Ep. 56: Not just TikTok: A short history of Chinese short video abroad

Episode 56 of TechBuzz China is all about short video, which our co-hosts comment should by now be considered one of China’s “New Four Great Inventions.” It’s sweeping the world, and has become an arena in which Chinese companies’ battle for users and revenue is extending abroad. Most of our listeners will have heard of Bytedance’s product TikTok, and likely even of Kuaishou (see TechBuzz #55), but what about other players such as Likee — what is their story?

Short videos shot in China, or on apps made in China, are increasingly common sights on social media feeds around the world. Indeed, chuhai (出海 chūhǎi), which literally means “going beyond the seas,” has come to mean “doing business abroad,” and it is going to be a bigger and bigger trend in China tech. The stories of how these short-video companies got started, the mistakes they made and turning points along the way, and how that shapes company DNA and long-term strategy can guide you as to how these players are likely to approach the global markets you care about.

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Of course, we are always grateful for our talented producers, Shaw Wan and Kaiser Kuo. P.S. Congratulations on a successful conference this week, SupChina!Audio Player


(Y: Ying-Ying Lu; R: Rui Ma)

[00:00] R: Hi, guys!Thanks for all the positive feedback on our episode on Kuaishou, that was TechBuzz #55! If you haven’t listened to it, we would highly, highly recommend you do before jumping in today, because Kuaishou is the known as other short video behemoth in China, it’s one of the only formidable threat to Douyin, Bytedance’s breakaway video app, known as TikTok outside of China.

Y: In many ways, it’s also the anti-TikTok, or at least that’s what we’re calling it, because it has a very different founding story, mission statement, product design, and target audience, which all contribute to a very different business model.  Almost all livestreaming on the part of Kuaishou, and almost all advertising on the part of Douyin, but with both taking big leaps into e-commerce, as is almost every other digital media and social networking platform in China.

R: But the battle for users and revenue isn’t just being waged in China. Increasingly, Chinese companies are looking abroad for growth.  It’s not a new story by any means, but it’s one that’s becoming the conversation topic of the day. And yes, one company in particular has really opened up everyone’s imagination on just how far that could go.

Y: We’re talking about Bytedance, of course, with its product TikTok. But we won’t just talk about TikTok today, because you don’t have to look very far to see others in its footsteps.  Or actually, that would be inaccurate to say, because it’s by no means the first Chinese company in the short video space to go abroad.

R: I mean don’t get us wrong, it is still the most successful one globally, and that’s why it’s getting all the headlines.  But it’s also spent a lot of money to get there, on both marketing and sales, as well as just acquiring leading short video app musical.ly outright.  Our point is that it’s got competition.  And not just from Kuaishou either.  There’s at least one other player.  And by all measures, it’s looking like serious competition.

[2:29] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network by SupChina!

Y: We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.    

R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.

Y: And I’m your other co-host, Ying-Ying Lu. We’d like to acknowledge our partners DealStreetAsia and SupChina, creator of the Sinica Podcast Network! In addition to TechBuzz, you can also find Sinica which covers current affairs, NuVoices and Ta for Ta on women, the business-oriented ChinaEconTalk, and the Caixin-Sinica Business Brief from China’s leading business magazine.

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[4:02] Y: Oh, and one more thing before we start, we want to tell you about a brand new Master’s program nearby, at the University of San Francisco. USF’s Master’s in Applied Economics combines econ training with the practical skills in data analytics that you really need to understand today’s new digital economy. Their curriculum covers skills like R and Python, machine learning, and experimental design. To learn more and to get a fee waiver for the Fall 2020 class, please go to usfca.edu/techbuzz.

[4:41] R: Wow, Ying-ying, I was just looking at our episode on now-pretty-much-defunct bikesharing unicorn company ofo from TechBuzz episode 15. That was over a year ago! Do you remember what we opened the episode with?

