Search
  • Jason Costa

Live streaming, Apple Pay & Eastern economic models

by Jason Costa


Live streaming has been crushing it in China. It’s become a communication and broadcasting mechanism that has literally gripped the nation. As of early 2017, China had 344 million live streaming users. Yet despite the popularity of such apps in China, adoption hasn’t accelerated the same way for live streaming in the US. The level of adoption in the East has created fresh online business models there too.



In the West, ads continue to be the proverbial economic backbone of consumer apps. And despite the growth of Snapchat, there’s been a real stagnation in new consumer apps over the past several years. I suspect that a major part of this is how difficult it is to create a business in the face of Google and Facebook’s absolute dominance in online advertising. The two take half of all ad dollars spent digitally worldwide, and more than 60% in the US. And that number is growing. It increasingly seems like there’s not a lot of oxygen in the room for new ad-supported, consumer social apps these days.


It might be time for startups to find new economic models for driving the business. In China, while there is a nascent ads market, many apps drive their revenue entirely by users transacting on the service. Virtual gifting and tips have become a major economic driver, and this has powered the birth of many live streaming apps in China. People are broadcasting everything from esports and cooking, to driving and concerts.


There are 2 types of streaming apps in China today:

  • Stand alone live streaming apps such as: YY, Inke, Douyu

  • Live streaming as a feature of the larger app experience: Momo, Kuaishuo, Toutiao

For the purpose of this post, I’ll focus on the stand alone apps like YY, Inke, and Douyu — because they make their revenue off of virtual tipping. YY itself is a public company listed on the Nasdaq, and valued at ~$7.5B. When virtual gifts are given, the platform can take anywhere from a 10% (Huajiao) to 70% (Inke) rake on the revenue payout to content providers.


A broadcaster singing on the YY web client


Users & Open Purse Strings


What’s particularly interesting about these live streaming companies is that they’re able to get users to open their wallets and spend money on good content. They can do this because people are willing to connect their bank accounts to WeChat Pay (Tencent) and Alipay (Alibaba); Tencent and Alibaba then mediate the purchase of virtual gifts. So the friction of acquiring a payment instrument is removed out of the gate. Imagine not having to prompt a user for their credit card to purchase in app currency for virtual gifts. This is the most important step toward facilitating seamless transactions.


Early on, these live streaming platforms had entire teams dedicated to grooming content stars to ensure high quality productions. YY, for instance, had a team steward the community of broadcasters who were live streaming on its app. Eventually, this became such a large practice for the company that a 3rd party ecosystem of players sprouted up to help groom stars, teaching them how to sing, dance, apply makeup and more. The evolution of the value chain is similar to how adtech companies emerged to build on top of ads APIs in the West over the past ten years.


Choosing virtual gifts to tip broadcasters with on YY

Much to their credit, Periscope has begun offering “Super Hearts” and an in app currency, though it’s unclear if users at volume will readily give up their credit card information to purchase said currency. Facebook Live has largely continued to go the tried and true route of ads, which makes sense given the company’s grip on the online advertising industry (to be fair, FB did just announce this last week). But what could happen that might usher in a new wave of live streaming apps from independent startups? And could such an economic trigger induce a broader wave of social consumer startups?


Apple, Amazon, & Payment Friction


This brings me to my next point. There’s still a great deal of friction in facilitating transactions in the US — people don’t want to give their credit cards to 3rd party apps to purchase in app currency. I believe this has led many startups to naturally fallback on driving revenue from ads in the US. Two corporate giants in China (Tencent, Alibaba) have been able to acquire user payment methods en masse, and facilitate commerce with ease across countless 3rd party apps. Perhaps it will take a giant or two in the US to enable such a commerce platform too….


Who could such a US player be to remove payment friction for virtual gifting and tips? Apple and Amazon would be my bet. Though numbers haven’t been reported recently, Amazon has more than 244M credit cards on file, and Apple has a staggering 800M+ credit cards linked to iTunes. Apple and Amazon have the consumer trust to pull this off, with NPS scores of 89 and 69 respectively. This gives both of these players a large pool of potential buyers.


Apple Pay


Apple feels like they’re in the best position to pull this off (i.e. become the WeChat Pay or Alipay of the West). They own the OS and browser on the device. They just need apps to integrate the payment mechanism. While it’s true that Apple Pay is available, it appears that adoption has been slow moving and has seemingly focused on in-store POS more so than being an online payment mechanism for apps and Safari. In stores, Apple is competing with calcified habits of the wallet; online, Apple just needs to overcome user hesitancy. They can overcome that with more user education and leveraging their brand affinity.


If Apple were to offer a syndicated, native iOS “gifting” function for apps, it could spawn a new wave of businesses that aren’t dependent on advertising dollars. Then, enable Safari with that same “gifting” button, similar to the share extensions that exist in iOS today. In short, imagine if you could send a virtual gift to a broadcaster the way you can share a Tweet from a site on iOS today. There would certainly be a lot of work involved with making this happen: negotiations with credit card companies on payment processing fees, building a large risk & fraud team, updated policies on the 30% rake for in app purchases, PCI compliance, making it ridiculously easy to link an iTunes credit card to Apple Pay, and more. But if anyone is positioned to do this, it feels like Apple could make it a reality.



Amazon Pay


This is the other player that could really move the needle on bringing a supply side of buyers with credit cards already on file to the fold. Amazon doesn’t have the same assets that Apple does, as they don’t have a well adopted mobile OS nor a browser. But they do have the Amazon Pay SDK, which is already deployed across AWS. Perhaps the next step here is to have their developer advocates and partner engineers triple down on getting the ecosystem of AWS users to integrate Amazon Pay, and offering a “tipping” function. Amazon could even offer free AWS credits based on the transaction volume through Amazon Pay to incentivize integrations. It’s worth noting though that Amazon owns Twitch, obviously a major streaming asset, which does offer virtual “tipping” for affiliates (“Cheering with Bits”). Perhaps Amazon might see a strategic conflict of interest in syndicating a payment mechanism to other live streaming apps as a result.


Conclusion


It would be no small task, but if any entities have the pieces to pull this off — it’s Apple and Amazon. My sense is that Apple’s control over iOS could more easily make this work and is in pole position here with Apple Pay. Doing so could enable the creation of interesting new consumer app companies, higher quality production of content, and a more engaged user base. That could lead to greater hardware sales, and also position Apple as a default payment enabler. If Apple wins this game with Apple Pay, the spending data that they would readily get their hands on would be invaluable.


Most important, it would be nice to see some new consumer apps that exist outside of “the ad duopoly” — my sense is that it will take fresh (i.e. non ad supported) business models for this to happen. China has illustrated one way in which this can happen with live streaming and virtual gifts, all enabled by a local payment giant or two….

58 views

A Product Manager Reflecting On Tech

Jason Costa on Product