Fall 2019 TIKTOK SHOCK ByteDance, an almost unknown Chinese company, is taking over the world By Mark Andrews CKGSB Knowledge 2019 / 51 Company TikTok is the ikTok’s latest viral challenge has most of human competing and dating the world’s teens gluing up their instincts,” says Professor Diana Derval first Chinese Ttop lips with eyelash adhesive to of DervalResearch who goes on to cite achieve a poutier look, while parents and the ‘chameleon effect’, the instinct of app to take the health experts look on in dismay. Risking everyone, but kids especially, to want to scarring and skin problems, depending emulate the coolest people around. world by storm, on what adhesive is used, it is all worth TikTok crossed 1 billion downloads it for young users eager to gain an online on Apple’s App Store and Google Play and its owner audience. in February 2019. Around 633 million TikTok is a mobile app that allows of these downloads occurred in 2018, is now rubbing users to post short videos of usually 15 compared to 711 million for Facebook and seconds, contributing to what is known in Instagram’s 444 million. In August 2019, shoulders with the industry as “fast entertainment.” It has TikTok was the world’s most downloaded an impressive 500 million active monthly social media app with nearly 63 million the likes of users, is available in 155 countries and has downloads. India accounts for around a teenagers who have downloaded the app quarter of all downloads of TikTok to YouTube and spending an average of 52 minutes using it date, but TikTok was also the second most every single day. common non-gaming app download in the Facebook Most noteworthy of all, however, is US that month with 4.2 million installs—a that TikTok is the first app from a Chinese 54% year-on-year increase. company to take the world by storm. Its “There are two reasons why TikTok owner is ByteDance which has suddenly has gained great success in such a short shifted from being a top Chinese online time,” says Zhang Mengmeng, a research company to a top global player, rubbing analyst at Counterpoint Research. “First of shoulders with the likes of Youtube and all, before launching TikTok, its Chinese Facebook. variant Douyin, already gained wide For a typical user such as South popularity and proved to be a successful African Jaco Ludewig, the attraction of product locally. ByteDance was able to TikTok is its inconsequential nature. “I carry its experience from Douyin into just love TikTok because I enjoy making TikTok. Secondly, ByteDance acquired people laugh, so it’s a cool app to do a competing video sharing site called exactly that,” he says. Musical.ly, which has most of its user base “TikTok democratized video content in the United States. By acquiring Musical. creation,” says Michael Norris, strategy ly, it was able to expand its user base for and research manager at AgencyChina, TikTok quickly.” a marketing and sales agency. “Just like photo-editing apps before it, TikTok made Fandango complicated video effects and transitions Former Microsoft engineer Zhang Yiming, simple. This gave a huge range of would- now aged 36, founded the parent company be content creators the tools and freedom ByteDance in 2012. The first app he to make the type of video content they launched was Jinri Toutiao, which supplies wanted, without the hassle of cutting, AI-curated news content personalized for editing and re-touching.” users. Douyin launched in 2016 with the The app is all about providing users international version TikTok following in with an endless stream 15-second “brain 2017. ByteDance really went international bursts”—cute, pretty, weird, funny or in 2017, after it acquired the US-founded strange video snippets that superficially app Musical.ly, and then merged it with stimulate and fill up time. Users compete TikTok in 2018. to produce and post small videos of Although ByteDance now operates in themselves dressing up, putting on more than 100 countries, Norris says that makeup, doing outrageous things and beyond China the company concentrates generally trying to impress their peers. on India, Japan and the United States. “The social platform just makes the “Outside those three markets, it’s had a 52 / CKGSB Knowledge 2019 Fall 2019 CLIMBING UP Apps by worldwide downloads China’s other tech giants are good at creating TikTok was also the most downloaded app on the IOS app store in Q1 of 2018. products that meet the needs of their local market, but they started out copycatting, WhatsApp and then gradually employed their user data Messenger to hone those products. Douyin jumped out Facebook of the gate with a largely original interface Instagram that not only spoke to Chinese users, but had a more universal appeal.” Tik Tok For many young Chinese people, PUBG Mobile Douyin is a way of killing time. “When Snapchat you’re waiting for buses or the subway, you YouTube can use the app,” says Versa Yang a user of Netflix Douyin. And it seems that this, plus its ease Apple store Wish of use and entertainment factor, are what makes it popular. While Douyin manages Spotify Google Play to appeal to a wide range of age groups Uber in China, internationally TikTok largely WeChat appeals to young people, particularly teenagers. 