Y: Yes, we explained to our listeners that while ancient China had four major inventions that forever changed the world, those were papermaking, printing, the compass, and gunpowder, today’s Chinese media likes to point to the 新四大发明, or New Four Great Inventions of modern 21st century China, which are, if you’ll remember, high speed trains, scan-and-pay mobile payments, bikesharing, and ecommerce.

R: Yeah, and we debunked the story that any of these things were actually “invented” in China — I mean, really now, that is some #alternative fact to say you invented high speed trains or e-commerce — but actually, that’s not really what the media means anyway, not literally.  The reason they use the New Four Great Inventions meme is partly because well, it’s catchy, but also because just like those 4 ancient inventions, these four new ones were adopted widely outside of China, and changed the world.

[5:59] Y: Yeah, so what they’re actually saying is that China tech is scaling and commercializing these “inventions” so well that it’s the Chinese version of these innovations that are being exported to the world, just like with the 4 ancient inventions, although to be clear, evidence generally supports that those were actually invented in China.

R: Well, even by that definition, it’s still a stretch, but at least there’s some evidence to support it.  Bikesharing and just micromobility in general was one, but now that the sector as a whole has really stalled, I propose that we knock it off the list and replace it with a newer innovation that really is being exported as we speak — and I’m sure you know what I’m about to say – it’s short video.

Y: And you probably know about the headline that made us curious about this phenomenon: the report from app analytics firm Sensor Tower this week that TikTok hit a cumulative 1.5Bn downloads since launch in late 2016, it has 6% growth year-on-year, also in terms of downloads and that …outpaced social media darling Instagram this year … well, at least in terms of downloads.

[7:15] R: Anyone working in tech knows that downloads are a long way from converting to registered, active, and then paying or transacting users, but such an enormous number makes for a great headline and is usually at least a directional signal as to app’s momentum.

Y: We do have to caveat this number with the fact that this Sensor Tower data includes downloads from TikTok’s domestic China version Douyin, but excludes non-Google Play Android downloads, which can be significant in China, since Google Play is officially unavailable there, but even with all those asterisks, this is an impressive feat for a product that just celebrated its third anniversary two months ago and launched outside of China barely two years ago.

R: Impressive yes, but when set in the context of total users and total revenues, maybe not as much. I mean, we can do a really simple guesstimate as to Bytedance’s total users abroad.  Taking the numbers from their 2018 Douyin Big Data Report released this February, at the end of 2018, Douyin had about 250mm domestic Chinese DAU. We mentioned last episode that third party data showed that number had gone up to 365mm by the end of the summer.

Y: Compare that with July data from Bytedance itself, when it announced global DAU of 700mm.  And as we know, besides Douyin, Bytedance has a whole bunch of other products, especially Toutiao, its news app, in the tens to hundreds of million DAU, and some of that is overseas. So, even assuming that Douyin and its other products have complete overlap, meaning that for example, all Toutiao users also use Douyin, we are looking at a maximum of 50% of all Bytedance DAU coming from outside of China.

[9:12] R: Given what we know, 100% overlap is unlikely, so 50% is a very generous ceiling, and reality is probably significantly lower than that. But that’s on the user front. Revenue contribution from outside of China is probably negligible this year, I mean, it literally just launched its biddable advertising system. But, we are of course talking about this because there must be a Chinese company that is doing well abroad, both in terms of users, and revenue.

Y: As a matter of fact, there is.  And it’s a company we’ve spent some time talking about in the past, although not nearly enough.  It first appeared in Episode 7 on livestreaming  — how to win fans and influence losers, still one of our best titles ever — and also in Episode 43 on gaming livestreaming, because the biggest company in that space right now, Huya, is actually a spinoff. The company I’m talking about, if you haven’t guessed it, is YY.

R: Ah, yup, YY, founded in 2005 by David Li 李学凌, and listed on the NASDAQ since 2012. It’s got a current market cap of about $5Bn, but trailing revenues of over $3Bn and almost a 20% net margin.  Livestreaming is still its bread and butter, but it’s also expanded into short video — of course — and also actual gaming, although with a social networking bent.

