Ep. 41: IPO for Influencers: The Company Behind China’s Kylie Jenner is Going Public

29 min read 

In Episode 41 of TechBuzz China, co-hosts Ying-Ying Lu and Rui Ma talk about Ruhnn (RUHN), a relatively small yet significant company that filed for IPO a few weeks ago in the U.S. on the Nasdaq. Ruhnn has become the clear leader in China’s fast-growing influencer marketing sector, an area in which our co-hosts agree that China should be considered world-leading. Lauren Hallanan, a Chinese social media marketing expert focusing on influencer marketing, and a former livestreamer in China with over 400,000 fans, joins us with insightful commentary on Ruhnn and other influencer incubators.

Rui and Ying-Ying begin by explaining that Ruhnn, known in Chinese as Ruhan 如涵, is “China’s No. 1. KOL Facilitator”– with “KOL” standing for Key Opinion Leaders, or the rough equivalent of what in the U.S. are known as influencers. Unlike influencers in the U.S., however, the term KOL has its roots in the advertising industry and is a more professional term that usually implies that the individual is an expert, has a distinct personal brand, and is ready to represent some business interests. In China, one can be  KOL in a variety of subjects, such as business or books. The KOLs on Ruhan are mostly in beauty and fashion; as of filing time, Ruhan represented 113 of these influencers– including now-megastar Zhang Dayi, or Dayi, who also serves as the current CMO of the company.

Listen to find out: Who are the founders of Ruhan, and how did they get the idea to create such a platform in 2012? How does the fact that the current Ruhan CEO’s wife is an influencer herself tie in to the founding story? How is it that the Nasdaq IPO is technically not Ruhan’s first public listing? How do influencers in China monetize, and what exactly are the so-called Platform Services provided by the company? How large is the role of ecommerce on Ruhan, and how does its team use audience preferences and purchasing behavior to guide product development from the start?

As always, you can find these stories and more at pandaily.com. Do let us know what you think of the show by leaving us an iTunes review, liking our Facebook page, and tweeting at us at @techbuzzchina! Thank you also to our listeners over at our partner, dealstreetasia.com.

We are grateful for our wonderful producers, Shaw Wan and Kaiser Kuo; and for our intern, Wang Menglu.

Our sponsor this week is the University of San Francisco. USF’s new Masters in Applied Economics is a STEM-designated program that combines economics training with the practical skills in data analytics needed to understand today’s new digital economy. To learn more, visit usfca.edu/techbuzz.

Transcript

(Y: Ying-Ying Lu; R: Rui Ma; L: Lauren Hallanan)

[00:00] Y: Hey Techbuzzers! It was great seeing some of you at SXSW in Austin earlier this month. We hope you enjoyed our provocatively titled panel — Entrepreneurship in China: Will They Eat Your Lunch? — which was hosted by our very own producer, Kaiser Kuo.

R: If you were there, you would know that we came down on the side of — meh, probably not, not even in the field of artificial intelligence, where China is being hyped as having a huge data advantage, because it’s balanced out by a much smaller B2B or enterprise software market, at least thus far.

Y: And our friend Olivia Wang from Zhenfund mostly agrees with us that the US remains ahead in some key industries, such as semiconductors and biotech. Which is not lost on the Chinese government, by the way, because if you look at the list of proposed companies to list on the Shanghai Technology Innovation Board that we covered in the last episode, those are the exact industries that are being promoted.

R: Yup, just as a brief follow-up, in the 9 companies that have been greenlit so far, there are no internet companies. No ecommerce, no fintech. It’s all robotics, new materials, chips, and the like. And Deeptech! But at an average starting target market capitalization of $1Bn, which is what we predicted that they were going for, unicorn and near-unicorn valuations.

[1:25] Y: And today we have another company that’s shooting for a billion dollar market cap. But this one is the very opposite of deeptech. This one is as consumer internet and as ecommerce as it gets. Ecommerce and some of its adjacent categories, by the way, such as the influencer marketing subsector that we are talking about today, would be areas which we would agree that China should be considered world-leading.

