Across The Border

China’s internet celebrities find venture capital funds are their biggest new fans

PUBLISHED : Thursday, 31 March, 2016, 4:04pm
UPDATED : Thursday, 31 March, 2016, 7:33pm

Chinese internet celebrities have become the latest hot investment chased by money, with a self-made cyber celebrity recently securing 12 million yuan (HK$14.4 million) in venture capital funding to help promote her original content on social media and build a self-sustaining business model.

The nascent “online influencer” industry is expected to expand rapidly over the short term, with more content creators and investors jumping into the market.Companies involved in cyberstar agencies, digital marketing and e-commerce businesses may benefit from the trend, according to analysts.

Papi Jiang, an internet celebrity who became famous by posting spoof or satirical videos on social media sites, recently received 12 million yuan in venture funding for a 12 per cent stake in her team, with the total valuation standing at 100 million yuan. The venture capital firms involved in the deal included ZhenFund, Luogic Show Capital, Lighthouse Capital and Xingtu Capital.

Investors from Luogic Show Capital said they will hold an auction to sell the first ad in Papi Jiang’s videos and help her further promote original content on the web and social media.

As the first example of a Chinese internet celebrity to receive massive venture capital backing, analysts said investors may see the “internet celebrity economy” as a new growth opportunity and plan to build a self-sustaining business model around the intellectual property created by the online influencer.

Internet celebrities, or Wang Hong in Chinese, usually comprise two main types. One is to attract fans by creating original content on the web or social media platforms, including key opinion leaders (KOLs) and online broadcasters. The other type usually sells products via online stores and posts videos of themselves giving distinctive makeup or fashion tips.

“The internet celebrity economy is a new business model that has emerged in recent years. However, it is rapidly expanding and is going to reshape China’s e-commerce sector,” said Sun Yu, an analyst from China Merchants Securities.

She said the current market size for China’s internet celebrity industry may have exceeded 100 billion yuan, with revenue models supported by subscriptions, advertising, online selling of products, offline commercial activities, and “tipping” by fans on some social media sites.

JP Morgan said the web-based KOL economy has proven “effective” in spurring online entertainment spending and shopping demand, as those online influencers target niche consumers, interact closely with followers on social media, and have a deep understanding of the consumption behaviour of fans.

“Key differences between KOL commerce and traditional e-commerce merchants are its ‘personalization of promotion’, which is characterised by the engagement of social media and idolization of a KOL, and a two-way reciprocal supply chain management,” said Vivian Hao, lead author of a recent research note by JP Morgan.

The internet celebrity economy is a new business model that has emerged in recent years
Sun Yu, China Merchants Securities

Online influencers are usually highly productive in generating original high-quality content, including articles, photos, talk shows, and that content is “amplified” via major social media platforms such as Weibo, Qzone and WeChat.

Furthermore, they actively maintain “a loyal fans community” through frequent interaction with followers both online and offline utilising WeChat, QQ, Wangwang groups and fans clubs.

On the fans’ side, these followers identify with their idols’ values and admire their lifestyles, which in turn generates the consumption of KOL-promoted products, JP Morgan said.

Sun Yu from China Merchants Securities said the industry will continue to expand at a rapid pace, as more investors have realised the profitability and commercial value of internet celebrities, while microblogging sites such as Weibo and e-commerce platforms like Taobao have stepped up their support for these cyberstars.

“More people and more money want to enter the industry,” she added.

In a recent research note Qin Cong, an analyst for Shenwan Hongyuan Securities, cited several companies at the forefront of this new industry. Shenzhen-listed Huasi Holdings has purchased a 30 per cent stake in Wei Mai app, a mobile e-commerce platform linking Weibo users and Taobao stores. He said the company may continue expanding into the internet celebrity economy realm and invest in the cyber celebrity agency business.

Separately, Shenzhen-listed fashion clothes manufacturer Guangdong Bobaolon Co has announced plans to invest about 1 billion yuan in “building an ecosystem for fashion designs” and to launch digital marketing by online opinion leaders and internet celebrities to target niche consumers.

Shenzhen-listed Nanji E-commerce also stated it will create an online shopping platform relying on cyberstars and combine fans’ interactions with the stars and their shopping experiences.

In the meantime, JP Morgan has recommended big-name e-commerce stores and leading social media sites, which have been “absorbing” the online KOL economy into their ecosystem.

“We expect such KOL merchants (mostly in fast fashion and lady’s category), who mostly reside in the Taobao marketplace, to thrive and consolidate market share,” the US investment bank said.

“In return, the vibrancy of KOLs is likely leading to a Taobao marketplace gentrification. Separately, as a main marketing and branding channel, we deem Weibo another key beneficiary of the rising KOL economy,” it said.

JP Morgan analysts estimated that the online Taobao storefronts of top fashion KOLs could generate around 100-300 million yuan in gross merchandise volume per annum while mid-sized ones could achieve several tens of millions of yuan in annual sales.