Y: That is, after all, what it describes itself, as a “global social media platform” bringing joy to everyone. It’s even changing its name next month to JOYY, with two Ys.  But yeah, YY really does mean everyone. I mean, you probably didn’t expect to see this statistic in the latest quarterly earnings report from YY, which was released just last week: “Global average mobile MAUs reached 470.1 million, among that approximately 77.9% were from markets outside of China.”

[11:26] R: Yes, you heard that right, almost 80% of YY’s active users across all its apps were from outside of China.  And, its revenue breakdown is not that lopsided either. Even if you include Huya, which is consolidated into its earnings, it’s got over 20% of its revenues coming from overseas. If you remove Huya, then we see that its ex-China business is already doing over $200mm per quarter and is half as large as its core YY livestreaming business.  It’s just that part is not yet profitable.

Y: What is that business called? Well, it has several products, but its flagship livestreaming app is BIGO, spelled B-I-G-O.  If you haven’t heard of it, don’t feel too bad, because many people hadn’t heard of it in China either, not until it was fully acquired by YY earlier this year.  If you go onto its website though, bigo.tv, and compare it to yy.com, you’ll quickly see the similarities.  I don’t know what you’ll see, but logging in from San Francisco this afternoon, on both frontpages I was greeted by long-haired girls dancing to music KPOP idol style.

R: Yeah, let us know what shows up for you. But wait — some of you are probably going — didn’t Ying-ying just say that BIGO was acquired by YY? That’s kind of cheating, no? That’s not really a Chinese company internationalizing, if it just went ahead and acquired a Singaporean company.

Y: Yes BIGO was acquired by YY and yes it is a Singaporean company. But it’s actually been YY all along.  I mean, David Li was founder and CEO of Bigo.  Are you confused? Well, for the complete story from David himself, we really suggest you listen to GGV Capital’s Evolving Billion podcast (formerly called 996)’s interview with him, but the short version is basically that it started off completely different from what it is today.  When it was created, it was under YY, and the business was to let users make international calls. For free.

[13:39] R: “Free” really did mean free, and it also meant YY lost a lot of money.  $50mm in 10 months, to be exact.  But they also had crazy growth and millions of users so they decided to spin it off, bring in some outside capital.  However, and remember this was 5 years ago, when people were way less tolerant with money-burning internet businesses, even with more cash in the bank, David decided that, no, simply getting users with no revenue was not a good way to go. So they stopped the free international calls business. 

Y: What about just seeing if their domestic livestreaming business would work in all these countries that they had started to operate in, they thought?  So that’s what they did in 2016.  BIGO Live the livestreaming app was launched, and it quickly became a hit in Thailand, Indonesia, as well as other countries in Southeast Asia and the Middle East. If you look at it today, it has an MAU of about 22mm. That’s not bad.

R: Not bad at all when you consider that out of BIGO came two other businesses — video chat app imo, which just reached 50mm MAU, and Likee, formerly known as LIKE video, which just hit 100mm MAU, growing so fast that it’s quintupled — that’s 5x! — the users it had a year ago. 100mm MAU also makes it, as YY CFO said on their latest call, “the second largest short-form video platform globally.”  Super impressive, if you ask me, for an app that was launched in July 2017, barely two years ago.

Y: And! I’m sure you’re all expecting this, because we always do it, just to make sure we get the story right, but yup, we went ahead and downloaded Likee, so you don’t have to, and here is what we have to report.

First of all, it opens into an interface that’s more like Kuaishou, meaning that it doesn’t begin auto-playing videos as soon as you open it like TikTok does, but has a Pinterest-like page of suggested videos that you can scroll through and click on.  But once you’re in the video, it’s pretty much a TikTok experience, since the videos seem very similar in terms of content, filters, special effects, and background music. That is, they seem young and hip and star local people.  In our case, that’s Americans.

[16:11] R: That’s important to note because Kuaishou will still show you Chinese content, which I suppose makes sense, since it’s not really made a big push into the US, whereas it looks like Likee does have enough users here to have some truly local creators, and I don’t mean just tourists from China visiting San Francisco.

