How Could the Byte Dances?
COVID-19 and China
ByteDance Building. Photo: Credit to ByteDance

Mar 12, 2019, is the 7th anniversary of ByteDance, one of the largest Internet giants in China. ZHANG Yiming (张一鸣), the founder and CEO of ByteDance, gave a speech at the conference. According to ZHANG, ByteDance is a company that is both pragmatic and romantic. ByteDance is considered to have replaced Baidu as the newest "BAT" member. EqualOcean has been following ByteDance closely. Therefore, we want to provide a thorough analysis of this giant Internet enterprise.

ByteDance's History: Instant Fame and Growing Steadily

In 2012, ZHANG found that although there are huge resources on the Internet, users cannot find what they are interested in a short time. He believes that the Internet should introduce interesting content to users in a straightforward manner. This determination made him establish ByteDance. The company's flagship product, Toutiao, was established in Aug 2012. At the time, Toutiao was a new app inspired by a personal recommendation system. It could push the news to users based on their likes.

Toutiao gained great success after its publication. In the first 3 months, Toutiao gained more than 10 million users and attracted famous investors including Sequoia Capital, DST, SIG, and Sina Weibo. ZHANG Yiming also became famous along with his company.

At the very beginning of Toutiao's foundation, ZHANG also published Neihan Duanzi (内涵段子), an app that shared jokes, short videos, and interesting pictures to its users. At the time, it had more than 200 million users. On Apr 10th, 2018, the supervision department shut Duanzi down.

However, the failure of Duanzi never stopped ByteDance. In May 2014, Meipai (美拍) was published. Meipai is a UGC short video sharing platform where users could take movies, MVs and even look broadcasts. In Sep 2016, ByteDance published Tik Tok, which is also a short video sharing platform. Tik Tok (抖音) is different from Meipai. The former focuses more on background music, filters, and special effects. Combined with the same recommendation system in Toutiao, people got addicted to Tik Tok, and the app achieved global popularity. On Jul 2018, its monthly active users (MAU) exceeded 500 million. In 2018 Q1, Tik Tok was ranked the number one app in terms of downloads. On Jan 15, 2019, ByteDance published Duoshan (多闪), which aimed to be the competitor of Wechat.

Instant fame and the continued use of its customized recommendation system, ByteDance grew rapidly and is now an Internet magnate with a valuation of about USD 75 billion.

A pragmatic and romantic company with dream and empathy

ZHANG Yiming started his ByteDance in Jinqiu Jiayuan (锦秋家园), a community located in Haidian District, Beijing. Founded in a house instead of an office building, ByteDance grows healthily with a group which is full of dream and empathy. By the end of 2012, ByteDance began to talk about its internationalization and its potential English name. ByteDance was decided at that time. Although most of its employees didn't have the experience of going abroad, they all believe that mobile Internet must have an international opportunity. During that time, ByteDance hoped to accelerate its internationalization process. Now, ByteDance has an international influence with a strong short-video empire.

ZHANG Yiming gave an example in his speech. One of his colleagues told him that he would go to India for research and study. Several days later, he was still in Beijing. ZHANG asked him the reason, and his colleague said that he was refused by customs due to his unreasonable certificates. His colleague used an APEC certificate to go to a country which is next to the Indian Ocean because he mistook IDN as India, which should be Indonesia. However, one week later, he went to India and shared short videos on Tik Tok. He did a lot of research and even hired a lot of candidates with poor English level. ZHANG used this example to show his team is one that is full of dreams. According to ZHANG, there’s always limited resources in our lives. The office space is limited and there's a language barrier, but we can still pursue our dreams. ZHANG shared a saying that space is limited while dreams are not.

Another important label of ByteDance is empathy. ZHANG said that empathy is the foundation while the imagination is the sky. Logic and tools are located in-between. ByteDance, according to ZHANG, is a company that is both pragmatic and romantic. Having empathy makes up pragmatic while having imagination highlights the company's romantic feature. Productions will not have spirit without empathy and can never meet the user’s needs. However, having empathy would never be enough because imagination could help to make the production perfect.

Strategic Growth: How could ByteDance win such a great number of users?

ByteDance gained great success with the help of the increasing development of mobile Internet. From 2017-2018, the MAU of the mobile Internet increased from 1024 million to 1131 million and reached a stage that is relatively mature. However, with Toutiao and Tik Tok, ByteDance has already gained lots of users over the last few years.

Not only did the number of active devices increased significantly, but the time people spent on mobile Internet apps increased. From Dec 2016 to Dec 2018, the daily time people spent on mobile Internet apps increased from 265.8 minutes to 341.2 minutes.

With a larger user base and longer spending time on apps, the mobile Internet industry increased greatly and ByteDance took advantage of the opportunity.

Besides the macro environment, ByteDance also tried a lot in other fields and enriched its strategic arrangement. Currently, ByteDance has entered into many other fields such as finance, education, E-commerce, social software, etc. The income of ByteDance became diverse with its huge user base. Therefore, ByteDance is doing well.

Case study: How did Tik Tok become a success in such a short time?

