Hey Tech Buzzers,
Welcome back to our series on Bytedance, maker of TikTok (and many other things!) and the most richly valued privately-held tech startup in the world.
The below is a translation of a 2-hour interview on March 20, 2018, with Zhang Yiming, Bytedance founder and global CEO. It is the third of four parts and was conducted by Professor Qian Yingyi, who was the Dean of the School of Economics and Management at Tsinghua University at the time. For greater context and understanding, we have annotated it with our comments in italics. Part 1 and Part 2 are here.
PART 3 (OF 4): HOPE TO ACHIEVE GLOBALIZATION (IN THREE YEARS) BY 2021, MORE THAN HALF OF USERS COME FROM OVERSEAS
Qian Yingyi: Let’s go to our next topic. Toutiao attaches great importance to strategy; it’s also got a unique view when it comes to globalization of internet companies. Toutiao was established in 2012, and began globalizing in August 2015, merely three years after it was founded. Now in your fifth year, your products cover North America, Japan, India, Brazil, Southeast Asia and globalization so early? What were you thinking?
Zhang Yiming: First of all, for this wave of mobile internet companies, we all started around the same time, for both Chinese and overseas companies. For the last generation of companies that began around 1998 and 1999, overseas companies came out two or three years earlier and Chinese companies then “copied to China” because they had no opportunity overseas and could only rely on localizing to build up their own business.
We believe that the internet is interconnected and that it will be a global competition in the future. Now Chinese companies are also “born to be global,” just like American companies. If you don’t have a global configuration, then you cannot benefit from efficiencies that result from having a global scale, which includes access to markets, organizations, human resources, etc. In this era, China itself has opportunities, but only by taking advantage of a global configuration can it achieve better results. The marginal cost of internet businesses drops rapidly. With the same investment, if the population of other markets is five times that of yours, you cannot sustain long-term competition.
We’ve seen good examples in the past. For example, China’s electronics manufacturing and mechanical manufacturing have been very successful. Among ICT (information and communication technology) companies, Huawei has also been very successful. When we started globalization in 2015, our team was not so confident because there had never been a Chinese internet platform company going overseas.
Tech Buzz: In the West, I tend to hear complaints about the 1.5Bn Chinese consumers that are inaccessible to internet companies here (not entirely true, it varies depending on your product of course). But here’s an interesting perspective … if you’re an ambitious Chinese entrepreneur like Zhang Yiming, you’re not content to stay within China, you want to be an Apple or a Microsoft … that is, everywhere. Yes, there are advantages to being a Chinese company inside of China, but there are also disadvantages to being a Chinese companies when outside of China. Globalization is difficult for everyone. And anyway, the world outside of China? It’s 4x bigger than the world inside. Anyone can see that. If you don’t go for it, your competitors will.
Qian Yingyi: Why did you insist on doing so in 2015? There were many examples before.
Zhang Yiming: The most common reason (against globalization) is that the culture of each country and region is different. But I have always encouraged our team with an example, that is Huawei. Huawei’s products have not only a presales process, but also implementation, deployment and after-sales. Yet it sells to both developed countries and into Africa as well. I told my colleagues that such a localization-reliant company can go overseas, and we certainly can.
Qian Yingyi: So you used this example to motivate everyone. Huawei’s situation is much more difficult than ours, look at all the services they need to provide, but Huawei succeeded.
Zhang Yiming: For different cultures and languages, does the product need to be heavily localized? Actually not. The best-globalized products, even software like Windows, Office, Facebook, and Youtube, are not highly localized. Content should be localized, but the product is universal. Our strategy is to make globalized products and add localized content. Actually, many companies globalize by setting up an “internationalization department” to develop new products for local markets. Not us. Our vision is to be a “global creation and communication platform”, and we hope that is a universal platform.
Qian Yingyi: That’s not how other companies think. Instead of developing new products for each locale, you chose to make a universal product. How did you come up with that?
Zhang Yiming: Because our technology and recommendation system can be used universally, and can be made suitable for each region with localized operations. The cups are the same, but the drinks are different. Platform products can do this.
Qian Yingyi: In 2015, there might not have been so much confidence in your internal discussions. In the end, did you have to insist on doing it, or did everyone eventually agree?
Zhang Yiming: There were some colleagues who had confidence, but everyone knew that it was not going to be easy. And the truth is that it is not easy. Now we can see clearly where we are going and the path is bright. Now in Japan, one of every 10 Japanese citizens is our user, and more than 10 million are using our products actively every month. It’s a very high proportion. We rank top in the app store lists of many countries. For TikTok and TopBuzz, although there are still shortcomings, we see great opportunity.