Other than that though, just like Kuaishou, it has follow, popular, and nearby options, which if you use TikTok, you won’t recognize, because TikTok doesn’t have a Nearby function, only trending hashtags.

Y: Different from both, however, is a clearly marked livestream icon on the top right.   Whereas Kuaishou mixes up the short videos and livestreams together, Likee separates them out, which is what I would expect from a company that practically invented the whole category.  And unlike Kuaishou, which has a ton of e-commerce functionality built into its livestreams, shopping carts and store ratings and whatnot, Likee livestreams are still gifting based, and we didn’t see anyone trying to sell anything.

R: No, in fact it was really confusing what was going on, because some of the rooms had a “versus” function where not one, but two hosts, would be streaming, and there would be some kind of tally which host was getting more gifts, which in the room we were in, were virtual roses.  I guess it was to make the fans competitive with each other, which is definitely a thing YY has perfected.

Y: Yeah, you only need to watch our favorite China documentary, The People’s Republic of Desire, on how they do that. But it’s not for certain that gifting will be the ultimate business model.  Likee, as the newest entrant, is less sophisticated than the others on its recommendation engine, as CEO David Li admitted. Monetization is still very early, it doesn’t seem that he’s completely made up his mind about whether to go with a transactional business model like Kuaishou or ads instead, like Bytedance.

[18:12] R: If we had to guess though, YY has had great success with micropayments, and David has said publicly that he hates advertising, so although he’s been less vocal about that recently, I’d still probably bet on Likee and Kuaishou continuing with transactions, whether micropayments or ecommerce, over the media advertising business model of Bytedance.

Y: David might have some time to decide yet, because user acquisition is still everyone’s biggest priority right now.  Turns out a core thesis he had was correct: globally, customers are more alike than they are different, especially when it comes to entertainment. And with the success YY has had in China, it doesn’t sound too crazy when BIGO says its goal is to become the local internet entertainment platform of choice in the rest of the world. 

R: Well, they are doing quite well in the rest of the world. Indonesia, India and Russia are Likee’s top 3 countries and where they’re generally a top 20 app and #2 in their category, right behind TikTok or YouTube. It’s what you would expect though. These are places where large populations coming online due to improving internet infrastructure, and there’s a path to monetization because digital payments already exist and users are OK transacting online.  They also share in common a good pool of local celebrities or talents to provide content. And finally, it also helps, of course, that these cultures are also big on human connection.  But then again, pretty much all cultures are, are they just in their own way?  

Y: I’d say so.  But obviously, YY wasn’t the only one to see this, because many Chinese companies view the short video market outside of China as a “blue ocean,” with India being probably where the most intense battle is being waged. Bytedance has reportedly spent tens of millions of dollars on TV and online ads, but with customer acquisition costs as low as $0.20 last year, their efforts have largely paid off. 

[20:24] R: Yup, they were already at something like 28mm DAU and 120mm MAU by June, with a 30-day retention rate of over 30 percent, that’s quite impressive, and people were spending nearly 40 minutes per day per day on the app.  Articles proclaim that TikTok celebrities are outshining traditional ones and the whole country is nuts over short video.  But not everything has been perfect — they did have trouble with content moderation and was banned by the government for two weeks earlier this year. 

Y: That didn’t faze TikTok, I’m sure, because at least in China, that happens to pretty much everyone.  To Kuaishou, for example, last year. TikTok apologized, added more moderators, and marched on.  And so do its competitors.  I mean, the Indian market continues to be so attractive that Alibaba even launched its own app, VMate, that’s only for India. 

R: I’d guess it’s probably just a matter of time before it goes to Indonesia, where Chinese companies occupy 6 of the top 12 video apps. And let’s not forget Vietnam and Brazil, where Kuaishou, which is branded overseas as Kwai, has been doing very well.  Russia, Belarus, and even Korea too, have all taken to short video.  According to Kuaishou, that’s because Russians “sing and dance very well,” making them perfect creators for the platform.

