Close
Close

Published

Bytedance prepares for juicy IPO following global expansion

Valued at $45 billion, Bytedance is not most people’s idea of a start-up, and could soon join Alibaba, Baidu and Tencent in the league of Chinese high-tech giants. But it is still a start-up by many definitions, at least until the IPO the company is widely rumored to be preparing for – having just launched a sleek and expansive new web site in several languages.

Increasingly, it seems that the giant web platforms are going to play very central roles in the way that consumers interact with the IoT. In the West, Google and Facebook seem completely entrenched. In China, Tencent and Baidu are comparable, but the Chinese market is being shaken up by a new entrant that could dethrone them – the AI-augmented Bytedance.

The company was founded in 2012 by Zhang Yiming, still just 34, with missions to develop a Chinese personalized news and information service before expanding internationally after establishing domestic dominance. Both those missions have been achieved while courting controversy on several fronts, most recently at home for falling foul of the Chinese government’s political sensitivities and desire to micromanage coverage of all affairs relating to state. There is an eerie resonance here with actions against comparable sites in the west, especially Facebook over issues including ‘fake news’ and posting of inflammatory or illegal content. The only obvious difference is that China’s view of what is acceptable is more extreme and would be considered excessive censorship in most other countries.

The issue came to a head on April 9th, 2018, ironically only a day before Mark Zuckerberg began his testimony to the US Congress where Senators questioned Facebook’s commitment to privacy in light of those revelations of data harvesting by Cambridge Analytica. But while Zuckerberg emerged largely unscathed (until the recent stock price dive, at least), Yiming was forced to issue a groveling apology containing phrases like “taken the wrong path”, “failing our users” and admitting that core socialist values had been contravened.

Bytedance also had to suspend its most popular product, a news-aggregator app called Jinri Toutiao (Today’s Headlines). Then regulators pulled Neihan Duanzi, its social-media platform, where users had shared videos and jokes some of which had been deemed offensive by the authorities, again echoing sentiments in the west.

But all this has not halted Bytedance’s advance with its valuation continuing to inflate ahead of that possible IPO. Its international expansion is well underway on the back of various deals, the biggest being the $1 billion acquisition in November 2017 of Musical.ly, whose lip-synchronization music app was developed in Shanghai but became very popular in the US among teenagers. Bytedance has just folder this into its homegrown TikTok, whose users are mostly in China. Again, this allows users to create and share short singing and dancing videos set to well-known songs, with various special effect filters.

Meanwhile the news reader app Toutiao, with 120 million daily users, is back on the air. The authorities were unlikely to keep this one down for long as it is the engine of ByteDance’s success.

But perhaps the underlying reason for the company’s exponential growth lies in another controversial aspect – its very high salaries, even by the standards of high tech companies in the AI sector. This has riled competitors such as Baidu and Tencent, because the salaries have lured some of their top people away. Top developers earn over $1 million plus stock options and up to $3 million in some cases. Rather reminiscent of Bill Gates when he used to talk about Microsoft being in the “IQ business,” the company acknowledges that its competitors include not just other tech firms but also financial institutions vying for the brightest graduates.

So far this apparently high cost strategy has been rewarded by growth not just in valuation far greater than the sums invested, but even revenues, which topped $2 billion in 2017. And in China kowtowing to censorship does no harm, bearing in mind that even Google has thrown in the towel on that with its plans to re-enter the country’s search market with a sanitized version of its engine.

Close