If you were asked to name the most valuable startup in the worl, you’d probably recite sharing-economy giants such as Uber, DiDi, Airbnb or WeWork. Jinri Toutiao, or Bytedance (the name of its parent company) wouldn’t even register in the minds of many, let alone exist at the top of your list. In October 2018, a new round of funding valued Bytedance at $75 billion USD, leapfrogging Uber to become the world’s most valuable startup.
Bytedance is a Chinese internet technology company that operates several content platforms, all that use machine learning to personalize content to its users. Jinri Toutiao (“today’s headlines”) was its first product. Launched in 2012, the product started out as a news recommendation engine but has since expanded into a blogging and news video platform. More recently however, Douyin (its international version is known as TikTok) has rocketed to the top of the App Store charts and registers 500 million monthly active users globally. Douyin is a short-video platform, which allows users to share short, mostly meaningless and benign, 15 second videos, in a similar vein to the once-popular now-defunct app; Vine.
TikTok's success in the West
The core of its $75 billion valuation is in its ability to tap into the lucrative social media appetite of Westerns, the first Chinese company to do so. Despite China’s BAT (Baidu, Alibaba & Tencent) trying for years to make inroads in the West, TikTok’s recent success marks the first time a Chinese company has obtained the interest of Western social media users. Let’s examine why this is the case.
1. Short-videos: an unsaturated market
TikTok entered an unsaturated niche in the social media industry: short-video sharing. This trend, in part, originated from the success of Vine, a short video platform that was founded and then acquired by Twitter in 2012. Vine found fame in 2013, and quickly registered an audience of 200 million people. The decision by Twitter to kill-off the app in 2016 left a “Byte” size gap in a short-video market witnessing immense growth. Building off the success of Jinri Toutiao, Bytedance was able to use its financial success and machine-learning product development experience to launch the international version of Douyin, TikTok, to an international audience in September 2017. It entered a market that had no other solidified short-video sharing competitor. Snapchat and Instagram had dipped their toes into this market, both launching short-video features, but it was not the cornerstone of their products.
Comparing this market to the markets that China’s other technology giants tried to enter, it is clear to see why their success was less apparent. Baidu with its search engine, and Tencent with messaging faced significant competition from Google, Facebook and WhatsApp in already saturated markets with established users. To date, the only significant user base for Baidu’s search engine or Tencent’s WeChat in the West, is among the Chinese diaspora.
2. Addictive content, rather than a network of friends
What do Facebook, WhatsApp, Snapchat, Instagram and LinkedIn have in common? Winner-takes-all network effects have made these firms natural monopolies in their markets. The more users each platform has, the more attractive it becomes for other users to join. The first-mover advantage is rife in these markets. For Chinese technology companies who wish to expand into these markets, it makes their efforts much more challenging. Why would an American Facebook Messenger user, or a Spanish WhatsApp user switch over to using WeChat when none of their friends use the service? There’s no use in talking to yourself… well maybe for some.
Whilst a small network effect exists in short-video sharing, it’s not as distinct as in the aforementioned markets. Short-video sharers often enjoy sharing to all netizens, not just their friends. TikTok has benefitted from this fact. Thus, when it expands to new markets, the existence of other smaller short-video sharing platforms does not matter nearly as much as the existence of Facebook Messenger would mean for WeChat.
Instead, TikTok has been able to drive an increase in users through its marketing and extremely addictive content that means users log onto the app an astounding 43 times per day and ranks highest in U.S user retention as can be seen in the exibit below.
3. Branded as a non-Chinese product
A Harvard Business School case study from 2018 proclaims WeChat as a “winner in China but a loser abroad In making the argument that it “failed to adapt to the unique needs of foreign markets”, illustratating how upon WeChat launching in Brazil, no stickers of “carnival” (Brazil’s most famous festival) could be found, yet countless Chinese stickers were already preloaded on the app.
TikTok has been intentionally developed as a non-Chinese product. From its product features and branding, to its marketing campaigns, it’s a uniquely international product. It allows users to register with Facebook, Google or Twitter and its minimalist UI and ease of use suit the preferences of Western users. This article is great for painting out the preference differences between Chinese and Western UI and UX. In fact, if you ask a teenager who uses TikTok, they probably don’t even realize that the app is owned and developed in Beijing. TikTok’s recent partnership with American talk-show host Jimmy Fallon, and the strategy to switch Musical.ly users over to TikTok probably exacerbates this belief.
How can TIkTok sustain its success?
TikTok has been on an incredible run. Technology giants haven’t been blind to this. Facebook recently launched a TikTok competitor called Lasso and closer to home, Tencent has been showing interest in getting into the space. Increased competition in short-video sharing is a given and TikTok’s success is not yet cemented. Increased exposure through its marketing campaigns will allow it to deepen its user base in unsaturated markets.
Bytedance’s success has been typified by an ability to quickly respond to trends, whipping together unique products in a matter of months. Maintaining this adaptability will be crucial to the success of both TikTok and Bytedance, particularly as new social media markets emerge. Staying abreast of trends with respect to camera filters, editing tricks and content unique to users from different regions will be key to ensuring TikTok remains fresh and relevant.