Y: You know who else sings and dances well? The Koreans and Japanese.  But the Chinese short video apps have largely not been able to break into Korea, although Kuaishou briefly topped downloads there this year. TikTok, though, has been able to do well in Japan, which has historically been a tough market.  It’s done so well that leaked documents this quarter show that TikTok has narrowed its international strategy to focusing on the US, India and yes, Japan, as top priorities.

[22:30] R: And that brings us back to the US, which we’ve left for last.  If you live here, you must know there’s been significant scrutiny from regulators, with the government opening up an investigation into Bytedance’s acquisition of musical.ly, the China-founded and China-based but Western-facing lip syncing and music app that was the inspiration for TikTok and was at 60mm MAU when it was acquired two years ago for about $1Bn by Bytedance. The concern here is that data on US customers are not safe from potentially hostile usage by entities like the Chinese government. 

Y: Yes, even though both companies were created and operated by Chinese people, the TL;DR is that if you do business in the US via US entities, you are subject to US rules, which has included a steep ramp up in investigations relating to foreign companies making investments here.  And while the results of that probably won’t be out for at least a few weeks if not months, TikTok continues to acquire users here at a rapid clip. As far as we can tell, anyway. By Q1 of 2019, they were telling advertisers that they already had 26.5mm DAU

R: But at what cost? Remember that earlier we mentioned customer acquisition was as cheap as $0.20 per user in India, at least at the beginning of the year? Well, apparently, in comparison, TikTok spent more than $300mm on Google ads alone last year for the US market.  And that’s not including ads on Facebook, one of its major customer acquisition channels. By the way, these marketing costs are what’s being blamed for Bytedance’s rumored $1.2Bn loss last year, since that’s the major new expense after it already supposedly reached profitability in 2017.

Y: And are these heavy costs worth it? Not super clear. The 30-day retention rates for TikTok in the U.S. have long been rumored to be only about 10 percent, which is not very good, but actually very bad if acquisition costs really are as high as they’ve been made out to be. Until the ruling comes out though, Bytedance shows no sign of slowing down in the US, or anywhere else for that matter.

[25:02] R: And why should it? Zhang Yiming, Bytedance CEO, has always had this philosophy that his products should be able to be globalized, just like a Microsoft Windows, Microsoft Office, or Facebook for that matter. 只要内容本土化就可以,产品是通用的。What does that mean? It means: “It doesn’t matter whether the product is localized or not. Our strategy is to globalize the product and localize the content.”

Y: Well, it helps that the product he’s trying to push is effectively a tool, since even though it’s a content platform, and you’d think that content is highly localized, the curation is done by algorithm, and that’s true for all of the short video companies.    

R: It also helps that video as a medium travels better across languages and cultures.  I mean, you don’t know have to understand a video perfectly in order to tell whether it’s entertaining or humorous.  That’s why the “Karma is a B-i-t-c-h” meme that came out of Douyin in China could catch on so quickly all over the globe.  If you haven’t heard of it, it’s the one where a user, looking very plain, lip syncs the phrase Karma is a b-i-t-c-h before pulling something over the camera lens and revealing themselves in a dramatically more sexy look.

Y: A makeover before and after, basically, whose original inspiration came from a US teen soap called Riverdale.  And that might be the state of Gen Z entertainment today, a US TV show inspiring Chinese teens using a Chinese app to create a viral video phenomenon set to Western music that then sweeps the US internet. Go ahead, pull up one of the videos — the meme was at its height in early 2018 — and see if you can tell those teens are from China.

[26:56] R: My guess is that with some of the videos, it’s gonna be pretty hard for you to guess. But that’s the whole reason why we did this episode, right? On the “export” of the short video industry from China to the rest of the world. Because what’s working with Chinese young people is apparently working elsewhere in the world too.  So what do you think, shall we go ahead and summarize our learnings for today?

Y: Yeah, I’ll start. It’s pretty clear that short video, which has been very popular in China in the last few years, is sweeping the world.  And we do mean the world, because the creators and audiences are both global.  Chinese apps are the most active in this category, and have seen the most success, due to their long operational history inside China.  They just have more experience and expertise than anyone else.

