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Analysis EO
Analysis · 2
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Analysis EO
Jul 16, 2020 07:30 pm ·

ByteDance's Next Potential Weapon to Threaten BAT: Chip

► As chips have been a hot spot where BAT names can be found moving hard and fast, following in the steps of the leading three tech giants is a tempting strategy.  ► New business representatives are always specially involved in new national policies such as 'new infrastructure.' As a result, ByteDance has no reason to miss the chip industry, an area supported strongly by the government. ► Internet giants are continuously looking up new initiatives that may form the next direction, such as Cloud services and IoT, so the chip industry which is already grabbing attention is expected to be the next focus as the US intensifies a ban on Chinese high-tech enterprises. ► ByteDance recorded CNY 150 billion in revenue in 2019 with a compounded annual growth rate of 178.8%, indicating sufficient capital support to invest chip in the next couple of years. ► The company might have high intentions for research on chips due to their money-making products needing better support for data processing. For instance, killer apps such as Douyin and TikTok, which have a massive user base, have rising requirements for data processing. With self-developed products such as smartphones – developing fast through the acquisition of Smartsan and brands in the gaming industry – the company is exploring triggered demand as well. As Huawei's 5G networks are taking shape, the US is intensifying its ban on the tech giant, claiming that any company that uses American technology is prohibited from providing services to Huawei. Along with prior restrictions on ZTE and other companies showing up on the 'Chinese entity list,' the new interdiction is undoubtedly a heavy blow to China's lagging chip industry. China imports chips at an increasing rate, recording USD 312.1 billion in 2018, while the US supplies nearly half of the world's chips. With a high entry barrier and massive investment, the chip market has been monopolized by a few developed countries such as the United States, Japan and South Korea. Invading into the chip field seems an attractive way for Chinese star firms to shine on the global stage. ByteDance, a unicorn with a USD 75 billion valuation, has always engaged in global strategy. In 2019, the company applied for a digital banking license in Singapore, expanding its business in Southeast Asia. As of April 2020, TikTok, a short video platform, exceeded 2 billion global downloads, surpassing YouTube to rank seventh among all apps. Besides, on June 1, 2020, Kevin Mayer, the former Disney chief strategy officer, joined ByteDance and was in charge of the global department. ByteDance has achieved what its ‘predecessors’ the BAT companies have not – making a global product like YouTube and Facebook. As it has surpassed the BATs in telling an international story, ByteDance is now strong enough to enter the chip industry – either through acquisition or strategic investment, in our view.  Inferring from BAT and ByteDance's past layout in each industry Founded in 2012 and has rushed to the forefront with its short video platform TikTok, ByteDance is committed to comprehensive development and ambitious growth, eating from each slice of the cake that BAT brands have already carved up, including messaging, education, healthcare, gaming and SaaS. ByteDance seems to be on the heels of Baidu, Alibaba and Tencent all at once. After seeing the top three internet giants' layouts in the chip industry, the technology-driven company is eyeing the chip market. Follow up the national new policy In March 2020, the Chinese government proposed a 'new infrastructure,' including 5G station construction, UHV, high-speed intercity railway and urban rail transit, new energy vehicle charging piles, big data centers, artificial intelligence and industrial Internet. After the release, Tencent (00700:HKEX) announced that it would invest CNY 500 billion in the next five years while Alibaba (BABA:NYSE, 09988:HKEX) claimed it would input CNY 200 billion in next three years. Baidu (BIDU:NYSE) has announced that, by 2030, the number of Baidu's intelligent cloud servers would exceed 5 million to fill out the new infrastructure. At the same time, ByteDance officially established an IoV team, planning to launch its vehicle infotainment system solution. Combined with a huge traffic entrance backed by TikTok and Jinri Toutiao, ByteDance's big data and algorithm technology has a good chance of catalyzing the development of autonomous driving. To get rid of dependence on foreign technology, China implemented tax reduction policies for chip manufacturers in 2018, followed by a USD 29 billion investment to support the chip industry in September 2019. To respond to national policy, BAT successively laid out as well, such as Alibaba's PingTouGe, a self-developed semiconductor company. From this perspective, ByteDance, ambitious to replace BAT's B, has no reason to miss the chip's prospect. Investors have been looking forward to the company's new initiatives Seeing that e-commerce business was getting mature, Alibaba launched Ali Cloud in 2009, aiming at a 'big data + cloud computing' strategy. Ten years later, cloud services have long become a must-have for major Internet companies such as JD.com and ByteDance, while Alibaba generated cloud revenue of CNY 35.525 billion in 2019. According to IDC, Alibaba Cloud's market share in the intelligent voice field reached 44% in 2019, ranking first in China, followed by Amazon AWS. Xiaomi reached its peak in the mobile phone business in 2014 and began to layout the IoT industry to develop Xiaomi’s ecological chain. After five years, the IoT segment accounted for around 30% of revenue. Xiaomi won the largest market share in the TV industry in the domestic and Indian market and became a global championship in the wearable devices field. With the advent of the 5G era, the IoT market will shape the next boom in hardware. As the US cracked down on Chinese high-tech companies, especially Huawei, domestic replacement chip has regained attention. The chip industry is now at the center of a storm of uncertainty but has high potential to become a hot growth spot shortly, as cloud computing and IoT develop. Tesla (TLSA:NYSE) and the BATs have broken into the chip industry sooner or later. With the gradual saturation of the number of TikTok users and the blockade of the platform in markets such as the US and India, for ByteDance, why not turn towards such a promising industry as a new profit engine? Sufficient capital supports chip R&D The chip industry is a money-burning one, from IC design to the foundry to packaging and testing. As a result, many chip companies have gone bankrupt one after the other due to broken cash flows. Internet giants are unable to finish the whole process. However, they can invest in semiconductor companies to follow high-tech trends – and developing relatively easier AI chips seems reasonable, as per the example of Alibaba. Alibaba established the PingTouGe semiconductor company in 2018 when the e-commerce behemoth had reached CNY 300 billion revenue. One year later, the firm released the first AI chip, 'Hanguang 800,' which has been used in multiple scenes such as video image recognition and search function in Taobao. Alibaba expects the chip to be used in medical imaging and autonomous driving in the future. ByteDance generated revenue of CNY 150 billion in 2019 with a compounded rate of 178.8%, faring exceeding BAT's revenue growth rate. Following this trend, ByteDance has a high potential to catch up with BAT in terms of earnings, seeing more than CNY 300 billion in the next two years. With sufficient capital support, the technology-driven company should be able to develop its own AI chips – not accounting for strategic investment in semiconductor companies. Huge user base and self-developed products drive chip demand Multiple successful examples support this position. 1) Ali Cloud thrives from its large e-commerce and third-party payment platform data pool such as Taobao and Alipay. 2) Baidu Apollo’s success relies primarily on the user's data. 3) Tesla's self-developed chips derive from its autonomous driving system. From this perspective, new initiatives have always been triggered by existed businesses and products. When ZTE was banned by the United States in 2018, Yang Zhen, ByteDance Vice President, said "ByteDance has billions of users worldwide that upload videos that need to be analyzed and processed in TikTok. And this process means the purchase of a large number of chips." If the smartphone plays or records video for too long, the phone is likely to overheat. Therefore, the need to improve video performance and reduce power consumption triggered the motivation to develop AI chips. There is a rumor that Douyin is working with Aegis, a fingerprint identification IC factory, to develop AI chips. The product is expected to win orders from major smartphone manufacturers such as OPPO, Vivo and Xiaomi (01810:HKEX). Besides, ByteDance acquired Smartsan's partial business in 2019 to launch smartphones. To avoid repeating Huawei's misfortune, applying the self-developed AI chip to the self-developed mobile phone seems attractive. Whether from the perspective of strategic layout or capital requirement, the allure of chipmaking for ByteDance is too attractive to miss.

Analysis EO
Analysis · 2
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Analysis EO
Jul 10, 2020 11:39 am ·

Time for BAT and TMD to Hit the Driverless Car Road

► The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. DiDi's in-house Autonomous Vehicle (AV)  in Shanghai is accelerating the adoption curve and also heating up the game, making the rest of the names and startups at times breathless.  ► Pure-tech companies in the area have technology solutions but are struggling to step into the growth/mature stage – and with the unviable business model are exposed.  ► The funding market has been cooling down for a while, with some unicorns suffering without new support. Investors are asking for more – and autonomous driving startups suffered most.  ► As massive – in terms of scope, size or capacity – Level-4 AV deployments are at least four to six years ahead, a ticket to the Internet giants' boat is not a bad exit.  2020 was an eventful year that saw increased AV adoption across some tier-1 cities  China saw several Level-4 major deals closed in the first half of this year – DiDi AV spinoff (USD 500 million), Pony.ai (USD 462 million, Series B), Inceptio.ai (USD 100 million).  The descending enthusiasm of investors could have resulted from the repeatedly postponed commercialization timeline of AV technology. Both giant companies like Google's Waymo and ambitious startups as Momenta once claimed that they would materialize mass production of Level-4 autonomous driving vehicles by 2020. Yet, no single company has realized the goal, due to immature technology, stubbornly high costs and inadequate regulations.  While the investors are getting more discreet on their bets, their expectations remain high. Though the number of deals lessened in the past two years, the volume of money raised in each deal is getting higher. At the beginning of this year, Chinese AV startup Pony.ai secured USD 500 million from Toyota, yet another industrial investor following Kunlun (300418:SZ) – a gaming company. The injection will sustain the firm's research on L4 in the coming years but might harm the company's independence, in our view.  L4 tech solutions providers need to reconsider their role – RoboTaxi operator, self-driving car maker or tech providers. Choosing the latter means they only earn licensing fees.  It might be hard for driverless technology alone to take a majority portion of ride-hailing trips while the rest relies on customer service, as Waymo executive John Krafcik implied. Leading companies have been operating their driverless fleet in China on a small scale. For instance, WeRide reported a total of 8,396 orders of its RoboTaxi service to Guangzhou citizens, in December 2019. However, point-to-point operations in some urban areas are still the initial stage of commercialization.  Like Waymo, Chinese VC Blue Run Capital expressed a similar opinion. OEMs, software integrators and channels surrounding the core OEMs are their priority for opportunities of artificial intelligence (AI). OEMs integrate upstream, downstream and third-party resources efficiently. In the direction of AV, those who focus on parts of the value chain can fonds the course hard, as one closes the loop of demand and supply, creating less value. The company has invested in Lixiang four times, the next being – maybe – China EV stocks after NIO (NIO:NYSE).  Who's the next in Internet giants' shopping bags? Internet/industrial conglomerates have an endless appetite for cutting-edge technologies due to the fear of missing out (FOMO). Their deep pockets support the money needed for acquiring the share of a business when they feel there can be a possible revenue synergy going on.  In the auto industry, whose history is almost a history of M&As, we saw many mega-deals happen in the past five years. Chipmakers and tier-1 suppliers – sensitive to the shifts of world science and technology – are engaging in the game. Intel's USD 15.3 billion acquisition of Mobileye and Delphi's several deals is a clear sign. Pure-tech companies that have technologies but are struggling to step into the growth/mature stage and find the unviable business model are being exposed. A leaf in the storm  We view DiDi's driverless service launch in Shanghai as a significant milestone for the auto industry and, at the same time, a considerable challenge to startups in the same vein. DiDi's peers – not smaller ones in the ride-hailing niche but tech giants – will react accordingly, as the cost of missing new chances may be infinite, just as Baidu missed the opportunity of mobile apps and content recommendation in the 4G era.  The large addressable market and potential revenue synergy is luring BAT (Baidu, Alibaba and Tencent) and TMD (Toutiao, Meituan Dianping and DiDi) to join the driverless car game. Meituan, for instance, has been developing and investing in last-mile delivery AVs to better support its food delivery segment. Its new bet on Lixiang shows its ambitions in networked mobility as well.  The greatest strength for Internet giants to rule the AV business is the solid user foundation created by their primary business. ByteDance (BD), for instance – the Daily Average User (DAU) of its hottest app, Douyin (China’s counterpart to TikTok), reached 400 million as of January, the number having hit 900 million during China's lockdown. The advantage that BD has on traffic entry and its intelligent recommendation systems is paving the way to the Internet of Vehicles (IoV). It will take full advantage of in-car times of drivers and passengers by providing short-video content and expects to commercialize from advertising.  Alibaba has made a presence on the upper stream, investing/building ventures of HD map (AutoNavi) and IoV/V2X (Banma Network). E-commerce giants like Alibaba and JD.com all research on autonomous long-haul freight where L4 Autonomous Truck companies like TuSimple Inceptio and Plus.ai leads the game.  The bottom line As DiDi shows a clear mission to envisage itself as operating fleets of autonomous robotaxis in the next ten years, BAT and TM need to consider engaging more in the game. The need to understand who develops owns and operates the driverless robotaxis or trucks and the surrounding systems, and further, how their advance computing capabilities will help or hinder their entry into the market with their more-than-ten-billion customers, is crucial. They can provide the whole autonomous network with the required infrastructure and best customer experience and move the needle for the autonomous driving industry. 