R: It’s on a company that hasn’t seen that much English coverage — because it’s pretty small, let’s face it — but it’s the clear leader in China’s fast growing sector of influencer marketing. It’s called Ruhan 如涵, spelled R-u-h-n-n and it just filed for IPO a few weeks ago here in the US on the Nasdaq.

Y: And because this is about a soon to be publicly traded security, just a disclaimer: the information contained in this podcast is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. You should not make any decision, financial, investment, trading or otherwise, based on any of the information we present today without undertaking independent due diligence.

R: And with that said, let’s get started!

[3:03] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network!

Y: We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.

R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.

[3:35] Y: And I’m your other co-host, Ying-Ying Lu. We’d like to acknowledge our partners DealStreetAsia and SupChina, creator of the Sinica Podcast Network! In addition to TechBuzz, you can also find Sinica which covers current affairs, NuVoices on women, the business-oriented ChinaEconTalk, and the Caixin-Sinica Business Brief from China’s leading business magazine. Check these out, guys!

R: As always, if you enjoyed listening to our podcast, please leave us a review on iTunes or whatever other platform you use. Thanks Hangzhou Klay, Avery148, Dbrucewong and John Lieb for your recent reviews! We love hearing from you!

[4:24] Y: Today’s episode is brought to you by the University of San Francisco. USF’s new Masters in Applied Economics combines econ training with practical skills in data analytics — all geared towards helping you understand and analyze today’s new digital economy. Their curriculum covers skills like R and Python, machine learning, and experimental design; plus topics like the economics of platforms, auctions, pricing, and competitive business strategy. To learn more about joining the Fall 2019 inaugural class, TechBuzz listeners can visit usfca.edu/techbuzz.

[5:16] R: So, as we’ve said, today’s episode is on the name 如涵, which is somehow spelled Ruhnn in English, unlike the R-u-h-a-n phonetic spelling you’d expect. Since we don’t know how to pronounce something with so many consonants — would you pronounce it like Ruin, for example? that hardly seems auspicious — we are just going to be using its Chinese name throughout the episode.

Y: Yeah, who advised on that one? Seems like an elementary mistake to make. But maybe the company has no plans for internationalization, because let’s face it, it’s got its hands full with China. So … let’s start off with some headline stats, shall we, Rui?

[6:00] R: Yup, Ruhan is “China’s No. 1 KOL Facilitator.” For those of you who are not familiar with the term KOL, that stands for Key Opinion Leaders, or here in the US, we call them influencers. For those of you who know a little Chinese, this is a little different from 网红, or “people who are internet famous.” While there is definitely overlap, KOL has its roots from the advertising industry and is a bit more professional term that usually implies that you are an expert, have a distinct personal brand and that you are ready to represent some business interests.

Y: The other difference is that while 网红 usually refers to people who are mostly known for their looks, or possibly live-streaming talents, you can be a KOL in a variety of subjects, such as business or books. This distinction is increasingly blurry though, because let’s face it, just like in the US how everyone and anyone can call themselves an Instagram model or influencer, these terms and the concepts they represent are so new that they are still in flux and constantly being refined.

[7:06] R: For Ruhan though, the KOLs they represent are mostly of one type — beauty and fashion, and as of filing time, the company represents 113 of these influencers. Of these 113, there are 3 that are considered top-tier influencers — meaning they have sold more than $15mm of goods in the past 12 months, and 7 who are second-tier, meaning they have sold between $5 and $15mm in the past 12 months.

Y: In total, Ruhan was responsible for about $330mm of gross merchandise volume, or GMV, in the last 9 months of 2018. For the same period, that translates into about $125mm of net revenues, a gross margin of 33%, and net losses of $8mm or so.

R: Loss making, certainly, but is it just me or because we have been looking at crazy unprofitable Chinese companies like NIO, Meituan, and Pinduoduo, that I’m  thinking here, this company’s financials actually look pretty solid?

