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ByteDance CEO Interview Continued ... and the Second Half of the (Chinese) Internet


Extra Buzz from Tech Buzz China with Pandaily

July 14 · Issue #18 · View online

Extra Buzz from Tech Buzz China with Pandaily

Hi everyone!
We’re putting on two events that might be of interest to you and ask that you please forward to anyone else you think might benefit as well!
  • THIS WEEK: Thursday July 16 Post-Covid Trends from alternative data company BigOne Labs and their data partner TalkingData.  
  • NEXT WEEK: Tuesday July 21 State of SaaS in China with serial entrepreneur Randy Wan, whose newest company, inDeco, was featured by The Information as one of 5 SaaS startups to watch in China. A key theme of this chat will be the fact that SaaS looks very different in China than it does in the West.
Meanwhile, you can read the remainder of our translation of Zhang Yiming’s extensive interview at Tsinghua University. It’s got great insights into the future plans of the company du jour, ByteDance, maker of TikTok. As always, we have annotated it for your ease of understanding. Please circulate to anyone interested in this topic! It’s also on our website: Parts 123and 4.
PS Mega thanks to Pandaily editor Lu Zhao for the translation! You can learn more about her work here.

Qian Yingyi: Let’s go to our next topic. Toutiao attaches great importance to strategy; it’s also got a unique view when it comes to globalization of internet companies. Toutiao was established in 2012, and began globalizing in August 2015, merely three years after it was founded. Now in your fifth year, your products cover North America, Japan, India, Brazil, Southeast Asia and globalization so early? What were you thinking?
Zhang Yiming: First of all, for this wave of mobile internet companies, we all started around the same time, for both Chinese and overseas companies. For the last generation of companies that began around 1998 and 1999, overseas companies came out two or three years earlier and Chinese companies then “copied to China” because they had no opportunity overseas and could only rely on localizing to build up their own business.
We believe that the internet is interconnected and that it will be a global competition in the future. Now Chinese companies are also “born to be global,” just like American companies. If you don’t have a global configuration, then you cannot benefit from efficiencies that result from having a global scale, which includes access to markets, organizations, human resources, etc. In this era, China itself has opportunities, but only by taking advantage of a global configuration can it achieve better results. The marginal cost of internet businesses drops rapidly. With the same investment, if the population of other markets is five times that of yours, you cannot sustain long-term competition.
We’ve seen good examples in the past. For example, China’s electronics manufacturing and mechanical manufacturing have been very successful. Among ICT (information and communication technology) companies, Huawei has also been very successful. When we started globalization in 2015, our team was not so confident because there had never been a Chinese internet platform company going overseas.
Tech Buzz: In the West, I tend to hear complaints about the 1.5Bn Chinese consumers that are inaccessible to internet companies here (not entirely true, it varies depending on your product of course).  But here’s an interesting perspective … if you’re an ambitious Chinese entrepreneur like Zhang Yiming, you’re not content to stay within China, you want to be an Apple or a Microsoft … that is, everywhere.  Yes, there are advantages to being a Chinese company inside of China, but there are also disadvantages to being a Chinese companies when outside of China. Globalization is difficult for everyone. And anyway, the world outside of China? It’s 4x bigger than the world inside.  Anyone can see that. If you don’t go for it, your competitors will.
Qian Yingyi: Why did you insist on doing so in 2015? There were many examples before. 
Zhang Yiming: The most common reason (against globalization) is that the culture of each country and region is different. But I have always encouraged our team with an example, that is Huawei. Huawei’s products have not only a presales process, but also implementation, deployment and after-sales. Yet it sells to both developed countries and into Africa as well. I told my colleagues that such a localization-reliant company can go overseas, and we certainly can.
Qian Yingyi: So you used this example to motivate everyone. Huawei’s situation is much more difficult than ours, look at all the services they need to provide, but Huawei succeeded.
Zhang Yiming: For different cultures and languages, does the product need to be heavily localized? Actually not. The best-globalized products, even software like Windows, Office, Facebook, and Youtube, are not highly localized. Content should be localized, but the product is universal. Our strategy is to make globalized products and add localized content. Actually, many companies globalize by setting up an “internationalization department” to develop new products for local markets. Not us. Our vision is to be a “global creation and communication platform”, and we hope that is a universal platform.
Qian Yingyi: That’s not how other companies think. Instead of developing new products for each locale, you chose to make a universal product. How did you come up with that?
Zhang Yiming: Because our technology and recommendation system can be used universally, and can be made suitable for each region with localized operations. The cups are the same, but the drinks are different. Platform products can do this.