Analysis EO
Analysis · 2
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Analysis EO
Jun 19, 2020 03:26 am ·

ByteDance is Anchoring TikTok to Expand Business Overseas

► The recommendation algorithm has helped ByteDance attract massive users, further leading to a rapid increase in revenues. ► The number of TikTok’s monthly active users (MAU) is quite larger than Kuaishou’s after 2018, as it has quicker switching modes and video types. ByteDance has announced the closure of the overseas version of ‘Huoshan Xiao Shi Pin’ (火山小视频) – Vigo Video in the Indian market – as it wants to concentrate more resources on TikTok, hoping to attract more users. Moreover, it plans to close TopBuzz, the international form of the news platform 'Jin Ri Tou Tiao' (今日头条). ByteDance, the short-video giant, has developed from a small team of 30 people to 60,000 employees and 240 offices globally. The information platform 'Jin Ri Tou Tiao,' ByteDance's first product, is a solid foundation for this global video platform to implement an expansion strategy. After accumulating enough users, it started entering the short video field and released TikTok, its most popular app so far. According to Sensor Tower, TikTok ranked top in global mobile applications, with its download volumes approaching 0.112 billion.   There has been an upward trend for the firm’s total revenues, about 172% annual growth from 2016 to 2019. How could ByteDance grow so rapidly? Two main reasons cannot be ignored. Firstly, it utilizes a recommendation algorithm in its products. To be precise, ‘Jin Ri Tou Tiao’ is not merely an information platform, it can recommend news depending on users’ interests and characteristics. Thanks to big data technology, ‘Jin Ri Tou Tiao’ attracted 1.5 million active users at the end of 2013. Secondly, ByteDance has caught up with the wave of short video, whose user size keeps increasing. For instance, the emergence of TikTok helped it attract 442.6 million users in 2019. Moreover, the emergence of livestreaming also appeals to a crowd of entrepreneurs and Internet celebrities, benefitting ByteDance. Thanks to their participation, the short-video giant has obtained more advertising revenue – a total operating income of USD 5.64 billion for the first quarter in 2020. After setting a firm footing in the domestic market, the Internet giant started expanding overseas in 2015. But why is it considering shutting Vigo Video and TopBuzz? When compared with TikTok, Vigo Video and TopBuzz show some comparative weaknesses. As for TopBuzz, it was accused of hosting too much ‘fake news.’ As Elliott Zaagman, a blogger writer said, TopBuzz was always recommending rumors about the main two US political parties. Moreover, many users of TopBuzz were attracted by ByteDance’s subsidies. Once the firm stopped offering bonuses, the active users began to decrease sharply, as there are many local competitors in the Indian market, such as Dailyhunt. Regarding Vigo Video, its function is similar to TikTok, but the content is not creative enough. Specifically, TikTok had 81 million MAU in India last year, while Vigo Video merely got four million in India. Even some Hollywood celebrities were allured by TikTok’s new concept of video editing. Hence, ByteDance has been making more efforts in developing TikTok recently, because there is more room for it to attract overseas users. In the early stage of TikTok, it was not as popular as Kuaishou. In 2017, TikTok’s users were a half the size of Kuaishou’s, with its daily active users lower than 30 million. After 2017, ByteDance began changing its marketing strategies, covering users in all age groups. As for Kuaishou, its target users were mainly in the underclass, and it is not convenient enough as it requires users to choose videos themselves. While for TikTok, its algorithms could recommend videos to users based on their interests. Therefore, TikTok’s MAU have surpassed Kuaishou in the middle of 2018. Moreover, TikTok got 0.8 billion users in January 2020, while Kuaishou only had 0.3 billion. All in all, ByteDance has gained increasing attention these years. Not only does it develop more products, it is also expanding its market into the global field. Specifically, the closing of Vigo Video and TopBuzz should help the firm concentrate more on its popular app, TikTok, and further raise online traffic. Nevertheless, ByteDance should also improve the regulation of TikTok when entering overseas markets. An infamous acid attack video in India exerted a negative impact on TikTok – it is necessary to take action now. For instance, TikTok has set up a data center in India, which provides safer services to Indian clients.

Analysis EO
Analysis · 2
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Analysis EO
May 22, 2020 10:08 am ·

ByteDance Bought a Healthcare Encyclopedia

► ByteDance acquired Baikemy.com - the only officially authorized healthcare encyclopedia source to popularize medical sciences. ► The Hainan-registered Internet hospital now under the name of this short-video platform may show a potential business diversification. ByteDance has started to look closely at the healthcare business. It closed the Baikemy.com deal on May 19. This soft landing, rather than taking a hard high-tech strategy, shows a sound match between a popular medical science intelligence and a content platform. Both have not disclosed relevant financial details in this deal. Before this acquisition, Baikemy.com, received several bankrolls following the Angel round in 2016, followed by tens of million US dollars from Cenova Ventures and BlueRun VC, the serial investor in this knowledge platform after 2017. Founded in May 2010, Baikemy.com is the only nationally authorized knowledge platform. The National Health Commission has approved its use to popularize medical sciences and has become the largest professional content channel in China so far. In a professionally generated content (PGC) mode, this platform levers doctors from the Chinese local triple-A hospitals to provide a systematic knowledge pool. Equipped with Natural Language Processing (NLP), deep learning, knowledge graph and AI, it has covered a wide range of areas in illnesses, pharmaceutical, treatment, healthcare, recovery, nutrition and Traditional Chinese Medicines (TCM). Amid the continued pandemic, the public healthcare issue has become more heated than ever before. For large content platforms, or multi-channel networks (MCNs), such as ByteDance and Kuaishou, it is a golden time to attract more traffic and keep users by providing authentic content and valuable information. Indeed, ByteDance will not miss this chance. It has deployed early, just after Baikemy.com secured many millions of US dollars in its Series B round to keep ahead of other peers in the content chasing-game. Not long before this announcement, ByteDance launched its TouTitao Baike (literally, TouTiao Encyclopedia) at the end of April. Undoubtedly this merging with a high-quality PGC platform will become another driver for boosting traffic and user stickiness. One noteworthy thing is the potential intention of ByteDance to conquer telehealthcare or healthcare IT. Baikemy.com has always been producing professional content that has been referred to by many prestigious Internet giants, such as Baidu Baike Encyclopedia, TouTiao and Tencent Medpedia. Beyond deploying in the Internet world, this medical tech company founded an Internet hospital in Hainan, Pugongying Hospital (literally ‘Dandelion Hospital’). Internet hospitals have been entering into the sight of the public since the first registration of Wuzhen Internet Hospital in 2015 – a year has witnessed the rise of this innovative industry. Later on, following the first trail policy introduced in Hainan province, more Internet platforms joined. Three months from June to August in 2018 saw many players flocking into this arena. Among them are WeDoctor, PingAn Good Doctor, Ali Health, Haodf.com, Miaoshou Doctor, Sogou, Baikeyiming and SoYoung – and it will be no surprise to see more soon. As for ByteDance, it is making a great leap from the short-video platform to healthcare service. However, considering push from the pressure from the content business, it is the right time to seek new growth opportunities by expanding to other companies. Undoubtedly, there will be an escalated struggle in the content economy, as more and more players from different segments join in with their characteristic eye-catching flair. Short-video companies are levering the livestreaming trait to accumulate more traffic. Livestreaming video game players cultivate online communities to engage in multiple businesses, from e-commerce to virtual gifts to advertising. (See EqualOcean’s livestreaming cases in our livestreaming report). And this leaves a question. How much business space can these new players imagine, and later occupy?