R: Right. And if you’re in the US, Japan or India, you are probably hearing one name most of the time. Bytedance’s TikTok.  But that’s an incomplete picture.  All the Chinese companies in this space have been internationalizing, with Kuaishou starting way back in 2016 and YY even earlier in 2014, beginning with their livestreaming product.  TikTok was in fact one of the last to do so, it didn’t really go international until May 2017, but again it’s also a much newer product.

Y: What also often gets lost in the retelling, too, is that it got a huge head start internationally due to its acquisition of musical.ly, a similar app developed by a Chinese team but with a purely international audience.  That purchase probably added 60mm MAU directly to its ex-China user base since all musical.ly users were directly converted into TikTok ones.  It’s this acquisition, by the way, that’s under review by the US government for security concerns. It will be a bit before we know what the verdict is.

[29:01] R: But even if TikTok loses the US, which would be a blow indeed, it’s still got the rest of the world, where it’s spent heavily on marketing efforts to acquire users. And the bench is much deeper than just Bytedance and TikTok. In fact, as of today, there are at least 20 major short video or livestreaming Chinese apps that are operating internationally, with 3 owned by Bytedance, but 5 by YY.

Y: YY, who pretty much created the livestreaming industry in China, has a product called Likee that we covered in detail this episode.  It recently hit 100mm MAU, and is a hit in Indonesia, India and Russia.  Kuaishou, on the other hand, is making waves in Brazil and Vietnam.  Competition is stiff, maybe all the more because short video platforms are one of those tools where you can have a truly globalized product and just make sure you work with local content creators.  

R: Yeah, 全球化产品,本地化内容。 It does seem that the product really doesn’t need any localization really, and working with local celebrities and talents will generally get you the initial boost you need to have for your seed audience.  Chinese companies are getting really good at this.

[30:23] Y: The challenge they’re facing now is how to make sure that their content is in compliance with the different policies in place in different regions.  As we’ve seen earlier this year with the Indian government temporarily banning TikTok, these challenges are significant and very, very expensive.

R: Yeah. It remains to be seen who will win the short video market outside of China. I mean, even inside China, it’s still up in the air.  But outside of China, it’s definitely still early days. It’s just that 出海, which literally translates to “going beyond the seas” but actually just means doing business abroad, is going to be a bigger and bigger trend in China tech. 

Y: Companies selling hardware have done well for years now, so that’s nothing new, but in terms of software applications, I mean, we saw attempts two years ago with some of the sharing economy startups like bike sharing expanding aggressively outside of China, but they failed, and even one of the most dominant consumer apps in China today, WeChat, with its endless resources, could not make much of a dent abroad.

[31:33] R: But not the case for short video! So I really think the most important lesson to take away here, is that the market is changing quickly, and for many verticals, even ones like video content where your first intuition is that a local player with better understanding of the local culture might win … well, that just simply may not be the case. Some Chinese products may globalize quite well, and even if you don’t care what is happening inside of China per se, you might find yourself having to care when those same companies take their winning products from China and come to the market you live, work, and invest in. 

Y: That and it won’t be just one player, but many players, because the bench in China consumer tech is pretty deep at this point.  You can, however, prepare yourself by understanding their stories — how they got started, the mistakes they made and turning points along the way, and how that shapes company DNA and long-term strategy can guide you as to how they’re likely to approach the markets you do care about.

R: And that, dear fans, we hope, is why you continue to listen to TechBuzz China.  So do us a favor, and think of one person you think would enjoy this episode, or anything in our archives, and send them a link, or show them how to download and subscribe to our show.  Thanks so much!

[33:09] R: OK, that’s all for this week folks! Thanks for listening. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter at thepandaily, at techbuzzchina, and my personal Twitter account is RUIMA.

Y: And my Twitter is spelled GINYGINY. Techbuzz China by Pandaily is powered by the Sinica Podcast Network on SupChina. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Shaw Wan and Kaiser Kuo. Thank you for listening!