Y: Well, the losses have been widening, but from 2017 to 2018 the net margin went from negative 7 to negative 10 percent, so pretty minimal compared to the accelerating losses we have seen in the on-demand or EV sectors, of course. But these are not comparable businesses, with the exception of Pinduoduo, which at least is still an ecommerce company, albeit a very different one.

[8:34] R: Unlike Pinduoduo though, Ruhan is a much older company. Strictly speaking, it was founded by three gentlemen at the end of 2012 in Hangzhou, the home of Alibaba and the land of e-commerce and digital brands. Two of them worked in IT and one was actually a venture capitalist.

Y: Back in 2012, you could already see that the Alibaba ecosystem was incredibly powerful, and that there were multiple very successful so-called Taobao brands 淘宝品牌, or brands that existed only on Taobao, that were making tens or even hundreds of millions of dollars in revenue each year. VCs at the time were rushing to get into these types of deals. Kind of like the boom in direct-to-consumer Digitally Native Vertical Brands we see in the US today.

R: It doesn’t seem like a big deal today, it kind of was. At the beginning of this decade, in China, there weren’t that many trusted domestic brands. To be able to build a large business purely online wasn’t trivial, and yet it was clearly working, but were there more effective ways to acquire customers and build a distinctive brand? I am just guessing here, but based on the timing, the founders were probably seeing the effects social media was having in China, especially Weibo, which had launched three years earlier, and Weibo’s success gave them ideas on how to integrate the two.

[9:55] Y: Weibo, or China’s Twitter, created internet celebrities out of ordinary people, and made marginally famous people into megastars. In comes one particularly savvy social media star, a girl by the name of Zhang Dayi 张大奕, or Dayi. Confusingly, she puts herself as born in 1997 on Weibo, but apparently she’s actually born in 1988, same year as me, making her one year older than Taylor Swift and almost a decade older than Kylie Jenner.

R: She was a model for something like 8 years, mostly for print media, and by no means very famous, before discovering her voice on Weibo, where she amassed a loyal following of 300K fans by posting about fashion. She is far beyond that now, by the way, with about 23mm fans across all platforms.

Y: She’s really popular, trust us. A lot of people don’t know Ruhan the company, but if you’re a young female urban professional who is into fashion, you will know of Dayi.

R: Her greatest asset, as Ruhan CEO Feng Min has pointed out, is that she is very “sweet” looking and well-liked by girls, like a very pretty but still very approachable girl-next-door look. At one point, she was referred to as the influencer who makes even more money than Fan Bingbing.

[11:21] Y: But how did she get into the ecommerce business? Well, Ruhan’s predecessor is actually a Taobao store called Libeilin 莉贝琳 founded in 2011 by the current Ruhan CEO and his wife, who is actually an influencer herself. The funny story here is that they met Dayi because the wife, 陈思佳, was trying to find a girl to model the clothes she was selling on Taobao, and she randomly saw an ad featuring Dayi, thought she was super cute, and so tracked her down.

R: Anyway, their store swiftly made it onto the Top 10, but traffic began to suffer when the landscape changed and Alibaba beefed up its product portfolio, effectively diverting traffic to other assets. Knowing they have to pivot their business model, the couple partnered with Dayi on their first store, called My Favorite Wardrobe, in July 2014. It turned out to be a massive success. Of course, back then, they also had very little competition.

Y: Which explains why just a few months later in December 2014, the VC Fund SAIF Partners invested in a Series A in Ruhan, and ten months after that, followed up with a Series B. In 2016, Alibaba and others participated in a Series C of about $64mm.

[12:43] R: Between the Series B and C rounds, Ruhan did something that probably wouldn’t happen in the US. It listed on China’s New Third Board, which is, if you’ll remember from our last episode, the only one in China where you can “list” while still loss making, but not a very robust exchange, in fact, it’s a very small, very illiquid, over-the-counter marketplace.

Y: That’s why this NASDAQ offering isn’t Ruhan’s first “IPO”, strictly speaking. Likely to save on listing costs, Ruhan took over a shell company that was valued at just $1mm USD. Immediately, the stock soared and the company was valued at half a billion dollars.