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Analysis EO
Mar 18, 2020 06:45 pm ·

ByteDance Plans to Explore Education Further, as Online Education Gets Hot

Zhang Yiming, the founder of the world’s most valued unicorn, ByteDance, has expressed his intention to consider and plan new strategic directions towards education in a letter released on the eighth anniversary of the company.  “The online tutoring market has been very hot recently, and many people ask about my company's business progress. In fact, I am not anxious and have patience. I think it is still very early. The education business must have more fundamental innovations, of course, provided we have a deeper understanding. Especially for a company that already has a successful business, starting a new business is not easy. Bold attempts in new fields are an important sign of always starting a business.” Zhang said. CEO of one of ByteDance’s flagship product, JinriTuotiao, had similar views regarding venturing into education. He believes that in addition to recruiting the best teachers, the firm also needs to make breakthroughs in products, technologies and the combination of software and hardware.  “ByteDance’s education business is still recruiting people, and we expect that the number of employees of the business exceeds 10,000 this year,” Chen mentioned. In fact, as early as 2018, ByteDance was actively showing ambitions of stepping into the education industry.  The firm launched children’s English tutoring products GoGokid in 2018, the year when Children’s English tutoring was the hottest topic in the industry. ByteDance pounced at that opportunity to grab market share, however with tough competition from Tencent backed VIPKid, and a few other firms, ByteDance’s product didn’t see much success.  Then in 2019, Bytedance formed an online education platform for kindergarten, primary, and high school students, according to 36Kr. The platform planned to hire former employees of major educational training sites such as Xueersi and Yuanfudao. In November 2019, ByteDance took part in a strategic investment round of ‘Hope n Rising’ (新升力), a children's education products and content provider, making the TikTok creator its third-largest shareholder. ByteDance also announced last year that it is set to release a 24-hour artificial intelligence teacher for K12 students in China by early 2020. The latest AI teacher project is being led by Yang Luyu (阳陆育), who is also the co-founder of Musical.ly. The project team is working together with the former tech staff of Smartisan. In January, ByteDance acquired some patents and hired employees from Smartisan. In addition, LatePost has also revealed that Chen Lin (陈林), who is currently responsible for the innovation business side of Bytedance, is focusing more on educational hardware. This is an indication that educational hardware is seen as a crucial element of the firm’s move to break into the industry. Overall, it may represent a breakthrough point in its hardware strategy. As a veteran, in the internet industry, it should be easy for ByteDance to penetrate the online education market. While other companies burn millions of dollars in advertising, ByteDance has an advantage in areas such as traffic and algorithm creation. Previously ByteDance’s traffic was more entertainment-oriented and ‘fast-paced,’ whereas educational traffic has a ‘slower’ emphasis, with products that tend to associate quality and personalization.  Other than that, Zhang Yiming also announced a major corporate structure update saying that he will be focusing on the global markets – this move supports the realization of the ambitious globalization plans that he set at the firm's inception. It is evident that the epidemic has created a window of opportunity for huge tech giants to enter the education industry but at the same time firms which are already are in the business have stepped up to prove the strength and advantages of online education. By providing free online classes, companies such as Yuanfudao, GSX Tecchedu and Zuoyebang gained millions of users. Phyllis Zhang, head of the global market for ClassIn, one of the biggest online classroom providers told EqualOcean that, there would be two big impacts for the industry. First, the acceleration of offline institutions online and after the coronavirus, they will go back to their regular offline classes and leverage the technology for better learning and growth. The future of the education industry will be mixed with offline and online. Second, there will be an impact on the massive online dual-teacher’ classes also. The core of classes' quality still relies on teachers. When offline institutions go online in the small group class’ model, which is also the biggest strength of the offline institutions, the online dual-teachers’ classes would shift and target Tier 5 and Tier 6 cities.   Other than that, the firm is now planning to support more universities in Europe and North America to go online, as COVID-19 is now in pandemic status leading to the closure of offline schools around the world. UNESCO recently recommended a number of applications and platforms as distance learning solutions for the pandemic. The UN organization said these products tend to have a broad reach and user base, most of which are free, and some of them support multiple languages. Among the collaboration platforms that support live video streaming, Chinese products such as Feishu (飞书), DingTalk, and Hangouts Meet from Google and Teams from Microsoft were selected. Technological hurdles as 200 million Students and 200,000 educational institutions move online With the sudden change due to the pandemic, the supply-demand balance has been broken, and the ‘live broadcast platform’ is one of the most famous options.  After the official announcement from the ministry of education about the closure of all offline educational institutions, more than 200 million students and 200,000 institutions launched plans of migrating from offline to online. This caused problems for online education firms, whose platforms crashed due to the sudden overflow of users.  Platforms such as TAL Live Cloud announced that it would stop its services for some time. DingTalk faced a similar problem as tens of millions of companies used video conference feature at the same time. On the first day of a free live course streamed last month by Zuoyebang – a platform where students can seek answers to homework problems, and which has over 400 million users – its server crashed when five million users came online at the same time.  Another thing ByteDance will have to keep in mind is that for how many months will the schools remain closed? March, April or May? Should the parents really go for long-term paid online courses of stick to free online classes till school resume? Can the effect of online education, be compared to offline teaching? Is the online convenience more important, than the service experience? Companies will have to be careful with the effectiveness of online education.  One-on-One or One-to-many? In the early development stages, one-on-one teaching was considered as the main method. The core is to break geographical restrictions through the Internet to connect high-quality teaching resources across regions with students. It is similar to the C2C platform model of the e-commerce industry, the model used by firms like VIPKid, Zhangmen 1on1, etc., One-on-one online education is the earliest form of development in live lessons due to lower requirements for teachers and higher standardization of products. However, due to its relatively low teacher retention and relatively short user life cycle, the cost of customer acquisition is high. In the current situation, reaching profitability for this model is difficult. In other words, one-on-one online is a good demand solution but it is not necessarily a good profit model. On the other hand, one-to-many online classes are similar to the B2C model in e-commerce. The platform not only connects but also outputs standardized products and services, and undertakes more responsibilities of teacher training. The model is further divided into two classes with Xuersi, Yuanfudao, Zuoyebang and GSX techedu representing the dual teacher large class and New Oriental’s, DFUB representing the single teacher small class. Compared with one-on-one online, one teaching teacher can serve 20 to thousands of students at the same time. This results in the decline in the cost of teachers as a proportion of income, thereby achieving a higher gross profit margin and better profitability.  

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Analysis EO
Mar 17, 2020 12:37 am ·

ByteDance and the Rise of Three Zhangs: A Corporate Structure Story

On the eighth anniversary of ByteDance, Zhang Yiming sent an internal mail announcing a major corporate structure update and saying that he will be focusing on the global markets – this move supports the realization of the ambitious globalization plans that he set at the firm's inception.  Many see ByteDance as an outstanding Chinese firm that could continue to globalize its products and achieve the universal recognition that hasn't been achieved by any other social platform from the Asian nation. It is obvious that, for Zhang, the 'success' of TikTok and other notable brands is just the beginning. "He was never content with the extending ByteDance across the emerging world economies; he wants Europeans and North Americans,"  a founding member of ByteDance's overseas team who has previously managed major foreign markets for the firm told EqualOcean.  "He won’t stop until he conquers them" Zhang’s latest mail showed one thing. He is finally betting all of his experience in those regions where his iconic TikTok could not manage to penetrate. Meanwhile, he is leaving his largest market in the hands of those with the greatest track record. Kelly Zhang Nan (张楠) and Zhang Lidong (张利东) are the Bytedance team members that deserve the next greatest measure of credit for attracting hundreds of millions of users and translating a heavy user data-reliant business into a flexible, cash-making machine. The rise and rise of the three Zhangs The brand new China CEO, Kelly Zhang Nan, is the firm's ‘product guru.’ She is one of the creators of Douyin (抖音), TikTok's domestic version and ByteDance's flagship product, and she was there when Huoshan (火山)  – a social short-video platform that was designed to strike at Tencent (0700: HKEX) backed Kuaishou (快手) – was rising. After achieving exponential user growth with Douyin, she had also managed to keep Douyin's user growth while Xigua (西瓜) was positioning in the market in 2018, another short video product of the firm.  At the beginning of 2020, Douyin's average daily active users (DAU) reached 400 million in the mainland only. This figure was around 250 million at the beginning of 2019. This growth happened in a saturated Chinese market with many formidable contenders. She trumped any other product in the market. Huoshan’s DAU rose to around 50 million people at the beginning of 2020, which was around 25 million at the beginning of 2018. Meanwhile, Xigua was transformed into a Tencent Video challenger application, reaching over 55 million DAUs at the beginning of 2020.  Kelly Zhang Nan has transformed the way Chinese users absorb information, from texts to short videos, and taught them how to express themselves through the lens of smartphones. She was not only a simple product manager but a social engineer in the world's most populous country. She was lucky enough to be promoted as the head of Douyin while the short video market was booming in China and smart enough to seize the chance. Zhang Lidong, the firm's former head of monetization, was not cultivated in the country's burgeoning IT industry, unlike most of the executive members of ByteDance. He used to work in traditional media as a reporter and was invited to ByteDance by Zhang Yiming in 2013 as a partner and Senior Vice President. His main task and paramount Key Performance Index (KPI) was to monetize Jinri Toutiao (今日头条), ByteDance's news aggregator.  In those years, ‘Jinri Toutiao’ and ‘ByteDance’ (字节跳动) were terms used interchangeably by the Chinese netizens. It was ByteDance's largest and only significant product. 2013 was also the year when China's mobile internet users began to surpass desktop ones. Yet this obvious revolution was not seen by some other players. The names of those who watched this shift and failed to react on time were mostly deleted from the Chinese search engines later on, including Sina News (SINA: NASDAQ) which later on compensated for its loss with a Twitter-like product, Weibo (微博). Jinri Toutiao was an interesting news product. It collected news from a plethora of sources and recommended the stories to users based on their previous searches and interests. This mechanism, ingenious at the time, accumulated an impressive user base of around 50 million in only a couple years after its launch. It was also a costly operation to purchase all the intellectual property and media copyright rights to those news sources. Accumulating users was one thing, monetizing was another story. The company was amongst the first to integrate ads targeting different user groups, in a move to craft a lucrative advertising-driven business. In 2016, the news aggregator achieved annual revenue of around CNY 10 billion (an equivalent of around USD 1.4 billion). It was USD 2.2 billion for Twitter's advertisement revenues that year. The Rest At a regular Chinese internet company, stability is often key.  From the line manager to the employees, stability and loyalty count massively in performance evaluations. Stability is, of course, a kiss of death when it comes to a product's user growth performance. In the Chinese IT industry, investors, analysts, and entrepreneurs must see exponential growth – or at least solid growth – to give a piece of positive judgment. Chen Lin (陈林), for instance, one of the earliest founding members of the firm, joined ByteDance as a product manager in 2012 and was promoted to be the CEO of Jinri Toutiao in 2018. Although it is the market leader, Jinri Toutiao's monthly active users (MAU) have been hanging around the 300 million mark since the beginning of 2018, while the company's short video products had already grown multiple times over.  This ‘stable’ performance apparently was not welcomed. Technically, Chen Lin still holds the same authority as the Jinri Toutiao CEO and supposed to report to Zhang Yiming, yet it is a question as to who now will actually be reporting to who, as the China CEO is now Kelly Zhang Nan. Human resources management is part of the ByteDance story – it is one of the strongest weapons of the company. Thanks to its thorough HR practices and competent hiring managers, the firm has made a difference in global markets, with TikTok crushing its overseas competitor Kwai. It will broadly be supervised by Zhang Lidong after the strategic update. Global expansion and 2020 ByteDance has been seeking a Global CEO, one who can understand the west, the east, user data, and government relationships – so far they have failed to find one, so Zhang Yiming took up the responsibility. When Facebook and Twitter first went viral in the emerging markets and in the new territories, user acquisition costs were rock bottom and there was a clear need in the market. One didn’t have to invest much in user growth. There was no need to contemplate on local regulations as the legal systems weren’t sophisticated enough to respond. Things have since changed. ByteDance will have to do even better if Zhang Yiming is to realize his initial mission. Until he makes ByteDance a truly global company, he may defer going to the public. The costs of late globalization are getting higher and higher every day. Time is not Zhang Yiming’s friend in this quest, and he knows it well.