50M 100M 150M 200M Sources: Sensor Tower, Factor Daily Last waltz hard time converting downloads to active tech companies challenging the older and A key feature of this kind of app is the high users. Earlier this year, it was alleged more established Chinese players, led potential for it to fade as fast as it grows. that ByteDance spent $3 million per day by BAT (Baidu, Alibaba, Tencent). The ByteDance is not waiting around for that to on existing social media platforms to founders of these new companies are all at happen and is spending substantial amounts encourage downloads, but these rarely least 10 years younger than those of BAT on research and development. resulted in loyal users,” he says. and are also focused on mobile rather than “We already see stagnating growth But they are not doing at all badly. computer-based platforms. for ByteDance’s Jinri Toutiao news app, ByteDance has more than a billion monthly “It rode the wave of mobile internet with growth for Douyin also likely to active users spread over eight apps. brought on by the wide adoption of hit a ceiling at some point,” says Zhang. Like most China technology companies smartphones as well as the rapid economic “Therefore, ByteDance has been putting including Baidu and Tencent, its corporate growth of the past decade in China,” says a lot into R&D to incubate the next hit structure is that of a Variable Interest Entity, Zhang. “Other new Chinese tech companies product and diversify its current business.” which would allow it to list overseas, even like Didi, Kuaishou and Meituan also Despite having one of the world’s though foreign investors are not allowed emerged at around the same time. These most popular apps, the company doesn’t to own shares in such Chinese companies. new founders are not only more ambitious even feature anywhere close to the top But it has yet to be listed. Estimates put the but also have a better international of list of global apps in revenue terms. value of the company at $75 billion, making perspective.” Encouragingly, however, TikTok’s in-app it the world’s most valuable startup and it With the huge popularity of TikTok purchases reached $11.7 million in July, a counts the likes of General Atlantic, KKR globally, ByteDance is the first Chinese 290% increase from the same time a year & Co., Sequoia, Softbank and Susquehanna tech company with a serious chance when before. as investors. The founder, Zhang Yiming, it comes to competing with the American “Douyin’s foray into e-commerce appears to own the majority of the shares. social media giants such as Facebook and is an important part of ByteDance’s “ByteDance is quite promising from Instagram. It has been able to gain traction monetization efforts, and I’m sure that a financial perspective as it generates internationally in a way that the BAT they’re pleased with the domestic brand sizable income through advertising. With companies so far have not. uptake of the integration between short a portfolio of apps with high DAU (daily “Seen through the lens of user video and e-commerce,” says Norris. active users), its monetization capabilities experience and product design, the Vine, an app similar to TikTok founded are strong and justify its high valuation,” emergence of ByteDance—and Douyin in 2012 and bought by Twitter, ceased says Zhang. in particular—represents a seismic shift in operations in 2016 due partly to an the Chinese startup space,” says Kendra inability to monetize its offering. Breakdancing Schaefer, Trivium China Head of Digital In anticipation of the ceiling and as a ByteDance is one of a new wave of Chinese Research. “Alibaba, Tencent, and many of means of becoming even bigger, ByteDance CKGSB Knowledge 2019 / 53 Company THE BYTEDANCE EMPIRE The apps that make up ByteDance Helo. Writer Elliott Zaagman compared Helo’s CEO to a drug dealer and said that Invested fake news on Helo had influenced the Indian election. Live.me ByteDance ByteDance’s Helo is available in 14 Invested in 2017.11 Indian languages and uses AI to drive Acquired content to users. “It’s built on clicks and Outside China engagement rather than news,” Zaagman Musical.ly Flipagram wrote. “The incentive system is Facebook Acquired in 2017.11 Acquired in 2017.2 on steroids with nowhere near the level of Owns take downs.