R: Ruhan delisted from China’s OTC market in April of 2018, amid rumors that it was going to shoot for a US IPO. Sensible decision, and the rumors are accurate, it turns out. Recall that the OTC market is really for micro, actually nano-cap securities with an average market capitalization of less than $50mm, it really doesn’t have the proper investor depth for a company the size of Ruhan.

[13:50] Y: Well, that’s the bullish reason. The bearish reason is that Chinese investors are not as hot on ecommerce companies as US investors are and they also really hate unprofitable companies, especially ones that have increasing losses. Ruhan was actually a little bit profitable in 2016 before turning unprofitable in 2017, although it also increased revenues by nearly 30 times. But by this logic, Ruhan was basically “forced” to delist, having no hope of raising further funds quickly and efficiently from the Chinese retail market.

R: But by this time, too, Ruhan had grown substantially in size, and it was by now large enough to be considered abroad. Chinese media always claim that the company is being forced to list because of its institutional investors, but they together only own about 25% of the company prior to IPO. It’s the CEO, who owns over half, and Dayi, who owns 15%, that together have majority control.

Y: Dayi is also the current Chief Marketing Officer of Ruhan. How did this happen? Well, she’s very good at her job, like we’ve said, and it’s really her success that has propelled not just Ruhan, but the entire influencer ecommerce industry forward.

R: Since starting from nothing in 2014, she’s now on track to earn something like $70mm of revenue for Ruhan annually. In 2016, during Taobao’s livestreaming event, she sold about $3mm of goods in just two hours. By Singles Day of last year, she sold $15mm worth in 28 minutes, breaking all influencer records, leaving little doubt that she really is the top earning KOL in Chinese internet.

[15:39] Y: But her overwhelming success is also problematic for Ruhan. In the last 9 months, Zhang Dayi’s business still accounted for an decreasing share of GMV, ending up at 45%, but an increasing share of revenue at almost 54%. In other words, more than half of revenues are coming from a single influencer. That’s pretty bad revenue concentration.

R: It’s a double edged sword for sure. And to keep her, she has the 15% equity we talked about earlier, remember? That’s not what other KOLs are getting. They are getting a salary or a revenue split.

Y: Ruhan’s KOLs are paid anywhere from 8 to 35% of operating cash flows or revenues depending on the type of store they operate, such as whether the store is fashion or cosmetic. There is always the chance that as some KOLs become very popular, they might move off the platform or demand better terms like Dayi has. It hasn’t come to that yet, but you know the frenzy to lock up exclusive contracts with livestreaming talent that was one of the reasons behind the demise of PandaTV? Folks believe it could happen here as well.

R: And there are just so many dangers with running a business that’s so single-celebrity focused. For one, Dayi can fall quickly to scandal. You know how last year she was called the Fan Bingbing of influencers because of her extraordinary popularity and money making ability? Well, no one is saying that anymore because Fan Bingbing, who used to the number one star in China, has fallen swiftly and completely last summer to allegations of tax evasion. And I’m sure there’s no shortage of competitors trying to bring Dayi down.

[17:32] Y: There is a lot of competition. The KOL economy in China has been growing at a breakneck pace of 180% per year since 2013. According to Ruhan’s own prospectus, the largest and fastest growing segment is advertising, making up what looks to be about 60% of the revenue, followed by ecommerce at about one-third, and the remainder currently mostly virtual gifting.

R: The data isn’t consistent though. Other reports stress that ecommerce accounts for most of the monetization of influencers, as high as 74%. That includes not just direct ecommerce, like buying from their shops, but also ecommerce from livestreaming, much like home shopping channels but with the ability to interact. Chinese users, by the way, favor this type of content because video remains one of the best ways to get the most accurate feel for the product without seeing it in person.

Y: Either way, the most-often cited market places the size of the influencer economy in China at more than $15Bn for 2018, or even as high as $25Bn for 2018 if you believe Frost & Sullivan, growing at a 42% every year.