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Mar 7, 2020 09:40 pm ·

ByteDance Pushes Feishu to the Front in Virus-Hit China

The year 2020 started in an unexpected way; disasters came in bundles and undermined the foundation of the world economy. For China, COVID-19 pressed the deacceleration button for the country’s economy. The National Bureau of Statistics released that PMI (Purchasing Managers’ Index) for February dropped to 35.7%, which is 14.3% lower than the number for January. Compared to the threshold of 50.0%, a low PMI implies a slowing-down of economic activities as well as being a red flag to all economic bodies. Presumably, without the influence of COVID-19, enterprises and factories were to be back to work at the beginning of February. The disease put the country’s economy into hibernation and the back-to-work time is yet to be determined. Except for factories and go-outside business, companies are seeking solutions to sustain their business during the particular period while employees have to stay at home. This situation yielded a boom of remote work SaaS, which allows people to work together without violating the quarantine order. Acceleration caused by deacceleration Work collaboration tools were pushed to a vertex in one month. Among those tools, Feishu (飞书), the work collaboration platform designed by TikTok’s parent company ByteDance, rushed in the front, as well as Ding Talk (owned by Alibaba) and WeChat Work (owned by Tencent). Worth to mention, Feishu is the version for China market and its sister app, Lark. is for markets outside China. The remote work topic peaked as a search term on February 10th – the first workday after holidays. However, only a few companies resumed on-site work mode. Ding Talk attracted the most attention, then followed by WeChat Work and Feishu. Meanwhile, Ding Talk was topped in both IOS and Android app stores during February and sustained the ranking for straight 29 days. As Ding Talk disclosed last year, it had accumulated over 200 million individual users and 10 million enterprise accounts on its platform. Though the number presents a great success, the penetration of SaaS in China tells a different story. The manufacturing industry presented the highest SaaS penetration rate in 2018 while most other sectors remained below 5%. SaaS can be divided into several categories by its function such as CRM, ERP, HR, SCM, OA, IM, and so on. Among businesses requiring intervention due to the disease, OA and IM are the two most boosted SaaS types. How are the twins, Lark and Feishu? The three platforms Ding Talk, WeChat Work and Feishu have become the most popular work collaboration tools since the quarantine. They feature instant message, file sharing and some other OA functions. Being different from Ding Talk and WeChat Work’s parent companies, Lark, or say Feishu, is the first approach from ByteDance to dabble in the 2B business world. As an inner-incubated OA software, Feishu tries to make internal communication and work collaboration run smoothly; all other OA software offerings apparently failed to satisfy ByteDance’s own needs. The so-called ‘product factory’ launched Feishu as early as 2017. In looking at ByteDance’s investment activities, traits are apparent. Since 2016, ByteDance has begun to invest in and buy out startups whose core product might be integrated into Feishu. For instance, Sortime (朝夕日历), a calendar management SaaS startup, was purchased by ByteDance in 2017, and its CEO Chen Hao (程昊) joined the Feishu team at the time. In the meantime, ByteDance granted Feishu the highest degree of freedom – almost an independently-run company. Founder of ByteDance, Zhang Yiming (张一鸣), wrote on Weibo, “Develop a company as a product.” ByteDance has been mocked as the Foxconn of mobile applications for its fast pace in product development. It is undeniable that ByteDance is excellent in making C-end products like Toutiao and TikTok. ByteDance has green fingers in culturing the garden of million-user apps for the C-end market. Still, it must know how to improve enterprises’ efficiency to stand in the 2B service market. This pre-requisite  is bringing success to Feishu’s competitor Ding Talk in China, even though its parent company, Alibaba, is not the best ‘product manager.’ Alibaba is the behemoth in e-commerce, ably covering B2B, B2C and C2C. With nearly two decades of practice, Alibaba knows its customers’ needs – to be more specific, enterprises’ needs. It penetrates every ring of commercial activities: purchasing, transaction, logistics, marketing and so on. Synergy matters and for Alibaba, it has developed a service matrix to help its clients do business. The e-marketplace is the backbone of Alibaba’s business and products and services developed in the past two decades have contributed considerably to today’s prosperous e-commerce. Experienced in communicating with B-side clients, Alibaba’s Ding Talk was born with a natural advantage – relying on the mega-size client pool of Alibaba. Compared with the 6-year-old Ding Talk, Feishu seems to be a latecomer in the OA game, as it was founded in 2017. ByteDance is not as enriched in 2B experience as Alibaba, but from the perspective of digital marketing, it is a big vendor on a global scale and is still in a fast-growing status. Ding Talk is well-design for the majority of China’s firms based on Alibaba’s understanding of its clients. WeChat Work relies heavily on the national IM app WeChat, which has a billion-sized user pool. Either Feishu or Lark hardly depends on ByteDance’ pre-existing products like Toutiao, TikTok and Douyin (China version of TikTok), but its design fits better for Internet companies because Feishu was originally designed for ByteDance, the biggest new unicorn app producer in the world. Tools are designed for efficiency “Work tools reflect productivity level and Internet companies may prefer using Feishu on accounting; so Feishu is well-tailored for Internet companies…” said the former VP of Ding Talk, Zhang Sicheng (张斯成) in a previous interview with EqualOcean. Lark was first released in the overseas market, mainly the United States and Europe. In the second half of 2019, ByteDance released Feishu in China. Since then, its marketing team has lit the match and intends to heat the OA market via this product. Conversion costs are often a pain for users switching products, something which applies to OA services. Ding Talk acts like a platform and involves third-party SaaS developers, who provide varied add-on functions for Ding Talk users, including e-documents, payroll management, legal services, etc. As a pioneer in the OA area in China, Ding Talk has enjoyed the first-mover advantage – a deepening user pool introduces more developers and a bigger service matrix attracts users who need these functions. Feishu is light at the current stage, and it is a tool emphasizing work collaboration, which is vital for Internet firms. Third parties are joining the platform to provide SaaS products as well. For the SaaS market, products may share some similar functions, but their features explain what pain points they target at in an enterprise’s daily operation. Ding Talk serves companies with a clear vertical structure and Feishu fits better for horizontal organizations. Different products are designed for different needs and needs are changing as enterprises step into the next phase. Because of COVID-19, the quarantine flooded millions of new users into OA, and Feishu stands at the same beginning line with Ding Talk and WeChat Work. Ding Talk and WeChat Work are just as equal as Feishu – at least it is a comparatively fair game for Feishu. How does Feishu rush to the front when Alibaba’s business ecosystem has rooted deeply and firmly in the land of China? The question can apply to other SaaS services created by giants like Huawei and Tencent. The sunny side of this question goes back to the beginning of the topic – the SaaS market is still a blue ocean in China and the market is yet to be educated.

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Mar 5, 2020 05:21 pm ·

ByteDance’s Chances for a US IPO Further Dented

In a recent in-depth article published by EqualOcean, we reported TikTok’s determination to stay in overseas markets despite cybersecurity concerns. It was concluded that TikTok seems to be playing its cards well enough to stay buoyant in overseas markets. In France, where lawmakers are intervening heavily on content moderation, ByteDance, TikTok’s parent company, recently joined Syntec Numérique, one of the country’s main trade associations. In the United Kingdom, TikTok joined the Internet Watch Foundation, an organization fighting child pornography online that counts Google, Facebook and Snapchat among its members. As for the United States market of TikTok, things aren’t looking good. Recently, Republican Senator Josh Hawley said he will introduce legislation banning federal employees from using social media app TikTok on their devices and accused the company of sharing data with the Chinese government. Ignoring the fact that TikTok has previously said US user data is stored in the US and that China does not have jurisdiction over the app’s content, the Senator told reporters after attending a hearing on big tech’s connection to China that, “TikTok is scooping up immense amounts of data and they are sharing it with Beijing; they are required to.” According to SensorTower, lifetime user spend in TikTok has hit USD 175 million worldwide across the App Store and Google Play. This has largely been driven by Chinese users, who have spent USD 84.5 million or 48.3% of all revenue using the app. The US placed second, accounting for USD 62.4 million, or 35.7%. In its defense, a TikTok’s spokesperson said on Wednesday the company recently reached out to several lawmakers to express an interest in meeting them in the near future. The spokesperson added, “While we think the concerns are unfounded, we understand them and are continuing to further strengthen our safeguards while increasing our dialogue with lawmakers to help explain our policies.” With the company being valued over USD 70 billion, it looks like the time to go public isn’t very far, but if the situations remain this way, ByteDance might not opt for a listing in the US to dismiss the notion that it is desperately looking for an IPO. However, according to an analyst from China Guodi Securities, it’s unlikely ByteDance is worth that much. His statement might have some truth especially after witnessing the struggle of other huge companies such as Uber and Lyft IPO’s.  In October last year, people familiar with the matter told Financial Times that TikTok wants to go public in the first quarter of 2020 and has chosen Hong Kong instead of NYSE, but the company quickly denied the claim.  We believe that the company would go public eventually but the timing and the situation confronting it is very important and without the interest and support of US investors, its IPO has a big chance of failing. The short video platform loved by the nation’s teenagers with an MUA of 26.5 million, has already been banned by several US agencies that deal with national security and intelligence issues. TikTok is currently one of the most popular apps in the US, having been downloaded more than 123 million times in the country, but has experienced increasing scrutiny over the years. TikTok is owned by the Beijing-based company ByteDance which is accused of sharing user data with the Chinese government. Recent US lawsuits and regulatory actions found TikTok guilty of saving huge amounts of personal user data and supplying it back to China. The Federal Trade Commission fined TikTok for illegally collecting data on children, who comprise most of the app's user base. This is not the first time the company is facing such an issue. In December last year, following a ‘Cyber Awareness Message’ from the government, the US Navy banned TikTok from government-owned devices. A Navy spokesperson told The Guardian that generally, Navy personnel are allowed to use social media apps, although sometimes specific apps thought to be security risks are banned. The ban is enforced by the US army and the air force.

