Taking on Tencent: Bytedance’s founder Zhang Yimin
“Men of sense often learn from their enemies. It is from their foes, not their friends, that cities learn the lesson of building high walls and ships of war.” The aphorism from Aristophanes’ comedy The Birds throws some light on why Tencent recently revamped its super app WeChat to introduce a video-streaming feature called “Time Capsule”, plus a recommendation-based newsfeed function known as “Wow”.
WeChat is now in its 7.0 version but its first big overhaul in four years might be long overdue. Yet critics tend to see it as a sign of nervousness, specifically in respect to competition from Bytedance. Following the latter’s success in popularising its AI-powered news aggregator Jinri Toutiao (or “Today’s Headlines”, Bytedance cemented its status both as unicorn and successful insurgent with the launch in 2016 of the 15-second-video platform, Douyin. This, in turn, became a phenomenon that further diverted user time away from Tencent’s dominant social media app, WeChat.
According to local market researcher QuestMobile, Bytedance’s apps commanded a combined 9.7% of Chinese mobile users’ screen time as of September last year. That compared to Tencent’s 47.3% and search engine Baidu’s 7%. Douyin’s number of daily active users (DAU), in particular, saw explosive growth of 6.3 times in less than a year, topping 250 million as of January 15, while the figure for monthly active users (MAU) crossed 500 million.
It is noteworthy that at least 16 rival short-video platforms have emerged over the past year with investment from Baidu, Alibaba and Tencent, according to National Business Daily. Nine of them were backed by Tencent, which also resurrected Weishi (which looks and functions in a similar fashion to Douyin) and doubled down on its investment in a close rival called Kuaishou.
Yet none seems to be able to dislodge Douyin, notwithstanding the attempts by Tencent to block access to its content on its all-pervasive social media platforms WeChat and QQ from last April (a move that led to a legal dispute and alleged smear campaign; see WiC416). Even Kuaishou, which once topped the short-video market, saw its popularity surpassed by Douyin, with its DAU and MAU trailing at 160 million and 300 million respectively as of the end of December.
But why has Douyin stayed on top? “Douyin has provided a handy toolkit that eased the process of making entertaining videos such that even the not-so-tech-savvy can make magic with it,” Kay-Mok Ku, a managing partner at venture capital firm Gobi Partners, told WiC. Douyin users have at their fingertips a wide selection of music and editing functions such as motion speed adjustment, stickers and virtual-reality filters to spice up their work. As a result, a lot of the videos on Douyin’s platform, though generated by ordinary folks, do not come off as amateurish. Such technology was built on the expertise of Los Angeles-based Flipagram and Shanghai-based Musical.ly, which were both acquired by Bytedance in 2017. Best known as a lip-synching app, Musical.ly had been immensely popular among teenagers outside China, especially in the US, before being folded into TikTok (Douyin’s international version).
Since it attaches great importance to the quality of its videos, Douyin also runs content creator schemes that operate somewhat like entertainment agencies. For instance, it will poach performing talent from art and music colleges, help recruits develop content ideas and build their social followings. It also hires editors tasked with creating new trending topics to inspire ordinary users to generate original content.
But more significantly, it is by harnessing artificial intelligence (AI) that Douyin seeks to engross its audience. Sharing the same DNA with its sister company Toutiao, which recommends articles to readers based on their past reading behaviour, Douyin uses a similar algorithm-based content referral technique. It learns to predict a viewer’s preferences through tracking and parsing data such as subjects that the viewer “likes”, “follows”, “comments on” and “forwards”, as well as where they watch what, and the attention span for each particular clip.
“The recommendation system is basically a mathematical function of a user’s satisfaction”, wrote AI Era, a zimeiti blog, noting that all users within the Bytedance system are tagged with a profile for machine learning. This has proven effective in enhancing user stickiness not only in China but also around the world, as shown by how far Musical.ly (now TikTok) has grown under Bytedance. Having entered 150 markets, the app saw its MAU (excluding China) exceed 100 million as of June 2018, up 67% versus when it was taken over.
Surpassing Facebook, YouTube and Snapchat in monthly installs in the US last September, it has even spooked a Washington-based think tank – which worries it could become a tool “for espionage and manipulation of public opinion”.
“If widely adopted, such an app could become a Huawei-sized problem in terms of the access to the West potentially that’s afforded to Chinese security services,” wrote Claudia Biancotti, a researcher at the Peterson Institute for International Economics. For instance, she suggested that TikTok has the potential to “make Beijing’s surveillance software better at recognising Western faces”.
Back on its home turf, Bytedance has launched a standalone video-messaging app called Duoshan this week, which is widely seen as another jab at Tencent (the latter has again blocked links to the new service from WeChat). Akin to Snapchat, Duoshan allows users to record and send each other short videos, as well as text messages, images and stickers that disappear after 72 hours. In December it also filed for three financial services trademarks, one of which is called Zijiefu, which roughly translates as BytePay, after launching its own e-commerce platform Zhidian (see WiC429).
Founded in 2012 by serial entrepreneur Zhang Yiming, Bytedance has been one of the world’s most valuable start-ups since late October. A $3 billion round of investment led by SoftBank gave it a valuation of $75 billion (for comparison, Uber is worth an estimated $72 billion, and Ant Financial $150 billion).
With the majority of its users coming from China’s first- and second-tier cities, Douyin is not thought to be turning a profit yet. In addition to the business model of tipping (which involves viewers buying in-app virtual coins to reward excellent content creators – generating fees for the operator), advertising is expected to become Douyin’s key source of revenue. According to iResearch, sales for China’s short-video sector are expected to quadruple to Rmb56 billion ($8.26 billion) in the next two years.
Yet the monetisation process will be complicated by growing regulatory interference. A new initiative has banned 100 categories of content from the booming sector, with some of the objectionable areas singled out being worryingly vague – such as “promoting a negative and decadent outlook on life”. The new guidelines also require short-video platforms to have a team of censors of “high political quality”.
That means Douyin’s compliance costs are going to rise, but by how much? Well, it has beefed up its censorship team to 10,000 personnel from 6,000 last April – a move that again followed regulatory intervention. That time it was forced to close an account that authorities deemed to have posted “vulgar” content.
With media regulators now keener to meddle in the sector, the worry for Douyin is that as the more risqué stuff becomes increasingly off-limits, its short-video content could lose much of its buzz…
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