

The Chinese short video app made headlines as it had an IPO in the Hong Kong stock exchange on February 5th 2021, as it became the biggest internet IPO since Uber.

Kuaishou took off in 2015, stimulated by the growth of the penetration rate of smartphone and mobile networks in China, especially in the rural and lower-tier cities. Its main site reached 100 million daily active users (DAU) in 2018 and 300 million in the first half of 2020.

Kuaishou’s Daily Active Users Growth

Source: Kuaishou’s prospectus, designed by Daxue Consulting, Kuaishou’s Daily Active Users Growth

According to Kuaishou’s prospectus, its “unnoticed” empire has grown to become “the largest live streaming platform by gross billings from virtual gifting and average live streaming MPUs, the second-largest short video platform by average DAUs, and the second-largest live streaming e-commerce platform by GMV.” Kuaishou is bigger than what most people think, and it can offer companies a way to connect with those consumers effectively.

Growth: from a GIF generator to a social media giant

Kuaishou’s business expansion

Source: Kuaishou’s prospectus, designed by Daxue Consulting, Kuaishou’s business expansion

Kuaishou was founded in 2011 as a mobile app for GIF creation and sharing. In 2012 and 2013, the app was transformed into a short video sharing platform and then a short video-sharing social media as we know it today.

Since 2016, the company incorporated live streaming features into its app and launched its e-commerce service in 2018. Its live streaming feature has become an inseparable part of its ecosystem. Most of the content creators also regularly live stream to build more intimate connections with their followers.

Today, short video sharing, live streaming and e-commerce constitute its three primary services. Like TikTok/Douyin, while focusing on short video sharing, Kuaishou has been in the process of diversifying its lineup in other markets such as online education, knowledge sharing, and gaming.

Kuaishou’s ecosystem

Source: Kuaishou’s prospectus, Kuaishou’s ecosystem

Orientation: a community or a platform?

According to Kuaishou’s prospectus, Kuaishou positions itself as a “leading content community and social platform.” Although it started as a short video sharing app, it has differentiated itself from competitors like TikTok by its community dimension. Even though similar to TikTok in many aspects, Kuaishou’s attempt to create the community dimension can be seen in its user interface, algorithm, and other app design features.

This differentiation can be seen in its user interface design. While TikTok mainly uses a single-column layout, Kuaishou uses a two-column layout for most of its features. TikTok’s single-column layout allows users to play the video without clicking, so the content is more heavily influenced by the recommendation algorithm. In contrast, although Kuaishou’s users have more autonomy in choosing their preferred content, its algorithm gives more weight to the content posted by the accounts followed by that particular user. Also, when the users swipe down on TikTok, the next recommended video starts playing, while Kuaishou users would enter the comment section.

 Comparison between TikTok’s single-column and Kuaishou’s two-column layout

Sources: TikTok, Kuaishou, Comparison between TikTok’s single-column and Kuaishou’s two-column layout

Highly engaged user base

According to data published by Kuaishou’s subsidiary company, during the first half of 2020, Kuaishou’s users made 1.5 trillion likes, 122 billion comments, and 6 billion shares. This community dimension is unique and valuable, considering the fast path of short videos, and brands can leverage the Kuaishou’s content creator’s influence on their followers to reach potential customers.

 User engagement during 2020 H1

Sources: Kuaishou, User engagement during 2020 H1

As a result of TikTok’s approaches, trending contents, even those from less-known content creators, the app more and are more favors what is likely to become viral. In contrast, Kuaishou’s approach emphasizes the accumulation of the follower base. Hence, content creators need to put more effort into building and maintaining their follower base. Once the content creators established the follower base, their posts can reach a stable amount of viewers. Even for those with fewer followers, Kuaishou’s community dimension allows them to gain loyal followers if they create personal engagement experiences with their audiences.

Consumer base: from rural to urban

Kuaishou offers brands across the market segments opportunities to advertise their products to Kuaishou’s large active users. According to the company’s prospectus, during the first three quarters of 2020, Kuaishou had an average of 305 million daily active users and 769 million monthly active users. More impressively, Kuaishou’s daily active users spent actively more than 86 minutes per day on the app.

Comparison of Short Video and Live Streaming Platforms in China in the Nine Months Ended September 30, 2020

Source: Kuaishou’s prospectus, Comparison of Short Video and Live Streaming Platforms in China in the Nine Months Ended September 30, 2020

According to Kuaishou’s 2019 report, Kuaishou has young active user groups; more than 70% of users were under 30 years old. The gender representation among its active users was balanced due to its broad range of contents available on the platform. The report shows an interesting fact that 41.6% of the followers of makeup content are male, and male makeup related content creators have a similar number of male followers as female ones. Cosmetic companies will be able to market their male-oriented products through Kuaishou effectively.

Rural content for rural app users

After years of competition and acquisitions, the Matthew Effect in China’s short video market is evident. Although TikTok and Kuaishou dominate the short video market in China, many users do not choose to engage exclusively in one. There exists a considerable overlap of an estimated 60% of their active users. However, there still exists a noticeable differentiation between the socioeconomic groups among their users due to Kuaishou’s initial rural orientation. On Kuaishou, one will see a significant amount of content that appeals to rural audiences or is produced by rural content creators.

According to the 2019 report, Kuaishou consolidated its dominance in the rural and lower-tier cities, further penetrating the “xiachen” market. At the same time, the company has successfully diversified its user groups to urban areas and more economically developed Southern China. Among its over 200 million daily active users in 2019, more than 60 million from first or second-tier cities and 80 million from southern China, increased by 50% from the previous year.

Kuaishou’s DAU’s geographical distribution (2019)

Source: Kuaishou, Kuaishou’s DAU’s geographical distribution (2019)

Business opportunities: tap the China’s “xiachen” market

According to Kuaishou’s analysis on its report about business opportunities of short video platform in 2020, top KOLs on its platform have the ability to create traffic to brands in various market segments; their influence is highly correlated to the influence of the KOLs themselves (measured by their number of followers). For non-KOL influencers, they have significant advantages in marketing cosmetic products.

Kuaishou has an advantage in marketing due to the app’s user stickiness and the viewer’s loyalty. Because of the community dimension that Kuaishou has shaped for its users, many content creators are able to create a sense of belonging with their followers. This sense of belonging gives content creators a strong ability to persuade their followers, especially through live streaming. For example, on Zhihu, a user shared his surprise at his father’s ability to sell his artwork for thousands of RMB, despite his small follower base of less than 8,000. He found that most sales were finalized during live streaming, even before the artworks are completed. He observed that on Kuaishou, viewers feel less commercial and more authentic because many content creators are considered average persons or even friends by the majority of their followers.

What brands should know about Kuaishou

Kuaishou’s user base can help brands to reach potential consumers, especially for those which wish to penetrate the “xiachen” market. Kuaishou will offer the brands opportunities to read consumers in Northern China, lower-tier cities or rural areas. Many urban viewers also use Kuaishou to “experience” rural life through the rural content creator’s lens. For example, videos recording farming or fishing life are extremely popular on the platform. Brands can incorporate organic or natural ingredient concepts when collaborating with those types of content creators.

However, actors in some segments should be cautious about the move. For those brands in the high-end market segments, such as luxury brands and high-end skincare products, consumers’ stereotype of Kuaishou’s rural orientation can potentially jeopardize their brand images. Even though Kuaishou’s urban user base has been rapidly growing, its urban users largely overlap with TikTok. At the present stage, high-end brands might find it more effective to prioritize their marketing effort on Tiktok.

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