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Mar 3, 2020 06:44 pm ·

TikTok Determined to Stay in Overseas Markets Despite Cybersecurity Concerns

In recent years, there have been increasing concerns that misinformation and disinformation and other cybersecurity threats are spreading rapidly, with adverse effects on society, in particular through abuses of user trust. In response, many governments have started to legislate – and are applying existing laws more strictly. The difference between the first two threats refers to whether inaccurate information is deliberate (disinformation) or unintentional (misinformation). ‘Cybersecurity threats’ is a larger term encompassing all malicious actions based on abuse of digital systems, including hacking, viruses, unwanted surveillance, sexual abuse, and more. The inclusion of false information as a form of cyber threat is a phenomenon that has gained particular importance recently. Misinformation and disinformation came to the forefront through two highly publicized events in 2016: the US election (when accusations of ‘Fake News!’ flew frequently) and the UK’s Brexit referendum. During the build-up to these important votes, misinformation was spread, both by small-scale outlets and individuals and state-level actors in the form of covert or overt propaganda. Research on the aftermath of both events has shown that fake news undermined public trust and possibly influenced election outcomes. However, the spread of misinformation and disinformation is not limited to the US and Europe – it has also been spreading in Latin America, Africa, South Asia and Southeast Asia. In India, for example, the ruling Hindu-nationalist BJP party has been accused of fomenting and benefitting from numerous disinformation campaigns. These events reflect that political actors around the world have realized that social media can be used to influence electorates, both inside their countries and in foreign countries. Overall, two broad drivers of misinformation/disinformation and cyber security threats can be distinguished: propaganda and commerce. The commercial drivers of misinformation and disinformation are the ‘clickbait’ triggers that persuade us to engage with and share content online. Modern algorithms have enabled actors large and small to attract large audiences on social media platforms, which is then monetized. Some people have responded by creating fake news or clickbait to make an income. Income is generated by attracting attention and serving targeted advertisements. The publisher of the disinformation is paid by the ad network based on the number of visitors they manage to attract. Other threats that overlap with the commercial drivers of online content have clustered around the gathering and monetization of user data. A resonant scandal in this regard cropped up after Donald Trump’s election, when a British research firm was found to have been able to access data for millions of American voters, enabling the Trump campaign to target them more narrowly. Much of the blame for the bulk of the fake news and data scandals has been laid at the door of Facebook. However, other social media networks and search engines, including Twitter and Google – as well as ByteDance products – are also increasingly implicated as sources of cybersecurity threats, often as creative bad actors use new (sometimes under-regulated) technology to stir trouble. Take TikTok. TikTok is a Chinese-developed social network that allows for creation and sharing of original content, especially videos and pictures. Used by millions of mostly young users worldwide, over the past 12 months, the app was downloaded more than 750 million times on app stores, outpacing US competitors Facebook, Instagram, YouTube and Snapchat, according to data from research firm Sensor Tower. It now counts more than 500 million monthly active users across the globe, including some 12 million in its largest markets in Europe – mostly in Germany, France and the UK. However, the app’s developer, Beijing-based ByteDance, was labeled a national security threat by US lawmakers earlier this year. The Federal Trade Commission found the app had illegally collected personal information from children, and in February and fined the company USD 5.7 million. Moreover, the United Kingdom’s data protection authority launched its own investigation, looking into whether TikTok violated privacy rules in handling the personal data of its underage users. According to The Guardian, Information Commissioner Elizabeth Denham told a parliamentary committee that the probe started in February after the US Federal Trade Commission levied a USD 5.7 million fine against TikTok for breaking laws protecting children’s privacy. Denham further said that the commission is examining how TikTok collects private data and has concerns about the open messaging system, which may allow adult users to contact children. “We are looking at the transparency tools for children. We’re looking at the messaging system, which is completely open, we’re looking at the kind of videos that are collected and shared by children online. We do have an active investigation into TikTok right now, so watch this space,” she said. In addition, European interventions could follow, under the EU’s tough General Data Protection Regulation, which allows for fines of up to 4 percent of a company’s annual global turnover. Recently, The Italian authority for Privacy (GPDP) has launched a coordinated action to review the risks linked with the TikTok app – an attempt to protect children’s privacy rights. The Italian DPA is calling on the European Data Protection Board (EDPB) to set up an ad-hoc task force. In a letter sent to the EDPB on the 20th of January, Antonello Soro, President of the Italian DPA, confirms that they have already received alerts regarding alleged vulnerabilities of the smartphone app and that other supervisory authorities such as the UK ICO and the US FTC have already started separate investigations. Soro asked that this issue be put on the agenda of the next plenary meeting of the EDPB, to be held in Brussels on the 28th and 29th of January. On the other hand, ByteDance seems eager to get itself a seat at the policymaking table. In the past few months, the company has hired policy experts in London, Dublin, Paris, Berlin and Brussels to help it navigate the European legislative environment and get involved in policy debates. In fact, this is not the first time a Chinese technology company has been faced with disinformation /misinformation and data security concerns. TikTok’s domestic competitor KuaiShou is even worse when it comes to data protection, especially children’s data protection. While this writer was working at KuaiShou’s headquarters in Beijing two years ago, the company’s app didn’t have any algorithm whatsoever to prevent adults sending private messages, or videos with unsuitable content, to children. Moreover, if those adults were reported to the company for harassing others, the company would only freeze their account for a week or two. There were also loose controls over collecting parental confirmation from users under 13. As a result, there were a lot of complaints from overseas markets, and their brand in those markets started to decline. Currently the company has lost most of its foreign market share and is trying to boost its domestic market more. However, it seems like TikTok is playing its cards well enough to stay alive in overseas markets. In France, where lawmakers are intervening heavily on content moderation, ByteDance recently joined Syntec Numérique, one of the country’s main trade associations. In the UK, TikTok joined the Internet Watch Foundation, an organization fighting child pornography online that counts Google, Facebook and Snapchat among its members.

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Feb 10, 2020 05:10 pm ·

Unveiling the Most Influential MCN in Kuaishou

Why be interested in YOWANT? Live streaming has been the most loved type of service in China’s consumer market for a while. KOLs or influencers are the content generators during a typical hot live streaming show. Two of the most celebrated KOLs, Viya (薇娅) and Li Jiaqi (李佳琦), who attracted 30 million viewers last Double 11, have raked in CNY 2.7 billion (USD 389 million) and CNY 1 billion (USD 144 million) in sales respectively. However, the whole industry chain is more complicated than a live streaming studio. Factories, brand merchants, advertisers, KOLs, MCNs, e-commerce and UGC/PGC platforms have altogether created an ecosystem behind the shows. The MCNs who possess (have signed contracts with) over 90% of the KOLs are the real force that generating hype and sales to support the rising medium. Kuaishou, one of the top short video platforms in China, has been releasing the most influential MCNs on its app since February 2019. One MCN company named YOWANT stands out, having retained the number one ranking since May 2019. At present, YOWANT has built co-operations with Douyin (the Chinese version of TikTok), Kuaishou, Taobao Live and other well-known streaming platforms. It has more than 50 influencers and has signed more than 10 celebrities, including Wang Zulan and Zhang Bozhi. The company boasts 150 million fans, over 10 billion accumulated video views and more than 2.5 billion monthly exposures. Besides, the company began to monetize its short video content in September 2019 and had achieved CNY 3 million in average daily sales by December. How does YOWANT grow? Founded in November 2010, YOWANT positioned itself as a digital marketing solution provider and has been improvising its business to keep surfing the top of the market wave. From 2013 to 2014, its main business was Internet-based advertising distribution. It served Baidu, Tencent, NetEase and other Internet players, matching different marketing needs to the right resources. In the following two years, it entered into the mobile game market, serving as third-party operator and advertiser, leveraging its advantage in distributing channels. Two years after that, YOWANT established a matrix WeChat official account, covering e-commerce on consumer products, beauty and skincare education and others from 2017 to 2018. The business model of ‘pay for content’ started to come out in revenue. After 2019, the company started to concentrate on social e-commerce and to train Internet influencers though short video platforms and other e-commerce platforms. These rapidly evolving business strategies of YOWANT coincided with the development of the MCNs in China recent year, which is one of the reasons for its current leading position among 6,500 counterparts. How’re YOWANT numbers? In March 2018, A-Share listed company Saturday (002291:SZ) acquired 88.57% of the shares of YOWANT for CNY 1.8 billion (USD 284 million). Saturday paid CNY 474 million in cash and the rest of the CNY 1.314 billion in shares. An announcement from Saturday also showed that the two parties signed an agreement promising that the recurring net profit of YOWANT attributable to shareholders of the parent company in 2018, 2019 and 2020 should be no less than CNY 160 million, CNY 210 million, and CNY 260 million, respectively. In 2018, the recurring net profit of YOWANT exceeded the promised amount of CNY 8.369 million, with a completion rate of 105.23%. Any worries? The rapid development of short video platforms in China has fostered a large number of users who are accustomed to watching live broadcasts and short videos; at the same time, it has incubated thousands of influencers who can turn their Internet traffic into profits. Moreover, due to the competition between giant Internet platforms on live streaming and short video fields, other players in the industry chain can still benefit from the current business model. But risks coexist with opportunities. From the development experiences in other countries, the bargaining power of MCNs – as an agent to connect upstream (the influencers, celebrities) and downstream (brand merchants, e-commerce platforms, UGC/PGC platforms) – is low on both sides. That makes MCNs a weak link in the whole industry chain, especially compared with the Internet content juggernaut as a whole. Therefore, when the competition between the platforms ends, the reshuffle of the MCN industry will accelerate.  More importantly, the capability of generating good content is the core competitiveness of an MCN. The ability to guarantee constant, good quality marketing content will differentiate a winner from the competition. The current MCNs, though they ‘own’ some influencers are also facing the conundrum of a lack of talent, as the top KOLs are a scarce resource for all players. The cost of attracting influencers or training them will also be crucial for an MCN’s future. Last but not least, as the live commerce model is exploding, problems have surfaced, especially in terms of the quality and after-sales service of the goods brought through the live show period. EqualOcean believes that in the future, MCNs with more resources and connections with suppliers and brand merchants will be more advantageous. The MCNs that dig into one or several product verticals, such as apparel, jewelry or cosmetics, will possess more bargaining power and will be more likely to get a profit. Despite all the risks, there will be at least one or two leading companies emerge from the crowd. From the development history of YOWANT, we can surely see the strategic vision of the founding team. In November 2019, the company set up a CNY 5 million fund called ‘Cradle’ (which is homophonic with the company’s Chinese name) to ensure that consumers can buy goods via its live broadcasts. If the products are problematic, the fund will be applied in compensation. In addition, YOWANT also set up a special live broadcast customer service team to ensure a trouble-free after-sales service for consumers. The fund is the first such venture among players in their sector.