Let's take Tik Tok as an example. Tik Tok grew rapidly. Currently, the app owns the largest user base in short video. Several reasons should be taken into consideration when analyzing TikTok's rapid growth. To start with, Tik Tok makes good use of Internet celebrities. At the very beginning, it treated Internet Celebrities as its own employees and actively helped them to be famous. In 2017, ByteDance held a celebration summit for its Internet celebrities and announced its USD 300 million spent to help them attract more fans. According to ByteDance, they aimed to create 1000 Internet celebrities with more than 1 million fans in 2018. The Internet Celebrities helped Tik Tok to attract lots of users and grow into a giant player in the short video industry in such a short time.

On the other hand, Tik Tok pays attention to stimulate anyone's creativity. Lots of people share popular restaurants, game videos, cooking guidance, etc. Now, everybody knows the popular menu of Haidilao (海底捞), a hot pot restaurant which became more popular with Tik Tok. In addition, Tik Tok would publish lots of video labels and start different kinds of activities. For example, Xiaomi started its challenges on Tik Tok to look for its “Battle Angel”. The video label attracted lots of users and upload more short videos.

Tik Tok also provided lots of tools. Therefore, a user can easily make a short video with a smartphone. Thousands of popular background music and special effects are inside Tik Tok, and it would never be difficult for users to make their short video. Users could also check interesting reviews while looking at the video, which saves a lot of time.

ByteDance, with thousands of engineers and its own AI lab, has core competitiveness that it could recommend the favorite resources to its users. Being different from Instagram, which you can only see what’s shared by someone you follow, Tik Tok offers its users opportunities to see the production of other creators. Meanwhile, artificial intelligence could analyze what you like and introduce the related videos to you specifically.

Lastly, commercial opportunities attract lots of users to Tik Tok. This platform allows users to put the link of their productions into the short video, which offers them the chance of commercialization of their video productions. For example, an Internet celebrity named “Yeshi Guy” (野食小哥), who eat delicious foods in the field, began to sell food in his video, and thus make a lot of money.

With new money-making opportunities, more and more users begin to join Tik Tok. Tik Tok is just one of the examples that show how ByteDance can reach success.

ByteDance’s Future: Not only the new BAT but new business opportunities

By the end of 2018, Reuters reported that the ByteDance's valuation had reached USD 75 billion, which is larger than Baidu's USD 65 billion. Reuters assumed that in 2019, ByteDance may merge with Baidu, and makeup to the new “B” of “BAT”, which refers to the top 3 Internet companies of China: Baidu, Alibaba, and Tencent. In China, the online advertisement Industry is a red-ocean market. According to i-Research, 10 companies including Tencent and Sina occupied the most market share of the USD 73 billion market.

However, the combination of Baidu and ByteDance has an attracting future. Their combination could not only cut down costs but also help each other. Baidu could help ByteDance to gain more business customers, and its strong AI could help ByteDance to better its service. With Baidu’s help, ByteDance may have a higher valuation to be listed in the public market.

Many ways can be helpful for ByteDance to make more money in the future. First of all, ByteDance’s AI technology could help with other fields such as IoT. It's becoming a norm for artificial intelligence to work as a strong tool in the IoT industry. Although most of ByteDance’s businesses are based on software, it is possible that this company could have cooperation with hardware manufacturers and better their service. Rokid (若琪), for example, is an AI smart speaker manufacturer. With a simple order “Ruoqi”, one could open it and give it orders to play music, radio, or online stories. With ByteDance’s AI technology, Rokid could push more interesting resources which is more precise than before.

Games are almost the fastest way for a data-centred company to transfer its huge data flow into money. In Mar 2019, ByteDance acquired Shanghai Mokun Company (上海墨崐), a professional game manufacturer. Although ByteDance has billions of users all over the world, the company's game making ability is relatively weak. When Mokun joined, ByteDance may publish online games and create more channels to make money. With the existing advertisement platform, Toutiao and Tik Tok, once ByteDance publishes its own game, a better cash flow statement is foreseeable for sure.

E-commerce is another interesting story. Taobao (淘宝), Tmall (天猫), PDD and many other E-commerce platforms are competing with each other. ByteDance, however, offers another ecologic system for E-commerce. Similar to the Internet celebrity story mentioned earlier, ByteDance could naturally transfer its Internet Celebrities’ fans into customers of its E-stores. Fans are willing to pay for their idols regardless if they are a video maker, news writer, broadcast anchor, etc. In this way, ByteDance may have the possibility to play as an E-commerce platform in the future.

More and more families (especially young families) are able to have another child due to China's elimination of its one-child policy. With the violent competition among children, parents are willing to pay for extra-school education, ranging from kindergarten to K12. Graduates do not want to lose their competitiveness in work and wish to learn more. The online education market would be enlarged in the next decade. ByteDance has already tried to enter into this market. Gogokid, an online English teaching app, has attracted lots of users especially in tier 1 or tier 2 cities. According to 36Kr's recent news, ByteDance is preparing its own K12 online school with a planned release date this summer. The online education could definitely become one of the ways for ByteDance to make more money. However, it depends on the quality and operation of its education apps.

Whether ByteDance is regarded as the new “BAT” member, it has already won global attention with its USD 75 billion valuations. More than 150 countries allowed Tik Tok to enter their market. Some even regard Tik Tok as the next Alibaba in the short video industry. The internalization is a long way that's full of interests and risks, but we have already seen how the ByteDance dances with its ideals of having a dream, empathy, pragmatic spirits and its romanticism. ByteDance could keep on dancing and continue to enrich our lives.

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