Internet & Tech

Worth a packet

Bytedance leaps at chance to take over Spring Festival Gala sponsorship


Its name in China is Douyin and it plans to list in Hong Kong this year

How much do public relations crises cost? It depends on the gaffe, of course. But a PR disaster for Pinduoduo this year (see WiC524) has seen it lose the chance to take centre-stage on mainland China’s most-watched television show.

After two employee deaths and a viral video that sparked scrutiny of its intense working culture last month, Pinduoduo was booted off this year’s Spring Festival Gala on state television, where it was planning to sponsor a vast exchange of virtual ‘red packets’ – known as hongbao – containing cash gifts.

It is a significant setback: six years ago sponsoring the same initiative catapulted Tencent’s WeChat Pay into the forefront of the country’s digital payments market. As many as 200 million people, eager to get a chance at a cash gift during the four-hour countdown to the Chinese Lunar New Year, linked their bank cards to the instant messaging platform (literally) overnight. That supercharged WeChat Pay’s customer base, closing the gap substantially on leader Alipay (which had taken eight years to build its user base). Jack Ma later compared the overnight shift that the campaign induced in the e-payments balance of power to the Japanese attack on Pearl Harbor.

Pinduoduo’s loss is another’s gain, however. Eight year-old Bytedance announced at the end of January that it would step into the breach, disbursing red packets of its own worth Rmb1.2 billion ($186 million) on Chinese New Year’s eve as the state broadcaster’s exclusive “interactive” partner.

The announcement came a week after the Beijing-based company added a new payments feature on its trendsetting short-video app Douyin (known internationally as TikTok).

For Bytedance the push into financial services is designed to underpin its growing ambitions in e-commerce, notes 21CN Business Herald, a local newspaper. No longer satisfied as being a marketing channel that directs traffic to third-party marketplaces (a service that brought in Rmb7 billion in fees from Alibaba’s Taobao in 2019), Douyin launched an e-commerce platform of its own last year.

The new venture has been gaining traction. Selling goods from Suning, LG Household & Healthcare, Winoa, Be & Cherry (see WiC485) and many other brands, Douyin’s big promotional campaign in January reported nearly Rmb21 billion in gross merchandise value. Over 200,000 merchants have joined its e-marketplace since October, data from Ebrun, a Beijing-based consultancy, suggests.

The short-video platform’s new interest in e-commerce is also diverting a growing number of merchants away from Alibaba’s Tmall, reports Zijin Caijing, a financial news outlet. “Competition among womenswear players on Tmall is brutal. As customer acquisition costs for small and medium brands keep rising, I am looking for new opportunities on other platforms,” explained one Hangzhou-based business owner, who is trying to sell her four year-old boutique on Tmall for Rmb100,000.

The woman added that it was the traffic redirected from Douyin that kept her business alive on Tmall in the latter half of 2020. But with Douyin pulling the plug on its support for third-party marketplaces, she has decided to shift her focus to her Douyin store, helping her to sell a few more of her most popular items every month.

Douyin reported a 45-fold increase in GMV for stores on its platform between January and November last year, as the number of merchants jumped 17 times. The platform’s daily active users – mainly younger, tech-savvy urbanites, and obviously a key demographic for consumer brands – topped 600 million as of August 2020.

Yu Feng, Taobao’s general manager of e-commerce content, has predicted that livestreaming will help to generate 30% of his platform’s sales within three years, as the culture of livestream shopping continues to mature (see WiC448). Sales made through live broadcast e-commerce in 2021 could double on the year to Rmb2 trillion, estimates KPMG, a financial services firm.

The huge market potential has prompted other online video platforms such as Kuaishou (see this week’s Talking Point) and Bilibili (see WiC492) to jump on the same bandwagon. Similar to Douyin, they are preparing to roll out their own digital wallets as part of their e-commerce buildout.

The rationale behind building their own digital payment capability is to lower transaction costs on their respective platforms, noted NetEase News. Kuaishou, for instance, paid Rmb642 million in fees to the likes of WeChat Pay in 2019 for processing its growing volume of sales – costs that can be saved by shifting the process in-house.

An additional incentive comes from the drive to keep customers inside the company’s own ecosystem, as well as gathering wider intelligence on consumers for credit rating systems and loan services.

In fact, months before launching Douyin Pay, a digital wallet, Bytedance was offering in-app consumer financing comparable to Alipay’s Huabei (which allows payment to be deferred, akin to a credit card). Through a series of acquisitions, Bytedance currently has licences to make small loans; broker insurance; advise on securities trading; and handle payments across China (see WiC511).

The tech player’s foray into financial services comes at a sensitive time when the government is investigating what it deems to be anti-competitive behaviour among the leading internet firms and their payments arms (see WiC526).

The latest draft of the antitrust rules from the People’s Bank of China (PBoC) barrs any single payments provider from controlling more than half the e-payments market, and no two players having more than 75%. This will make more room for upstarts such as Douyin – which could even be encouraged by the authorities to break the stranglehold of Alipay and WeChat Pay, which commanded 55.6% and 38.8% of China’s mobile payments market as of last June.

Despite the promising signs, it is worth noting that Bytedance doesn’t have an unblemished track record of branching out beyond its core businesses of short-videos and news aggregation (see WiC244). Last month it decided to shut down its Q&A app Wukong (see WiC424) as well as one of its online education platforms Haohao Xuexi (see WiC517). For its e-commerce endeavour to be triumphant, Bytedance will also have to strengthen its logistics infrastructure and after-sales services.

At present ad sales in China are by far the largest source of income for Bytedance, offsetting the impact of India’s ban on TikTok and Washington’s threat to break up its social media empire further. In 2020 the company more than doubled its operating profit to $7 billion as revenue climbed to $37 billion, reported The Information, a tech news source. TikTok and Douyin were the world’s top grossing non-gaming apps in the past three quarters, raking in over $1 billion in user spend, adds Sensor Tower, a research firm.

Even archrival Tencent – which had previously requested that user-generated content featuring its online games League of Legends and Honor of Kings be removed from Bytedance’s platforms – hasn’t been able to resist advertising on Douyin. But far from signalling that the two behemoths are mending fences, the move cast more of a light on Bytedance’s skills in monetising traffic, especially from gaming fans. According to LatePost, a local media source, Douyin drew 50% of its revenue from games-related advertising in 2019 – numbers that have emboldened Bytedance’s ambition in the gaming segment too (it already owns 10 studios and four publishers, with 2,000 staff working in its gaming offshoot).

It is against this backdrop that Bytedance filed another lawsuit against Tencent on Tuesday for blocking access to its offerings on WeChat and QQ. The suit invokes anti-monopoly rules for the first time, asking the court to order Tencent to drop the ban and pay it Rmb90 million in compensation.

With plans for IPOs for its prime assets Douyin and Toutiao in Hong Kong this year, Bytedance is reportedly seeking to raise $2 billion itself in a pre-IPO financing round on a valuation of $180 billion. That is almost identical to the market value its short-video rival Kuaishou achieved on its first morning of trading on the Hong Kong bourse today.

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