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Jan 15, 2020 05:59 pm · EO Company

The journey of byte bounce

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Nov 17, 2019 03:03 pm ·

As Chinese Short Video Apps Invade Brazil, TikTok and Kwai Do Battle

The largest country in South America and home to more than 205 million people, Brazil recently became the battlefield between the Chinese Douyin (抖音) short-video app, in its international version TikTok, and similarly oriented Kuaishou (快手), whose global version is called Kwai.  ‘The two giants’  TikTok is a creation of Shanghai-based giant tech company ByteDance (字节跳动). Launched in 2017, it followed shortly after the massively successful Douoyin in 2016. The tech firm has global offices in Los Angeles, New York, London, Paris, Berlin, Dubai, Mumbai, Singapore, Jakarta, Seoul, Tokyo, and São Paulo.  Kuaishou, also known as Kwai in the global market, was founded in 2011. The firm provides the same sorts of services as TikTok, and it is the main competitor in the worldwide market alongside American rival Instagram. It claims to be one of the largest social video sharing platforms in the world, with more than 700 million registered users. The global version Kwai is accessible in Brazil, India, Turkey, South Korea, Russia, and Vietnam. Since its foundation, the company registered user’s growth has skyrocketed, and today it’s evaluation has reached  USD 25 billion. In 2018, Kuaishou received over USD 1 billion in a private equity round led by tech giant Tencent ( 腾讯, 0700:HKSE).  The Catch When giants fight, the market shakes, and the world halts to watch the combat. The rapid growth of internet penetration in the biggest South America economy, Brazil, has attracted the attention of many Chinese short video apps, notably the fast-growing TikTok and Kwai.   The critical question here is why these two giants are targeting Brazil. Several factors might include: Brazil’s heft: a population of 211.6 million 2019, with great growth potential More and more Brazilians have access to the internet, and internet penetration reached 70% with over 149 million internet users, and 66% of Brazilians are mobile internet users Brazilians spend a total of 9h 29 min per day on the internet, above the world average of 6h 42min, ranking the second in the world after the Philippines, and third on hours spent on the internet on mobile devices Brazil is also a member of BRICS, an international organization that includes the other emerging big economies like China, Russia, India, and South Africa. Through the common goals and facilities of market integration the organization can provide, tech enterprises from member states can quickly enter and integrate into each other’s markets. Brazil, the ‘battlefield’ of Chinese giants TikTok entered the Brazilian market after Instagram and Facebook had come to dominate it. The company quickly conquered the Brazilian market and set up an office in São Paulo. After a few months, the app became the most downloaded in the country with over 18 million active users. In recent months, Kwai has experienced rapid growth and opened its own first office in São Paulo. The company achieved a figure of over 7 million daily active users (DAU) in Brazil. The app has been among the four most downloaded in the Brazilian Android store since July 31, according to Sensor Tower ranking.  The two short video app providers have turned Brazil into a fierce battlefield to see who can win the 146 million Internet mobile users’ attention. The filters and tools that make editing easy have become a hallmark of these applications. They also bet big on a common feature: short videos. In Kwai, videos can be up to 11 or 57 seconds long, while in TikTok, they can last between 15 seconds and one minute. However, Kwai has another version of a short video app, VStatus, that permits users to generate and share videos on their WhatsApp statuses. It has more than 120 million users in Brazil, which represents 56% of market penetration.  For videos, Kwai ranked the second after YouTube, with gross revenue of USD 78 million, 99% of which came from China in the second quarter of 2019. While TikTok follows as the next top gross revenue app, it retained the status of the most downloaded apps after the Facebook suite. Before Q2 2019, TikTok was the most downloaded app for five consecutive quarters on the Apple App Store. Although Chinese apps are gaining more popularity in Brazil, they are still far behind American apps like Instagram and Youtube. The American apps are the most downloaded apps in the apple store.  Recently, Instagram announced it would launch its new short video platform under the name ‘Cenas’ (Reels in English), which will compete with TikTok and Kwai in Brazil. ‘Cenas’ will present similar features like the Chinese giants' short video apps, allowing anyone to record a film of up to 15 seconds by performing a choreography or dramatic interpretation of a song.   Note that Kwai is more prevalent in Brazil, while TikTok has already conquered the Indian market. And Instagram’s new app launch will enhance the competitiveness of the small video market. How Brazilians will react to the Instagram move is not clear; however, it has already joined the battle.

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Analysis EO
Aug 16, 2019 05:41 am ·

Chinese Companies Seize Investment Chance amid Turkey's Financial Winter

With its 82 million population and a median age of 32, Europe's youngest and growing country, Turkey, has attracted sets of investment amid structural risks and long-term opportunities. The country is bestowed with natural resources and locates itself as a bridge between Asia and Europe.  In 2018, one M&A deal was accounted for the biggest deal of all-times in Turkey: Alibaba's purchase of one major e-commerce startups of Turkey, Trendyol. Chinese giant paid USD 728 million for 82% stakes of the Turkish company. With this transaction, the total value of startups sold in 2018 surpassed USD1.4 billion.  "Today, more than 1,000 Chinese companies are doing business in Turkey, including ICBC, Bank of China, China Merchants Group, China Investment Corp, shipping group COSCO and telecommunication giants Huawei and ZTE," states Arda Ermut, president of the Presidency of the Republic of Turkey Investment Office. What's more, the country has gained more visibility and became appealing for the investors as Lira depreciates.  Alibaba went after e-commerce Two trends foster e-commerce business in Turkey, fast-paced growing mobile penetration rates and expanding young middle-class with the increased urbanization ratios. The e-commerce market has reached over USD 10 billion in Turkey with a 42% growth in 2018 compared to the previous year, according to Tübisad, a Turkish chamber for industrial development. Within this environment, Trendyol sold 82% of its shares to Alibaba, making one of the most significant transactions in Europe in 2018. The purchase gave a massive exit for the Turkish fashion-sales firm's early backers: Tiger Global, Kleiner Perkins, and Earlybird Venture Capital. It has also fueled the entire ecosystem with confidence, upgraded the scale, and grabbed global attention. The firm is one of the largest e-commerce company in Turkey & MENA, serving more than 16 million customers a year.  Huawei Waltz in Communications Infrastructure Huawei's brand is polished in Turkey's today and future. By signing strategic cooperation agreements with the government in Smart Cities, and 5G deployment with the leading mobile carrier Turkcell; the company consolidates its position in Turkey's strategic fields. "The company is using one of the former Turkish political kingpins as its chief lobbyist in Turkey," said a person familiar with the matter. The Chinese heavyweight is accelerating its presence for the end-customer products as well, Huawei smartphone's penetration rate has jumped from around 1% to more than 8%. "Huawei is cooperating with the PR agency that has used to work for Apple," said the person. Indeed, Huawei's GR and PR engagements gave its fruits in Turkey. Xiaomi is the other Chinese company expanding in the Turkish market. The company is selling over 160 products, such as smartphones, accessories, computers and home devices to Turkish costumes in two Mi Stores in Istanbul. (Check out this in-depth coverage for Xiaomi's global expansions) Some other Chinese ICT groups are interested in major Turkish telecommunication infrastructure companies as well, Bloomberg speculates.  Alipay tries to disrupt fintech  Turkish banks have set their domination in financial technologies scene in the country, they are technically equipped, flexible, financially strong and have their compliance team to deal with the regulators. Many tried to disrupt banking in Turkey, but few succeeded.  In 2018, Turkey saw nearly 400,000 Chinese tourists arrive in the country, an increase of 59% compared to 2017. The opportunity has long been seen by the many, but Alipay is the first Chinese firm who steps into the market. The Chinese payment behemoth partnered with the payment platform ininal in Turkey in May 2019: making it possible for Chinese tourists to pay in Turkey via Alipay app.  Ant Financial, the parent company of Alipay, is one of the major corporate shareholders of the several fintech companies around the globe, it concentrates its investment activities around the developing regions.  Bytedance's TikTok discovers the hidden artistic-potential in Turkish people Turkey is the third-largest market for TikTok, after India and the USA. The app penetrated into 28 million users, nearly 35% of the population: and it is truely-prolific.  Turkey presents particularly unique opportunities for social media platforms with an average of 2 hours and 46 munites social media usage per person. The country is the 5th biggest user of Twitter and Instagram, and it seems they embrace TikTok as well. "Bytedance has long been hiring 'Turkish Speakers' for their team in Beijing, and they established Turkish office in 2019," said the person familiar with the matter. "Most of them are content-checkers, who controls and comply the content to stay in the safe side of the regulations," the person added.  Although fluctuated, the Turkish economy is one of the major economies in Europe, and its significance is increasing as it stays young. Amid this dynamic environment, Chinese investors and companies are seizing the opportunity and expanding their footprint. Several other areas, including, among others, Tourism, Healthcare and Auto are considered to lead the next wave of investments between Turkey and China. Economics aside, the Turkish government guarantees a peaceful and fruitful existence for the foreign companies, declaring "an opportunity to co-invest with the government to benefit from the next successful exit," as well. This incentive is particularly meaningful for the Chinese companies, considering the current politico-economic conjuncture that has been shaped by the rising global economic tensions one hand, and by the Belt and Road Initiative on the other's, in which Turkey stands in the Middle Corridor of the Project.

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Analysis EO
Jun 1, 2019 10:58 am ·

A Tale of Two Eras: ByteDance from AI to AIoT

On May 29, TikTok's parent company ByteDance confirmed its plan of developing education hardware product. As early as January 2019, ByteDance has acquired a patent portfolio and hired employees from Smartisan/Chuizi Technology (锤子科技), a Chinese technology company specializing in consumer electronic devices. It then registered six trademarks under the name of Zijie Chuizi, literally "byte hammer." At the time, ByteDance had released its plan to explore the education area.  ByteDance has the reputation as an "app factory" by intermittently releasing apps for mobile users, the most famous of which include the short-video platform Douyin (the domestic version of Tik Tok), and news aggregator app Toutiao. As of January 2019, the apps had provided ByteDance with more than 600 million DAUs and upwards of 1 billion MAUs, generating a substantial amount of advertising revenue.  The secret behind the massive traffic flow is the underlying AI algorithms. By tracking user behaviors and feedbacks – browsing history, time spent on each item of  content, time of the day to use the apps, comments, favorites, and dislikes – the apps push interesting contents to target users to retain. Larger user base helps refine the algorithms, resulting in more accurate contents recommendations and more data to the satisfaction of both users and advertisers. Though valued at as high as USD 75 billion, ByteDance has seen an moderation of its growth in the domestic market, where it derives most of its advertising revenue. In 2019, ByteDance takes more measures to find new monetization possibilities and build its competency in the coming IoT era. A history of failures Expansion into education was a key strategy for ByteDance in 2018. In February 2018, ByteDance launched an app called HaoHao XueXi (Good Good Study) (好好学习), which was similar in functionality to pay-for-knowledge apps such as Dedao (得到) and Ximalaya FM (喜马拉雅); in May, ByteDance unveiled one-on-one English tutorial service Gogokid, benchmarking VIPKID and Dada English; in December 2018, it introduced a Neural Network algorithm-based English teaching product called aiKID. None of the moves has succeeded so far but ByteDance is still enthusiastic about the education sector. On May 9th, it launched Dali Ketang (大力课堂), a K12 online education platform, offering courses for students during the upcoming summer vacation. This is another saturated market with established incumbents such as Xueersi (学而思) and Yuanfudao (猿辅导). A move to AIoT It's common for Internet giants to expand to the hardware market. Amazon, Google, Facebook, and Microsoft have all dabbled in the manufacture of smartphones and smart home devices. China' s BATJ (Baidu, Alibaba, Tencent, and JD.com) also have tapped into this market. With the development of 5G and NB-IoT, AIoT opportunities proliferate in the consumer market, and IoT devices become the new traffic entrance and edge data and computing center. According to the recruitment page of ByteDance's website, the company is looking for hardware engineers and experienced smart devices product managers. Educational hardware could well be a starting point and more smart devices are expected. ByteDance could start building its own AIoT infrastructure and ecosystem by rolling out hardware products. And the AI-enabled content recommendation capabilities, coupled with its enormous user communities, will likely be a bridge for it to transition into a new era. 

