ByteDance, the business behind the Chinese tech scene's wildly popular short video app TikTok, is a fast-growing star. Last year, ByteDance claimed the title of' the most profitable start-up in the world ' after a $3 billion funding round. And after that, just a couple days earlier, the story broke that ByteDance is now the second largest player in the Chinese digital advertising market, taking 23% of all digital media spending in the first half of 2019 – equal to 50 billion yuan (or 7 billion dollars).
ByteDance leapfrogged over some of China's leading tech firms, including the (slightly ailing) search giant Baidu, and Tencent, the owner of the omnipresent WeChat super-app. In the first half of this year, ad revenue for ByteDance increased by 113 percent, according to a consultancy report R3, which described the growth of ByteDance as "extraordinary." Most of the ad revenue growth came from Douyin, TikTok's Chinese equivalent, and from Jinri Toutiao, the news aggregator app from ByteDance.
ByteDance's growth was nothing short of meteoric, hitting an unprecedented $78 billion in just six years. The company boasts some of China's most popular apps, and this year it is set to take on WeChat's dominance with its own chat app that enables users to send missing videos. Plus, the TikTok short video service has marched to the west.
But when it comes to turning a profit, many companies behind popular apps and social networks are failing. So, how has ByteDance managed to become one of Chinese advertising's biggest players?
Cutting-Edge Recommendation Algorithms
So much of the performance of the ByteDance apps relies on the advanced recommendation algorithms that ByteDance has built to provide consumers with a data flow that is perfectly tailored to their interests.
ByteDance's news aggregator app Jinri Toutiao, according to a former ByteDance employee interviewed by the Wall Street Journal, builds a sophisticated profile of its users over time, sometimes containing as many as 2,000 tags, to drive recommendations. The app will react to habits that are as subtle as swiping back up to re-read a paragraph and apply keywords from that paragraph to the suggestion profile of the client.
ByteDance's creator and CEO, Zhang Yiming, has contrasted this method to offering consumers precisely the information they want without having to lift a finger in lieu of other apps such as Google Reader, which Google destroyed in 2013.
In an article posted on social media, he argued that the method of Google Reader to allow users to define their own preferences to access relevant content was unfriendly as people are "required to find out ' what I like and what I want ' themselves" rather than have algorithms informing them.
ByteDance's content recommendation algorithms are so successful that they are dangerously addictive:
Douyin, TikTok's Chinese equivalent, has been compelled to introduce an alert that pops up when users spend 90 consecutive minutes watching videos; after two hours, the device will lock itself and allow a key to activate. Google giant Baidu once had the lead in this field due to a huge amount of search data that allowed users to target ads accurately. But web searching in China is now declining as users spend more and more time in "walled garden" apps such as WeChat, Douyin, and Jinri Toutiao that search engines can not index.
A Very Important and Committed Public
The other aspect of the commercial growth of ByteDance is the highly desirable audience on its channels that it has helped to develop. To a wealthy, well-off audience, applications like Douyin and Jinri Toutiao appeal: Per the Uplab Asia's Douyin Play book, the huge majority of the user base of the app was female, between the ages of 18 and 24, from "first tier" Chinese cities – large metropolitan hubs like Beijing and Shanghai – in the early days.
How do I go From Here?
ByteDance is clearly moving towards capitalizing on this early commercial performance and positioning itself on the Chinese ad sector as a big long-term participant. In 2018, to deal with similar ad networks operated by Baidu and Tencent, it launched its own advertising network, Pangolin.
ByteDance expects Pangolin to contribute between 10 and 20 percent of its total revenue, which would equate to approximately five and 10 billion yuan (about $700 million and about $1.4 billion) per year, according to KrAsia.
Baidu's own ad network draws between 8.5 and 10 billion yuan, while Tencent's receives about nine million yuan. ByteDance has obviously set its sights high, and the evidence suggests so far that it will live up to its lofty ambitions.