Qian Yingyi: You mentioned Huawei earlier, and it seems like you admire it a lot. They are indeed role models for Chinese companies in terms of globalization. A lot of people will look at them and say that’s hardware, that’s different from what we do, but what you saw is that Huawei does a lot of very complex things, and it’s more difficult. Not many people hold this view. Most people would just say, it’s different, we can’t learn from that, but you saw that they do harder things.
Zhang Yiming: I made a lot of effort to study Huawei’s overseas expansion. From 1999 to 2004, they barely made any progress. If they were not persistent, or they thought Chinese enterprises were not suitable for globalization, they wouldn’t have succeeded. But after 2005, Huawei has made rapid progress overseas.
Tech Buzz: Obviously, this interview took place before Huawei’s existential crisis that began in late 2018. Hopefully, Zhang Yiming has learned even more from watching the company’s many troubles. I’d imagine he has.
Qian Yingyi: So patience is also important. You just started overseas development two years ago, so it’s still in the early stage, and you can only say that you’ve got some ideas. How do you compete with American companies or other companies internationally? You have made a good start, what’s next for you in developing your business overseas?
Zhang Yiming: The exploration that Chinese Internet companies have made in terms of applications, including R&D, operations and even commercialization, is actually in a leading position. The main development bottleneck is the business’ organizational ability overseas. Few overseas companies have successfully implemented globalization. We should play to our strengths and continue to do better in app innovation and efficient execution. At the same time, we should learn management strategies from overseas companies so that we can operate globally. Globalization means to recruit global talents and build an international team. This point still poses challenges. Many foreigners don’t adapt well to coming and working in China.
Tech Buzz: We already know from Part 1 of this interview that Zhang Yiming is really, really interested in management. What’s good to know is that he has made “researching how to manage a global organization” his number one priority this year, as made clear by his March 2020 letter to employees on Bytedance’s 8th anniversary. Will he succeed? Time will tell. You can find plenty of complaints about the company from current and former employees online, no different from any other large enterprise. Is it improving in the key ways that it needs to in order to excel as a global organization? That’s the big question, and I think it’s too early to tell. Will Zhang Yiming be able to figure out when no other Chinese entrepreneur has? What’s your bet?
Qian Yingyi: A company like yours must operate globally and need global talent. Huawei is quite unique in that many of its talented employees are all over the world. Similarly, you don’t have to attract talent all the way to China.
Zhang Yiming: We also have offices in many different countries. The principle is “Talent First;” and talent is a priority. Now that IT technology is so developed, offices should be located wherever the talent is. This is also what we learned from Huawei.
Tech Buzz: Even though “going to where the talent is” sounds like a good plan, a good deal of functions are still centralized in headquarters, as job seekers will find. So depending on what you’re hired to do, you may still be asked to move to China. However, it’s also true that the global offices are becoming increasingly staffed up, although it’s not always been handled in the best way. For example, there was some drama on the internet in March when Bytedance suddenly laid off overseas content moderators based in China and moved the positions overseas, leading to bitter complaints. I can’t imagine that these growing pains don’t persist for at least a few more years. After all, as Zhang Yiming has noted, there has basically been no Chinese internet company that has globalized very successfully. He has no precedent.
Qian Yingyi: Huawei has scientists all over the world. Are you doing the same now?
Zhang Yiming: We are also doing that. The advantage is that we can recruit relevant talent according to the characteristics of each country. Huawei established a mathematics research institute in Russia, because Eastern Europeans and Russians are very good at math. We are now recruiting in various countries according to the characteristics of each country and also the distribution of languages. We have many foreign employees abroad.
Qian Yingyi: You are growing very well in Japan. Are you also recruiting local talent there?
Zhang Yiming: Yes.
Qian Yingyi: Not only Chinese?
Zhang Yiming: Right, local talent is still very important for truly localized operations.
Qian Yingyi: At present, 70% of Huawei’s income comes from overseas. When would you say Toutiao is a globalized company? In your mind, what does a globalized Toutiao look like?
Zhang Yiming: I have a small goal in my mind: when more than half of our users are from overseas.
Qian Yingyi: Huawei used to say more than half of its revenue. What percentage of overseas users do you have now?
Zhang Yiming: 10%.
Qian Yingyi: From 10% to 50%…
Zhang Yiming: The gap is not so big.
Qian Yingyi: So it is a small goal. How many years do you think you’ll need to get to 50% from 10%? A conservative guess.
Zhang Yiming: With that in mind, three years.