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Analysis EO
May 7, 2019 01:55 pm ·

Chinese Video Streaming Apps Dominate the Overseas Market

The top of the list remains stable and continues to be dominated by Bytedance’s app Tik Tok. Although many applications in the list use pan-popular entertainment as the main content strategy, the latter half of the list shows that the overseas game live broadcast market is receiving more and more attention from Chinese manufacturers. In the TOP20 download list of this issue, there are 5 live game applications, including Nimo TV, Cube TV, StreamCraft, Game.ly Live, and Noonlive. Among them, IGG "StreamCraft" started testing in local markets in early 2018 and began to work in various markets such as Indonesia and Latin America in January of this year. The 20 apps on the list received 414 million downloads in the overseas App Store and Google Play during the Q1 application period, up 103% from the 204 million downloads in the same period last year, 57% of which came from the Indian market, Indonesia and Brazil each accounted for 4.9% and 4.5%. The overseas version of douyin, "Tik Tok" has surpassed USD 11 million in the first quarter, up 135% from USD 4.88 million in the same period last year. The US market contributed 66%, followed by the UK market with 9%. During Q1, BIGO LIVE's overseas income was nearly USD 52 million, accounting for 52% of TOP20's total revenue, up 57% from the previous year's USD 33 million. The main income of BIGO LIVE is still from the Middle East market. Q1 Saudi Arabia contributes 39% of the total revenue and the US market contributes 22%. In the 20 applications on the list, the total revenue of overseas App Store and Google Play exceeded USD 100 million, up 35% from USD 74.7 million in the same period last year, 34% of which came from the US market, and Saudi Arabia, Taiwan and Japan each accounted for 26%, 3.4% and 3.3% respectively. Tik Tok recorded its best first quarter yet for new users over the past three months, adding an estimated 188 million during Q1 according to the same source. This marked a year-over-year increase of 70% from Q1 2018 when 110 million users installed ByteDance’s hit app for the first time. Tik Tok was the third most installed app globally during Q1 across the App Store and Google Play, the same rank it held during the previous quarter. It was ranked behind only Facebook’s WhatsApp and Messenger at No. 1 and No. 2, respectively. According to thenextweb internet users grew by 8.6% during the past 1 year globally, a total of 4.43 billion users including 350 million new users by the start of April 2019. The number of Social media users has also increased by more than 200 million since this time last year to reach almost 3.5 billion.  India Tik Tok’s largest market accounted for the greatest share of growth in internet users in the first quarter of 2019, with data from the Telecom Regulatory Authority of India showing that the country added more than 44 million new internet subscribers in the first three months of the year. With the company already claiming more than 500 million active users and more than a billion downloads it is clear to why so many people believe TikTok is the next big thing in the world of social. On Apr 17, 2019, the Indian government asked Apple and Google to remove Tik Tok because of inappropriate content and a couple of other incidents caused by the app. Soon after a week’s time on Apr 24, 2019, Indian Madras High Court reversed the ban. According to the people in charge of Tik Tok, currently, the company has hired almost 500 employees and is planning to expand the team scale in the future to provide more localized services to the Indians. In Dec 2018, Tik Tok ranked 1st in Indian Play Store and exceeded WhatsApp, which ranked 1st in 2017. Indian users occupied 39% of the Tik Tok's 500 million global users. In a nutshell, India is the largest overseas market of Tik Tok. With the further promotion of the Belt and Road policy, companies such as ByteDance will pay further attention to the overseas market and provide more localized products.

Analysis EO
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Analysis EO
May 5, 2019 05:29 pm ·

A War Between Two Chinese Internet Giants: Baidu and ByteDance

A war between two Chinese internet giants, Baidu and ByteDance, has been lasted for several years, mainly fighting for copyrights and gaining competition advantages. Recently, an event attracted public attention again. On April 26, The World Intellectual Property Day, Baidu initiated a lawsuit against ByteDance on the grounds that ByteDance had stolen its research result, which was regarded as illicit competition by Baidu. Baidu requested that ByteDance must stop stealing behavior immediately, and asked for compensation in related economic losses and reasonable expenses totaled CNY 90 million (USD 13.37 million) from ByteDance, as well as apologizes on ByteDance’s APP and website homepage for 30 consecutive days. At the same day, Douyin, the short video product of ByteDance, also initiated a lawsuit against Baidu on the grounds that Baidu had stolen quantities of videos from Douyin. And Douyin proposed the same claim on compensation. Before 2018, Baidu and ByteDance don’t seem like the direct competitor with each other. Baidu is the biggest website and search engine in China, while ByteDance is more like a content platform. However, it changed from 2018. Baidu enters the short video market ByteDance has been the champion in the short video market in China for many years, depending on its several short video applications including Douyin, Xigua and Huoshan. Among them, Douyin is definitely the top one with 250 million domestic daily active users (DAU) by the end of January, 2019, according to ZHANG Nan (张楠), the president of Douyin. TikTock, the overseas version of Douyin developed by ByteDance, also had great performance all over the world from launched in the summer of 2017. It has been launched in more than 150 countries with more than 500 million monthly active users (MAU), and ranked download volume first in the local AppStore or Google Play list in Japan, Thailand, Indonesia, Germany, France, Russia, etc., according to ByteDance. However, ByteDance has to compete with many other players. Except from its biggest peer, Kuaishou, which ranks second in MAU followed behind of Douyin, Baidu is another potential strong peer, which launched two short video applications in 2018, namely Haokan (好看视频) and Quanmin (全民小视频). Haokan is a short video app, offering a wide variety of user generated and professionally produced content often in coordination with multiple platform networks. Haokan allows users to upload, view, search, rate, share, favorite, comment, and follow. Video content creators and curators can distribute their content to build a fan base and receive revenue share for their content contribution. Quanmin is a flash video app for users to create and share short videos, usually less than one minute long with the following orientation: musical, dance, comedy, acting and lip-sync, and live videos. Users can shoot or upload flash videos and edit them with built-in special effects, filters and stickers. Contents are distributed in personalized timeline powered by Baidu AI recommendation algorithms. In Dec. 2018, Haokan ranked fifth among short video applications with 75.01 million MAU, while Quanmin ranked ninth with 23.02 million MAU, according to QuestMobile. According to Baidu's financial report, Baidu has increased spending in channel and brand marketing over the last year, to increase awareness and drive traffic growth for the family of Baidu apps, including Baidu App, Haokan and Quanmin. As of Dec. 2018, Baidu App’s DAU increased to 161 million, with a year-on-year increase of 24% and a growth of 6.62%. Thanks to the growth of these three apps, Baidu’s network flow users grew by 112% year-on-year. To promote these three apps, Baidu won the bid for 2019 CCTV Spring Festival Evening Exclusive Interactive Platform, and gained lots of flow. According to Baidu, the amount of global audiences interactions in Baidu App reached 20.8 billion times, and the peak of Baidu App’s DAU exceeded 300 million in 2019 Spring Festival . On every list of apps market, these three apps’ downloads skyrocketed in this period. depending on its research flow and financial resource, Baidu has advantages to realize high-speed development in short video business. Although the user amount of Haokan and Quanmin is far less than Douyin at present, Baidu is possibly a strong competitor of ByteDance in the future. ByteDance launches search function In March of this year, Toutiao, the news and information content app of BtyeDance, launched search function. Users can search the information in Toutiao, which is from Toutiao itself and other sources, including Baidu. That’s why Baidu initiated a lawsuit against ByteDance. Baidu is the largest Chinese search engine all around of world. Many Chinese network companies have ever developed search engines to compete with Baidu, including Youdao, iAsk, Jikesoso, QQ Search, etc, but most of them failed. Sogou is the only one that develops well today, but it’s not strong to compete with Baidu. So how can ByteDance make any difference? Based on the abundant content generated by users these years, Toutiao launched search function in it at first, by which users can search some topics. However, it has to provide the search service from all websites if it wants to satisfy its users’ different search demand. So it realized now. As one of the best media platforms on content personalized recommendation, Toutiao has accumulated more than 200 million users. Based on its users, ByteDance developed other products very fast, such as Douyin, Xigua, Huoshan and Neihanduanzi, among which Douyin’s users amount has surpassed Toutiao from June last year. So will its search function develop as fast as ByteDance’s other products and bring more users and flow to it? Compared with Baidu, Toutiao is better on users loyalty. Most users may take a look and find something interesting in Toutiao, because users regard Toutiao as a content platform which know what they like. But users won’t do it in Baidu, which is only regarded as a search engine by most of its users. In this respect, Toutiao has great opportunity. However, there is some technical problem for search function that ByteDance needs to solve, including semantic analysis, information storage, Precise content matching, etc. One staff from Baidu said that users can find the difference between Baidu and Toutiao if search some specific information about life. Baidu performs better in term of content matching. The war between these two companies is ongoing. Each of them has advantages to develop these new businesses, but they face some difficulties as well. Let’s see who will make it.