R: But that, as you already know, includes a good chunk of ecommerce, which is not typically included in the $10Bn figures cited in US research for global influencer marketing, as those only include advertising. Either way, our point is that in terms of influencer marketing, China is huge and probably the largest in the world.

[19:10] Y: For Ruhan though, the bulk of its business is still riding on ecommerce. The company has 91 self-operated stores, 28 third-party stores, and 501 brands on its platform, these stats are almost triple what it had two years ago.

R: What does this mean? Well, for the self-operated stores, Ruhan has 25 KOLs for whom it “integrate key steps of the e-commerce value chain, from product design and sourcing, online store operation to logistics and after sales services.” That’s how it works with Dayi, for example. Dayi brings the fans, the brand, but Ruhan does a lot of the heavy lifting, such as helping design and then actually making the fashion and cosmetics being sold, and they also operate the stores of course, handling returns and customer service and stuff like that. This is about 88% of its revenues.

Y: And here is where there is some differentiation between Ruhan and other fashion brands. While Ruhan admits to freely working with buyers and basically being “inspired” by runway designs not unlike Zara and other fast fashion brands, it’s got an even more efficient system for coming up with its new seasonal collections. That is, it uses its fans to help it figure out what will sell.

R: Yes, for example Dayi will post a series of photos of herself in different outfits and straight up ask her fans to vote for what they like best. She will also collect information on what materials her fans prefer, as well as the price they’re willing to pay.

[20:47] Y: Armed with this information, she then works backwards with the Ruhan team to come up with what to sell. And then, they spend a ton of time and money on promoting the goods, including what you have come to expect from influencers — lots of video and photoshoots in exotic locales.

R: And because Ruhan wants to push for lower turnaround times and less inventory risk to accommodate its customers, it tends to set lower order amounts, which by the way, of course, is typically more expensive, but does make it more nimble for the company. How low? I don’t know exactly but comparable companies such as a popular Korean-themed fashion brand can have as low as 600 pieces per order. Ruhan, by the way, is achieving about 30% gross margins, in line with Zara, so not horrible.

Y: But this isn’t Ruhan’s only play. By 2017, Ruhan was also providing what it called Platform Services. This is basically where they work with KOLs and matchmake them with brands or third-party ecommerce stores. Platform services are growing rapidly, but still only account for about 12% of total revenues, and what’s interesting is that while Ruhan says it has 113 signed KOLs on its platform, only 25 were working under its full-service model, which is actually a decline from the year, while the majority were active on its Platform.

R: I think it’s pretty obvious why that’s the case. It’s extremely difficult to incubate mega KOLs like another Zhang Dayi. But as the number of KOLs grow in China, and Weibo says there are over 20,000 influencers with more than 1mm fans each on their platform now, so there’s at least that many, and not all of them are going to be able to create their own brands, there is probably more growth in the advertising side, which is also more scalable since it is less operationally intensive.

[22:45] Y: That’s probably why the CEO has been on the record as saying — we are not trying to make more Dayi’s, we are just trying to be the best partner we can be for successful influencers like Dayi. It also helps answer one of the key criticisms that Ruhan, as an “older” internet company — yes I can’t believe I’m saying it, but at 6 years old, Ruhan is an old soul — it doesn’t get the new landscape of influencer marketing. The marketing channels that it’s well-versed in, mostly Weibo, are not reflective of the current time spent by youth these days.

R: As analysts have pointed out, of the 150mm or so fans / followers Ruhan has across all its influencers and all platforms, about three-quarters of that is on Weibo, with most of the rest on Weitao. By the way, as expected, about 80% of the fans are female and millennial. But Ruhan fans on other platforms, such as WeChat, or Douyin AKA Tik Tok, are negligible.

Y: Yeah, take Dayi for example, she has over 10mm Weibo followers, but only 150K Douyin fans. Granted, Douyin hasn’t become a huge driver of ecommerce yet, but at 400mm Chinese MAU and an increasingly large share of user attention, what does it say about the management team at Ruhan that they are either unwilling or unable to crack the WeChat and Douyin game?

