Internet & Tech

Tok of the town

Baidu launches lawsuit against punchy rival

Tiktok-w

It ranks as the world’s seventh most downloaded app of the last 10 years, despite only being launched in 2017. And unlike most of the other Chinese social media brands, it is as well-known internationally as it is at home. It is of course the short-video app TikTok, or Douyin as it is branded in China. We wrote extensively about it in 2019, although there will be plenty of WiC readers who haven’t heard of the brand, which is sensationally popular among younger users (there are now 400 million daily users of Douyin in China; while Tiktok has been downloaded 1.5 billion times worldwide).

The app’s explosive rise should have been capped by the initial public offering of its parent company Bytedance, which trails only Ant Financial as the world’s most valuable unlisted start-up (based on a $75 billion 2018 valuation). The company is said to have chosen Hong Kong as its listing venue, although an IPO may not materialise during the first quarter of the year as initially expected. Firstly, Bytedance may want to conclude its increasingly litigious battle with Baidu over online searches. (Last August, it launched a search function via its Jinri Toutiao news aggregator app in a bid to eat into the Baidu’s dominant market share, see WiC463). Then there’s the increasing competition for TikTok from second-placed short-video app, Kuaishou (known as Kwai internationally). The latter has tapped Tencent and Alibaba (via Jack Ma’s Yunfeng Capital) as pre-IPO investors. In December, Kuaishou closed a $3 billion funding round, which values the company at $28.6 billion and makes Tencent its largest shareholder with a 20% stake.

News reports suggest that Kuaishou has picked New York as the venue for its own IPO. However, TikTok’s recent troubles with the US government may have prompted a rethink that will result in both companies coming to the equity markets later than expected.

TikTok has been under scrutiny since last autumn when the Committee on Foreign Investment (CFIUS) began investigating its 2017 $1 billion acquisition of Musical.ly. A review was launched on the grounds that TikTok didn’t seek the proper clearances, although US senators have also voiced concerns that TikTok is censoring politically sensitive content and doesn’t meet standards in how it stores and manages user data. In recent weeks, the American military has also banned its personnel from downloading the app on security grounds.

TikTok says that it ringfences its international data appropriately and that it has US-based moderators governing its content. Beyond this, the row has taken on the inevitable geopolitical angle: are the complaints in the US motivated only be security concerns; or by a desire to stymie competition from fast-rising Chinese tech companies?

Back in China, TikTok’s rapid growth rate may soften as competition from Kuaishou exerts the same kind of pressure on advertising revenues that Bytedance has applied to Baidu search sales through 2019.

TikTok’s challenge to the search giant lies in a fundamental evolution in how users are looking for information online. Searches are increasingly being conducted on apps rather than through browsers trawling the broader internet. That’s one of the reasons why Baidu’s share price came under pressure during 2018 and 2019 and the competition has prompted a flurry of lawsuits between the two companies.

The fight erupted again in December when Baidu started a new legal action claiming that Bytedance has been nudging users towards its own subsidiary companies even when they were searching for Baidu-specific content. As we wrote in WiC439, none of this helps the reputations of the Chinese search engines, where users have concerns about how the results are ordered and whether the content is advertising in disguise.

However, Baidu’s share price has made something of a comeback since November when it reported stronger than expected results. The shares have risen 25%, to roughly 16 times forecast 2020 earnings. In fact the stock went up 8% on the first day of trading this year perhaps on hopes of a ‘moonshot’ moment for Baidu’s driverless car platform, Apollo.

Last Tuesday it announced that the city of Beijing had granted it the first licence to carry passengers in cars driven by its autonomous AI technology, on specially designated roads. Baidu added that self-driving cars on the Apollo platform had now travelled three million kilometres in tests across 23 cities.


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