Analysis EO
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Analysis EO
Apr 25, 2019 05:43 pm ·

Going Global: Upon the 2nd Belt and Road Forum for International Cooperation

In 1978, the Chinese government promoted the “reform and opening up" strategy. After that, China started opening to the world while trying to go abroad for overseas expansion. It is necessary for an enterprise to combine its feature, international environment, and overseas market together while going abroad. From 1978 to 2018, it has been 40 years since China began to reform and expand. During the past 40 years, China has changed quite a lot. In 2010, Chinese GDP exceeded Japan and became the second largest economy in the world. In 2013, the total export-import volume of China was USD 4.16 trillion, which ranked 1st in the world. In 2015, Chinese outbound direct investment (ODI) exceeded foreign direct investment (FDI) for the first time. Chinese enterprises became more and more mature and active around the world. In 2018, there were 120 Chinese enterprises in the Fortune Global 500. During the past 40 years, the Chinese economy changed a lot. In 2013, chairman XI Jinping (习近平) initiated “The Belt and Road” concept. Since that, China has signed 174 “Belt and Road” cooperation documents with 126 countries and 29 international organizations, targeting to boost the economic cooperation between China and the countries within the Belt and Road project. With 6 years of development, the Belt and Road achieved more than expected. The total trade volume between China and the Belt and Road countries exceeded USD 6 trillion, and the ODI exceeded USD 80 billion.   Starting from Apr 25, 2019, to Apr 27, 2019, China will hold the 2nd Belt and Road Forum for International Cooperation. Chairmen and leaders from 37 countries will attend the forum with UN Secretary-General and the president of the International Monetary Fund. In total, nearly 5000 foreign guests from more than 150 countries and 90 international organizations will be attending the forum. More than 4,100 journalists, including 1,600 from overseas, have registered to cover the second Belt and Road Forum. With the 2nd Belt and Road Forum being held, EqualOcean wants to give analysis about the overseas expansion of 3 modes of enterprises’ and chooses Huawei, Xiaomi and ByteDance, which are companies from the EqualOcean 500 list as examples. According to EO Intelligence, there are 3 kinds of overseas expansion currently, classified by the products and services enterprises offer: companies offer infrastructures, devices, and virtual services. In this analysis, we have selected Huawei as the representative of infrastructure provider, Xiaomi as the provider of devices and ByteDance as the provider of virtual services, to analyze the overseas expansion situation for Chinese enterprises. When creating overseas expansion strategies, an enterprise must consider the related economic situation of the target area. The Middle East has a perfect market system and a high GDP per capita, and the competition is not violent, which generates a high unit price per customer. Europe and North America have a mature market system and a high unit price per customer, but since it has a fully-developed infrastructure, they are a competitive market. India has the second largest population in the world, however, its market is relatively dispersive. Southeast Asia has a great market and a high ratio of young people however, the magnates are competing actively with each other. Africa’s infrastructure is not well-developed but its economy is increasing rapidly, and the market is at an early stage. Latin America has a lot of young people and an open culture, while there’s not a violent competition in its market. However, Latin America is far from China, which may generate difficulties for Chinese enterprises to do overseas expansions. Huawei: going abroad with happiness and tears As a leading ICT (Information, Communication, and Technology) solutions provider, Huawei began its 5G research and development in 2009. Currently, Huawei has more than 2000 5G engineers and 11 5G R&D centers globally and has built partner relationships with more than 20 leading telecom carriers in the world. According to GFK, a Germany third-party statistic institution, Huawei occupies more than 15% of the smartphone market share in 33 countries, and more than 20%of the market share in 18 countries. In Northeast Europe, Huawei’s market share is about 17.5%; in Western Europe, Huawei occupies 12.1% of the total market share. In Africa, Huawei has more than 15% of the total market share, and in other markets such as Latin America and the Middle East, Huawei occupies almost 15%. Huawei’s 5G facilities are popular in those markets because of its leading technology. Huawei owns the world’s largest 5G patents and breaks the Qualcomm’s monopoly in the telecom field. In MWC 2018 (Mobile World Congress), Huawei published 5G chip Balong 5G01, which is the first 5G commercial chip based on 3GPP standard. On the other hand, Huawei has strong price advantages. Comparing with the price of 5G facilities from other countries, Huawei’s infrastructures are 20% lower. Due to the large purchasing scale of the 5G base stations and related facilities, the price advantages make Huawei’s 5G facilities extremely popular in the world. Happiness always goes with tears. Although Huawei’s overseas expansion gained great success, the company experienced hard times as well. The U.S. government keeps claiming that cooperating with Huawei to build the 5G network may lead to the disclosure of private information of the country. Besides the U.S., countries such as Japan, Australia, and India, all announced to reject the possible cooperation with Huawei previously. For countries banned Huawei, they received a lot of doubt both from Huawei and the domestic carriers. They believe that Huawei’s low price and leading technology brings lots of advantages, and banning Huawei is unfair and wrong. Recently, Huawei signed a “no-spy” contract with the Germany government, which guarantees that Huawei will never install a backdoor on its 5G facilities. After the signing of the agreement, Huawei may have the opportunity to join the 5G network construction of Germany. Australia also changed its attitude and allowed Huawei to build the 5G base station in Perth. The Indian government allowed Huawei to join the test of Indian 5G telecom facilities as well. Although it has not been smooth for Huawei expanding abroad, as the 5G era approaches, more and more market requirements would be generated and with its advanced technology and relatively lower price, Huawei’s overseas expansion may have more opportunities. Xiaomi: Successful example for enterprises’ overseas expansion As one of the largest smartphone manufacturers in the world, Xiaomi pays a lot of attention to its overseas expansion and tries to enter different foreign markets, which set an excellent example for other Chinese enterprises. Xiaomi started its overseas expansion in 2014, and currently, Xiaomi ranks top 5 in terms of smartphone shipments in 25 countries. According to Xiaomi’s 2018 annual report, during the year of 2018, Xiaomi’s income from international markets increased 118.1%, which was CNY 70 billion. Meanwhile, the income from overseas market occupied 40% of the group’s total income, while one year earlier that number was 28%. According to statistics from Canalys, Xiaomi’s smartphone shipment kept ranking 1st during the past 6 quarters, with a YOY growth rate of 59.6%. In Indonesia, Xiaomi’s smartphone shipment had a YOY growth rate of 299.6% and ranked 2nd in terms of market share. In western Europe area, the YOY growth rate of Xiaomi’s smartphone shipment was 415.2%, ranked 4th in terms of market share. Besides the smartphone business, Xiaomi’s Internet business also progressed a lot in the overseas market. In 2018 Q4, the income of Xiaomi’s Internet business from overseas market occupied 6.3% of the total Internet income, with a YOY growth rate of 1,295.6%. In Aug 2017, Xiaomi published Mi App Store for the Indian market, and 1 year later, the MAU of Mi App Store increased 10 times. Currently, the Mi App Store has entered into different markets including Southeast Asia, Southern Asia, the Far East, and the European market. In the future, Mi App Store would use its resources to help more Chinese enterprises to go abroad.   With its high price-performance ratio, Xiaomi gained great success in the overseas market. Not only focus on the online market, but Xiaomi also paid a lot of attention to the building of offline stores and the localization in foreign countries. In 2017, Xiaomi opened the first Mi home in Bangalore. In addition, in order to respond to the call of the Indian government, Xiaomi settled factories in India to produce the smartphone and TVs that sold to India. With the localized production, Xiaomi’s price became further lower and Xiaomi brand became more popular in the Indian market. However, Xiaomi’s overseas expansion is not smooth all the way. In the summer of 2013, LEI Jun (雷军), the founder and CEO of Xiaomi group, considered to copy the successful Xiaomi mode in China to Brazil. LEI Jun asked LIN Bin (林斌) the president of Xiaomi to poach Hugo Barra, the vice president of Google as the leader in the exploration of the Brazil market, but they quit Brazil after 1 year. Brazil has strict trading protection of its domestic electronic products, which settles a solid barrier for foreign smartphone manufacturers. A serious auditing mechanism and a high tax rate make Xiaomi hardly survive in the Brazil market.Xiaomi’s success in overseas market has settled a good example for the Chinese enterprise, and the localization remains the hardest problem for the enterprises to face. ByteDance: media is borderless As one of the largest Internet company in China, ByteDance made its overseas expansion strategies from the very beginning of its development. In 2017, ByteDance’s revenue was CNY 15 billion. In 2018, that number increased to CNY 50 billion. With Toutiao and Tik Tok, two of the flagship products of ByteDance, this magnate mastered a large user base and is expected to generate more revenue in 2019. With the unsatisfactory market environment in China, it might be harder for ByteDance to keep the same increasing speed in 2019, and the overseas market becomes increasingly important for the company. Tik Tok is the most successful products of ByteDance, in terms of its overseas expansion. ByteDance published Tik Tok in the summer of 2017, and it got popularity globally in an extremely short time. Currently, Tik Tok covers more than 150 countries and areas globally, and in countries such as Japan, Thailand, Indonesia, Germany, France and Russia, Tik Tok used t0 ranks the 1st many times in the download list of Apple App Store or Google Play. According to Sensor Tower, the foreign user's ratio is 20% in Tik Tok. Besides Tik Tok, ByteDance also published other Apps in the overseas market. On Apr 3, 2019, ByteDance published Lark, which is an office service App for the business side. Being different from Toutiao and Tik Tok, Lark launched in overseas market firstly and is regarded as the competitor of Ding Talk and the enterprise version of Wechat. Lark offers shared-calendar, online document making, and the IM chatting function, but is only open for the overseas market. Lark is regarded as ByteDance’s test in both the overseas market and the mobile office industry.   Other Apps including comprehensive news APP TopBuzz Video, News Republic, and the short-video sharing platforms such as Flipagram, Vigo Video or BuzzVideo, all based on the artificial intelligence technology and aims to provide contents what overseas users love. However, the overseas expansion of ByteDance is not always successful. In Feb 2019, FTC (Federal Trade Commission) announced that it has drawn an agreement with Musical.ly, which was acquired by ByteDance, that the later will pay USD 5.7 million for its illegal collection of the children’s information. In Apr 2019, India government banned Tik Tok from Indian Apple App store and Google Play, because of the inappropriate contents in the platform. According to Sensor Tower, the total download volume of Tik Tok was 1 billion globally, which Indian accounted for 300 million of it. After the ban of the Indian government, ByteDance loses USD 500 thousand, and lose 1 million new users every day. Though ByteDance faced a lot of difficulties and challenges in its overseas expansion process, going abroad is still one of the most important strategies of the company. On Apr 23, 2019, ZHANG Yiming (张一鸣), the founder and CEO of ByteDance, gave a speech on the 1st Digital China Summit. ZHANG disclosed the ByteDance’s overseas expansion strategies in detail at the first time: let the technology go overseas to provide the equal production experience for global users and using the localized operation strategies to meet the different requirements of different markets to build a global communication platform. With the continuous promotion of “The Belt and Road” strategy, the interaction of Chinese enterprises and other countries in the world would be promoted greatly. The role of overseas expansion would be increasingly important during the development process of enterprises. Meanwhile, the Chinese government encourages excellent enterprises to go abroad and offered related policies. With the successfully opening of the 2nd Belt and Road Forum for International Cooperation, more outstanding companies will go abroad, which is similar to Huawei, Xiaomi and ByteDance.

Analysis EO
Analysis · 2
Analysis EO
Mar 29, 2019 10:17 am ·

How Could the Byte Dances?

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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