R: Well, it might be too early to judge them so harshly on that. At least Dayi herself is saying that she is taking Douyin very seriously and knows that her success on Weibo is not necessarily transferrable to other platforms. She is willing to be humble and start from scratch. 

[24:39] Y: And therein lies some of the differences between the US and China. While social networking tools have changed quite a bit in both countries, the Chinese market has seen more iterations. Douyin launched ecommerce services last May coupling short videos with shopping, and during last year’s Singles Day, the top-selling influencer got over 100,000 orders resulting in $30mm of turnover. That’s for the whole day, so Dayi is still winning the battle on this one.

R: Kuaishou, the other leading short video app, isn’t far behind, and also announced upgrades to its ecommerce functionality in December. That’s in comparison to Instagram whose shopping feature has been rumored for months, but only finally launched last week.

Y: While we are in general pretty careful about not overhyping Chinese tech companies, it does seem that in much of ecommerce and especially when it comes to influencer marketing, the Chinese market is pretty advanced, and at least on par with, if not more dynamic, than what we are seeing here in the US.

R: But don’t take our word for it. We haven’t had guests on the show for a while, but today we have Lauren Hallanan, who’s definitely well-versed in the Chinese influencer economy. Lauren, please introduce yourself to Techbuzzers.

[26:00] L: Hi my name is Lauren Hallanan and I am a Chinese social media marketing expert focusing on influencer marketing, livestreaming and social commerce. I am the co-author of the Amazon best-selling book Digital China: Working with Bloggers, Influencers and KOLs, a Forbes contributor, host of the China Influencer Marketing podcast, and creator of the weekly China Influencer Update newsletter. I’m also a bit of an influencer in my own right with followings on several Chinese social media platforms, and I was formerly a professional livestreamer in China with over 400,000 fans. I’ve been following Ruhan and Zhang Dayi since early 2017, and have written about them several times

R: Just a reminder, you’ll find a link to Lauren’s book, that article she talks about as well as others in our transcript, and they are usually available the week after our release on pandaily.com/podcast. And wow, Lauren! I really didn’t realize you had so many fans in China. I wonder how long it’s going to take us as Techbuzz here to get  to 400,000 fans!

Y: Thanks so much Lauren! I’m also really impressed with what you’ve done– for our listeners, Lauren and I have known each other for almost 10 years! So yeah, as everyone can see, super relevant expertise here. So our burning question for you, Lauren, is that, as we’ve already discussed in this episode, a lot of the criticism directed towards Ruhan is that this business of incubating influencers is incredibly difficult to scale. After all these years, they still have pretty much only Dayi as their sole breakout star. Do you think there’s something Ruhan can do to overcome this, or it’s a permanent flaw of the model?

[27:46] L: I think this is a valid concern and I do think that it will be difficult eliminate completely but I’m optimistic about Ruhan. A couple of reasons, Zhang Dayi has been diversifying her brand offerings which has allowed her to reach new audiences. During Alibaba’s 2018 11/11 Shopping Festival pre-sale period, Zhang’s new cosmetic brand’s GMV was 11mm RMB and more than 40% of buyers were first-time buyers of Zhang’s products, who said they’ve never purchased her clothing, but were drawn to her cosmetics line by the massive amounts of positive reviews it was receiving on Tmall. Number two as I mentioned in my Forbes article, while relying on a handful of influencers for the majority of the company’s profit could be seen as a detriment, it is also key to Ruhan’s success. Over the past few years, several other influencer incubators have cropped up in China, however, many of them have spread themselves too thin attempting to nurture too many bloggers at once, and have not achieved anything close to what Ruhan has with its focus on a couple of bloggers. Number three operating a fashion retail business isn’t easy to begin with but Ruhan has created a more streamlined operating model than many traditional retail operators. Rather than trying to predict what consumers will like and then selling it to them, Ruhan uses audience preferences and purchasing behavior to guide product development from the start.