Tech Buzz: This answer was the reason I wanted to translate this interview! We do not have official statistics on TikTok users ex-China, which would be the bulk of Bytedance’s overseas users, especially now that they’ve shut down TopBuzz. However, Hootsuite seems to think it’s somewhere around 300mm MAU this January (800mm total, and TikTok China / Douyin was supposedly over 500mm already by EOY 2019). Now, Bytedance had claimed its global MAU was over 1.5Bn by mid-2019, but that seems to be a simple addition across all products when it’s pretty clear that there must be a good amount of overlapping users between its various apps. Either way, let’s suppose Bytedance gets to 1Bn MAU like WeChat and covers pretty much all of Chinese internet users, can it get another 700mm MAU for TikTok and other products in the next year and a half to reach 50% (3 years after this interview)? Not impossible!! I don’t know that this is a “conservative” guess, but it’s within the realm of possibility for sure, maybe even probability, especially if covid19 continues to make it necessary to replace physical interactions with digital ones. The most impressive thing though, is that Zhang Yiming thought this back in 2018, and articulated it in front of a domestic audience, where its value as a PR soundbite is pretty limited and probably went straight over most people’s heads. Actually, the fact that so much of this conversation is focused on globalization is by itself pretty fascinating. Again, remember, at this point in 2018, Douyin was just at 70mm DAU, well behind Kuaishou and Toutiao was struggling with negative public perceptions. Which makes this statement about globalization seem like an even more audacious goal.
Qian Yingyi: You’ve left a lot of room. From 2015 to now, it has only been over two years to get from 0 to 10%. Starting from 0 is particularly difficult, but when you succeed, it gives you a lot of confidence. The example of musical.ly and the other stories you shared are very interesting: we are all victims of habit and convention, including when we think of globalization. Through the specific examples you gave and also what you’ve been able to achieve, it shows us that objective reality can be very different from what we are told by conventional wisdom.
SIMILARITIES AND DIFFERENCES BETWEEN TMD AND BAT
Qian Yingyi: We’ve been talking about Toutiao and yourself, so now let’s go one level above. This era is indeed changing. We are all familiar with the three Internet giants in China: Baidu, Alibaba and Tencent, collectively referred to as “BAT.” Now a new word “TMD” has appeared, representing the new three giants, Toutiao, Meituan and Didi, whose combined valuation exceeds $100 billion.
It is said that the word “TMD” was created after you, Wang Xing and Cheng Wei had a small gathering during the Wuzhen Internet Conference in November 2016. First, is that true?
Zhang Yiming: We never said that at the gathering, but roughly around that time the media began to use this word.
Tech Buzz: Again, it is “T” for Toutiao and not “B” for Bytedance because it was only after this interview that the company adopted Bytedance as its public-facing name. TMD is still used, but more and more Pinduoduo has overtaken Didi to be one of the “new generation” of Chinese internet giants Meituan and Bytedance.
Qian Yingyi: When the word “TMD” appeared at the end of 2016, your collective valuation was not so high, but now all of you sum up to $100 billion. This leads to a lot of interesting observations. For example, for “BAT,” Baidu is in Beijing, Alibaba is in Hangzhou, and Tencent is in Shenzhen.
Zhang Yiming: Yes, from north to south.
Qian Yingyi: “TMD” is different. All three of you are located in Beijing, very close to Tsinghua University. I have been to all three companies. You’re closest to Tsinghua, then Didi, then Meituan, you’re all roughly between the third ring road to the sixth. Why are you all in Beijing? Is this by accident, or there is a reason?
Zhang Yiming: The overall infrastructure in Beijing is pretty good, and the most important thing is that there is a lot of talent. This wave is faster than the last one. Tencent reached $10 billion in valuation in 2008 but that took 10 years as it was founded in 1998, not as fast as people imagine.
But “TMD” has taken much less time. Because the factors of production are plentiful in Beijing, including funding and talent. So there is some randomness to the fact that we are all in Beijing, but Beijing’s good infrastructure is very, very crucial.
Tech Buzz: Another important point is that Chinese venture capital was at an all-time high when this interview was being conducted in early 2018. It’s since come down by quite a bit but was and continues to be significantly better than when TMD were founded much earlier in the decade. In terms of talent, this map shows pretty clearly that Beijing has a disproportionate number of major universities in China. We’re talking multiples higher than available in most other cities.
Qian Yingyi: Where you guys studied is also geographically similar. Two of you, Wang Xing and Cheng Wei, studied in Beijing, and you were in Tianjin, not too far from them. Interestingly, Cheng Wei is from Shangrao, Jiangxi province, while you and Wang Xing are both from Longyan, Fujian province. Apparently your parents know each other, which is so rare. Longyan is an old Communist revolution town, and often has top scorers on the national college entrance exam, and now we know that Longyan also produces entrepreneurs. Two leaders of “TMD” are from Longyan. Tell us something about what Longyan is like.
Zhang Yiming: About Longyan, we should note that the overall digitization and the popularity of the internet were both relatively early in Fujian. The internet became popular when I was in high school, so this may have something to do with Wang Xing and I becoming entrepreneurs. The earlier you were exposed to the Internet, the earlier you became interested. The internet was popularized earlier in Fujian, so there are more internet entrepreneurs throughout Fujian.
