East Buy Drama Offers Lesson On The Power Of Key Influencers
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Summary:
- East Buy fired its longtime chief Sun Dongxu after the chairman of its parent company sided with the company’s top online influencer in a dispute.
- Such disputes could become less common as livestreaming e-commerce platforms move away from costly and fickle human influencers to computer-generated virtual hosts.
- Former Alibaba CEO Daniel Zhang previously warned that returns are high for products promoted by influencers because many set high expectations that leave consumers disappointed.
10’000 Hours/DigitalVision via Getty Images
The clash between the e-commerce company’s CEO and its top livestreaming host touched off a roller coaster ride for its shares
It started innocently enough, with a social media comment on the official account of East Buy Holding Ltd. (OTCPK:KLTHF, 1797.HK), the livestreaming e-commerce arm of New Oriental Education (NYSE:EDU; 9901.US). The post from East Buy’s editors took an implicit swipe at one of the company’s top livestreaming hosts, Dong Yuhui.
But the saga ended disastrously for East Buy’s longtime CEO Sun Dongxu, who was summarily removed as CEO on Dec. 16, replaced by New Oriental founder Yu Minhong. Adding insult to injury, at least for Sun, East Buy’s shares rallied 21.9% the next trading day. East Buy confirmed the news in a stock exchange filing on Dec. 22, attributing Sun’s resignation to “his recent mismanagement of the company’s brand and reputation.”
East Buy shares have been on a rollercoaster over the past month but now trade nearly where they were in early December before the controversy. Since abandoning its original online tutoring business for e-commerce after China’s education crackdown of 2021, the company has quickly returned to profitability and won new favor from investors, who have given it a high price-to-earnings (P/E) ratio of 29. That’s not far behind the 33 for e-commerce superstar PDD Holdings (PDD), which recently surpassed Alibaba (BABA; 9988.HK) to become China’s most valuable e-commerce company.
So, what does the saga say about livestreaming e-commerce, the role of top hosts and East Buy’s future?
The story revolves around superstar livestreaming host Dong, whose meteoric rise has become a double-edged sword for East Buy. In June 2022, just six months after New Oriental pivoted from online education to e-commerce, a clip by Dong, a 30-year-old former English tutor, went viral.
Dong’s road to stardom began with his teaching of English expressions on a white board while selling steak and codfish on one of East Buy’s six channels, Oriental Select. Over two weeks after his debut, Dong’s followers on Douyin, the Chinese edition of TikTok, jumped from 1 million to 18.5 million, as he brought in $76.7 million in sales, according to Chinese social media tracker New Rank.
Dong’s storytelling talent helped convince New Oriental to absorb East Buy’s remaining education business to let the company focus on its private-label food sales and livestreaming e-commerce business.
The affair that led to the dust-up and CEO Sun’s demise started just two weeks later when, on Dec. 6, the company posted a message saying: “We are a team! Every piece of content is teamwork, with the livestreamer in front of the camera, the copywriting team, the camera team and the editing team behind the scenes.”
Dong apparently became unhappy at others receiving credit for his work, but the editors behind the message refused to back down. He told Yu during a livestreaming session that the comments had been “irresponsible,” and told the message’s editor to “take a break.”
Unhappy fans
Fans immediately rallied around Dong, and within five days the company lost 2 million followers on Douyin and its shares fell by 22%. On Dec. 10 alone, East Buy’s shares fell by 9% after Dong failed to turn up at a scheduled livestreaming event. CEO Sun finally stepped in two days later when he apologized to fans, though he also criticized China’s “extreme fan culture” and said Dong’s salary was in the “10s of millions” of yuan.
Two days later, Sun issued an apology video for his “aggressive” behavior. But his fate was already sealed, and another two days later he was removed as CEO. Meanwhile, superstar livestreamer Dong was promoted to senior partner and vice president of New Oriental Culture and Tourism Group, and appointed cultural assistant to New Oriental founder Yu. His fan base quickly doubled from 10 million to 20 million, and on Dec. 22, East Buy established a new subsidiary, Yuhui Technologies Co. Ltd, with Dong as the legal representative.
China’s livestreaming e-commerce industry has exploded over the past seven years, growing 58.9% in the first 10 months of 2023 year-on-year to 2.2 trillion yuan ($310 billion), accounting for 18.1% of all online shopping sales, according to China’s Ministry of Commerce. In December 2023, the country’s livestreaming audience was more than 750 million viewers, equal to 70% of all Chinese internet users, according to research company Wind.
That surge has fueled East Buy’s rapid rise, with the company posting revenue of 4.5 billion yuan in its fiscal year through May 2023, up 651% from the previous year, as it logged a 971.3 million yuan profit, reversing a loss the year before. Its annual gross merchandise value (GMV) reached 10 billion yuan, mostly on Douyin.
The clash between a veteran CEO like Sun and an up-and-comer like Dong is a classic example of the risk of relying too heavily on a key person. Li Chengdong, founder and chief analyst at Beijing-based e-commerce consultancy Dolphin, described East Buy and Dong as a case of mutual dependency. Dong had nearly 1.5 million followers on the Twitter-like Weibo, many times the 116,000 followers of East Buy’s own official account, according to Li. Similarly, Dong’s personal Douyin account had about 22 million followers in December, compared to 29 million followers on East Buy’s official account, where a team of 10 hosts including Dong regularly appear.
The potential for companies to become hostages to their key influencers has led some livestreaming platforms to seek alternatives. JD.com’s (JD; 9618.HK) cloud department provided over 100 computer-generated virtual hosts to its merchants during its major shopping event last June. Kuaishou (OTCPK:KUASF, OTCPK:KSHTY, 1024.HK) and Douyin both are using short video apps to compete with livestreaming.
Other platforms, including Alibaba’s Taobao marketplace, are using influencers like Argentinian soccer superstar Lionel Messi to attract user views but not to sell products. Apple (AAPL) used its own employees to livestream an event last year on Alibaba’s Tmall connected to the same June shopping festival, but without selling products. Former Alibaba CEO Daniel Zhang previously warned that returns are high for products promoted by influencers because many set high expectations that leave consumers disappointed.
Disclosure: None