[29:27] R: Fair enough! Although GMV really not a good indicator, as we’ve discussed before in our episode on Singles’ Day, sometimes it’s the only metric we’ve got to work with. And I think Ruhan can probably refine its supply chain some more, as its current gross margin of 30% is far below what a comparable although cheaper brand 韩都衣舍 has achieved at 45%. So, that could be a good opportunity for growth.

Y: Alright, that was Lauren and her take on the company and the industry. Super helpful. Want to summarize for us what we learned today, Rui?

R: Yeah. Well first we learned that China has a very large — $15 to $25Bn, depending on who you believe — influencer economy that is currently mostly driven by ecommerce and advertising, and depending on which source you consult, one might be bigger than the other. But together these two dwarf other monetization methods, such as tipping or virtual gifting.

Y: Right, also note that ecommerce doesn’t just mean having a store, it can also include selling goods via livestreaming. In China, for influencers with large followings, like Zhang Dayi, it makes sense to create their own brand versus advertise for other brands. Ruhan created a business around this, to provide a full-service solution to influencers by helping to design and manufacture the fashion or beauty product, and to operate the corresponding ecommerce stores, including all the logistics and customer service.

[30:57] R: This has led to spectacular success in the case of Dayi, who uses her fans for product feedback and selection, and is generating an annualized revenue of something like $70mm for Ruhan, but it also seems very difficult to replicate and scale. So far, Ruhan is still deriving about half of its revenues from this one KOL, and it’s decreasing, rather than increasing, the number of KOLs it works with under this model.

Y: It’s growing, instead a Platform Services business where it matchmakes contracted KOLs with brands or third-party ecommerce stores. While that business only accounts for 12% of revenues thus far, it seems more scalable and probably less risky than incubating KOLs, which is a hit-driven business.

R: Well, we’ll see, it’s not that these brands can’t become bigger than the KOL that started it, but it’s hard. Dayi has tried to scale herself by hiring two models to help with all the photography and videos, so that she’s no longer the only face. And her cosmetics brand is higher end and more aspirational than some of her other stores, as she’s opened it on Tmall instead of Taobao, which has a higher bar.

Y: But this doesn’t mitigate the fact that meanwhile, short video and livestreaming platforms such as Douyin, Kuaishou, and of course all of the BAT are trying their hand at influencer marketing and ecommerce. Will Ruhan be able to adapt and take a leading position in this other pie as well?

[32:29] R: Well, I will play the bear here and say that I personally think the DNA of any company is difficult to change and am a big believer in product-founder fit. With such heavy ties to ecommerce and manufacturing since inception, Ruhan is much more likely to find further success in this aspect of their business than the advertising business, which they are building from scratch. So I’d personally take a cautious view.

Y: We’ll have to see what investors think when the company goes public very soon. Meanwhile, I’m dying to know, who’s the bigger deal, Kylie or Dayi? Yes Kylie is a bigger deal now, but does Dayi have a chance of overtaking her?

R: Kylie had an estimated revenue of $360mm last year from her cosmetics business. Dayi is definitely not at that level. But then again, she has just one-fifth the social media fans of Kylie, so on a per-fan basis, they are actually, and I’m finding this surprising, but they’re actually comparable. I’m rooting for Dayi though. She seems really humble, and with her new foray into cosmetics, she’s apparently studying Kylie’s playbook in great detail.

Y: One last thing, if Ruhan is able to raise the up to $200mm that it’s seeking for its IPO, which will definitely put it over the billion-dollar threshold, which means that Dayi, just by virtue of her equity holdings in the company, will be worth at least $150mm. That will put her in the self-made billionaire club, in Chinese yuan anyway! Not bad for a 31 year old!

[34:20] Y: OK, that’s all for this week folks! Thanks for listening. As a reminder, episodes will now be available every other Friday instead of Wednesdays. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on Twitter at thepandaily, at techbuzzchina, and my personal Twitter account is GINYGINY.

R: And my Twitter is spelled RUIMA. TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Shaw Wan and Kaiser Kuo. Our intern is Wang Menglu! And we welcome our new intern Mindy to the team. Thanks for listening!

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