News more expensive than Uber: how a Chinese programmer challenged Internet giants and built a business worth $75 billion

News aggregator Toutiao is China's most amazing tech startup in recent years. Company founder Zhang Yimin, starting from scratch, challenged local giants Alibaba and Tencent and won. This week it became known that in a new round of funding, the Chinese "Yandex.Zen" will receive a valuation of $75 billion - more than Uber.

One against Alibaba and Tencent

• The story of Bytedance and its flagship product, the news aggregator Toutiao, is different from that of any other Chinese startup with dozens of billion -dollar IPOs in the US and Hong Kong. Zhang Yimin did not go to the States for experience, did not try to copy American services, and most surprisingly, he did not receive a penny from the two mastodons of the Chinese market, Alibaba Group and Tencent, who are literally involved in every major technology company that has appeared over the past 10 years. years.
• Zhang launched Toutiao, a news aggregator that curated news for users using artificial intelligence, in 2012. Venture capital investors weren’t very enthusiastic about the project - they didn’t understand why they should believe that the 29-year-old programmer would beat Tencent and Alibaba on their field and be able to make a profit in a segment in which even Google had not learned how to make money. Zhang's idea was simple. He understood the main problem of Chinese users - due to government censorship and commercial manipulation by large search engines like Baidu, which mixed unmarked advertising into search results, it was difficult for them to find the information they needed. Of course, it was impossible to overcome censorship (and subsequently the authorities forced Toutiao to clean up their news content many times), but finding content for users that they find it difficult to find on their own turned out to be a realistic task.
• The platform launched by Zhang studied what users read and searched on the Internet, and on this basis offered them articles - something like the Russian Yandex.Zen that appeared five years later. The more users Toutiao had, the better the recommendation system worked, and users spent more and more time in the application. “The most important thing is that we are not a news company. We are more like a search engine or a social network,” Iming said in 2017. “But we promote information not in the form of search queries, but in the form of news recommendations.”
• By mid-2013, Toutiao had attracted over 13 million users. By this point, the VCs knew they had made a mistake. A year later, one of the main funds of Silicon Valley, Sequoia Capital, which refused Zhang in 2012, invested $100 million in Bytedance, and the company was valued at $500 million. Bytedance has $1.5 billion based on a $75 billion valuation, more than Uber, the most valuable non-public company in the world.

More than news

• It was impossible to grow to this size only through organic development - Bytedance developed by buying the most promising Chinese social startups. In 2016, the company launched the video service Douyin (known abroad as Tik Tok), which in July 2018 was used by 500 million people. With it, you can shoot and edit videos, as well as share them through platforms like Weibo (Chinese Twitter) and the WeChat messenger. The service became so popular among millennials that WeChat even had to block access to it. Zhang is now merging Douyin with China's Instagram platform Musical.ly, which he bought in 2017 for $800 million.
• Due to the successful combination of services, Zhang still manages to cope with the main problem of the Chinese Internet market - slowing down the growth of the user base. At the same time, the company (a rare case in China) is trying to grow at the expense of foreign markets - for example, the Tik Tok (Douyin) application is used in the USA, Southeast Asia and Japan.
• Now the main problem of Bytedance, like Facebook once, is the monetization of hundreds of millions of users. The company is increasing advertising space on its sites and is taking a portion of its advertising revenue from Tencent. True, advertisers are worried about Bytedance's periodic problems with the Chinese authorities. For example, this year, due to censorship, the startup had to remove its app with jokes, as well as suspend other services for a while.

What do I get from this?

Should a startup without a lot of money enter a market where there are already two dominant players with billions of dollars in turnover? If you understand what user problem you can solve and they cannot solve, the game can be worth the candle, shows the example of Zhang Yimin.

Liana Faizova