Tech Buzz: Usually most people like to attribute their successes to internal factors and failures to external circumstances. It’s nice that Zhang Yiming acknowledges that he is a product of his environment and was, comparatively speaking, fairly lucky. At least these days, Longyan as a whole is pretty well off, with its average annual salary for residents reaching ~$10,000 in 2018. It is a city of almost 3 million people, of which the majority are of Hakka descent. Besides Wang Xing and Zhang Yiming, another influential entrepreneur from Longyan is Fang Sanwen, who is the founder of Snowball Finance AKA Xueqiu, often called a Chinese version of SeekingAlpha.
Qian Yingyi: What we’ve just been talking about are superficial things, but the rise of “TMD” is actually very significant. Why? I’m an economist. Economists have always been excited about the success of “BAT”, but we also have a concern: “winner takes all” is likely to happen in this situation, which delays further Innovation. Entrepreneurs may think “I didn’t seize my opportunity, now it’s all BAT’s, and I have no chance.” That’s from the perspective of economists and individuals.
Toutiao, Meituan and Didi were all founded in such an environment. I especially want to hear from you whether you think there are any restrictions to new entrepreneurship opportunities that are posed by these technology-enabled platforms. How come Toutiao, Meituan and Didi succeeded under the shadow of “BAT”?
Zhang Yiming: Despite the internet rewards scale, we actually see more and more entrepreneurs and investors succeed, and the overall trend of entrepreneurship and innovation is getting better and better.
This is firstly because while scale is important, innovation is more so. A good macro environment is also needed. Whether it is the law or industry self-discipline, leaders must not abuse their scale and maintain a good competitive environment.
Secondly, the birth of Toutiao, Meituan or Didi is related to a new wave. Meituan was founded in 2010, Didi and us in 2012, and the rapid development of Meituan was also after 2012. When there are big changes, it’s like the movement of tectonic plates, the entire ecology will change again, and new species will have the opportunity to expand rapidly.
“When the big wave comes” is a very important foundation. The big wave is often brought by technological innovation, for example, from computers to the internet to the mobile internet. The “big wave” is a crucial timing. Wave after wave, but is the next wave still related to the internet? Not necessarily. Technology means to create things with new and better methods. Since new and better methods are now being used to create things, there must be a new wave being created. Generally speaking, new entrepreneurs have better opportunities.
Tech Buzz: Whether or not the BAT will stifle innovation (and competition!) in China has been hotly debated for most of the last decade. Not surprising that the founder of one of the most successful upstarts gives this answer. However, I think that the reality is a bit more complex than that. Chinese internet giants often engage in anti-competitive practices that would not fly in the US, such as banning direct links and reposts, and Tencent in particular has been Bytedance’s nemesis for a while. While yes, “TMD” have reached impressive scale, Bytedance is the only one to do so without significant capital and resources from BAT. And even then, it did get investment from Alibaba-invested Weibo, although that is a pretty indirect connection, and so not comparable at all to the 20% Tencent owned in Meituan, for example. So have these new internet darlings really beat (B)AT*, or do they just add to (B)AT’s ever expanding empire because (B)AT remain a key source of capital / funding and traffic / user acquisition, both very important “infrastructure factors,” as Zhang Yiming would say?
*I put B or Baidu in parentheses because it’s a distant third vis-a-vis Alibaba and Tencent, particularly the latter, who has invested in over 800 companies and 160 unicorns.
Qian Yingyi: No matter how powerful BAT is, there are places they don’t see, or shall we say, they still make mistakes. We can see from your story, the fact that you could still rise in this situation, well, many people are curious about this.
Zhang Yiming: First, accurately locate the market opportunity and be half a step ahead to the blue ocean. At the same time, when you’re in an environment of innovation, if you don’t take a step forward, you’re actually falling behind. So any enterprise has to maintain a keen sense of what’s happening outside. With the internet wave, Yahoo caught the portal navigation opportunity, but did not catch the search and social media opportunities. After failing to catch these two small waves, Yahoo faded away. This is also a reminder that companies have to remain active, or get swallowed up by more dynamic up-and-comers.
Tech Buzz: I find that many Chinese entrepreneurs have a similar perspective, and that is this sense that one’s lead is not secure and always under threat from competition. Maybe it’s just that Chinese philosophy is rooted in the concept of “cycles,” loosely speaking, and the only constant is change. Either way, there is little complacency, and in fact, the entire industry runs on anxiety. It also looks like there’s a “lack of focus,” since that’s precisely what it is, the pressure to jump on every trend and not be left behind because you missed “the next wave.”