Qian Yingyi: In 2015, there might not have been so much confidence in your internal discussions. In the end, did you have to insist on doing it, or did everyone eventually agree?
Zhang Yiming: There were some colleagues who had confidence, but everyone knew that it was not going to be easy.  And the truth is that it is not easy. Now we can see clearly where we are going and the path is bright. Now in Japan, one of every 10 Japanese citizens is our user, and more than 10 million are using our products actively every month. It’s a very high proportion. We rank top in the app store lists of many countries. For TikTok and TopBuzz, although there are still shortcomings, we see great opportunity.
Tech Buzz: TopBuzz (Toutiao overseas version) has been shut down, but TikTok recently topped 2 billion downloads
Qian Yingyi: You mentioned Huawei earlier, and it seems like you admire it a lot. They are indeed role models for Chinese companies in terms of globalization. A lot of people will look at them and say that’s hardware, that’s different from what we do, but what you saw is that Huawei does a lot of very complex things, and it’s more difficult. Not many people hold this view. Most people would just say, it’s different, we can’t learn from that, but you saw that they do harder things.
Zhang Yiming: I made a lot of effort to study Huawei’s overseas expansion. From 1999 to 2004, they barely made any progress. If they were not persistent, or they thought Chinese enterprises were not suitable for globalization, they wouldn’t have succeeded. But after 2005, Huawei has made rapid progress overseas.
Tech Buzz: Obviously, this interview took place before Huawei’s existential crisis that began in late 2018.  Hopefully, Zhang Yiming has learned even more from watching the company’s many troubles.  I’d imagine he has. 
Qian Yingyi: So patience is also important. You just started overseas development two years ago, so it’s still in the early stage, and you can only say that you’ve got some ideas. How do you compete with American companies or other companies internationally? You have made a good start, what’s next for you in developing your business overseas?
Zhang Yiming: The exploration that Chinese Internet companies have made in terms of applications, including R&D, operations and even commercialization, is actually in a leading position. The main development bottleneck is the business’ organizational ability overseas. Few overseas companies have successfully implemented globalization. We should play to our strengths and continue to do better in app innovation and efficient execution. At the same time, we should learn management strategies from overseas companies so that we can operate globally. Globalization means to recruit global talents and build an international team. This point still poses challenges. Many foreigners don’t adapt well to coming and working in China.
Tech Buzz: We already know from Part 1 of this interview that Zhang Yiming is really, really interested in management.  What’s good to know is that he has made “researching how to manage a global organization” his number one priority this year, as made clear by his March 2020 letter to employees on Bytedance’s 8th anniversary.  Will he succeed? Time will tell. You can find plenty of complaints about the company from current and former employees online, no different from any other large enterprise. Is it improving in the key ways that it needs to in order to excel as a global organization? That’s the big question, and I think it’s too early to tell.  Will Zhang Yiming be able to figure out when no other Chinese entrepreneur has? What’s your bet?
Qian Yingyi: A company like yours must operate globally and need global talent. Huawei is quite unique in that many of its talented employees are all over the world. Similarly, you don’t have to attract talent all the way to China.
Zhang Yiming: We also have offices in many different countries. The principle is “Talent First;” and talent is a priority. Now that IT technology is so developed, offices should be located wherever the talent is. This is also what we learned from Huawei.
Tech Buzz: Even though “going to where the talent is” sounds like a good plan, a good deal of functions are still centralized in headquarters, as job seekers will find.  So depending on what you’re hired to do, you may still be asked to move to China.  However, it’s also true that the global offices are becoming increasingly staffed up, although it’s not always been handled in the best way.  For example, there was some drama on the internet in March when Bytedance suddenly laid off overseas content moderators based in China and moved the positions overseas, leading to bitter complaints.  I can’t imagine that these growing pains don’t persist for at least a few more years.  After all, as Zhang Yiming has noted, there has basically been no Chinese internet company that has globalized very successfully.  He has no precedent. 
Qian Yingyi: Huawei has scientists all over the world. Are you doing the same now?
Zhang Yiming: We are also doing that. The advantage is that we can recruit relevant talent according to the characteristics of each country. Huawei established a mathematics research institute in Russia, because Eastern Europeans and Russians are very good at math. We are now recruiting in various countries according to the characteristics of each country and also the distribution of languages. We have many foreign employees abroad. 
Qian Yingyi: You are growing very well in Japan. Are you also recruiting local talent there?
Zhang Yiming: Yes.
Qian Yingyi: Not only Chinese?
Zhang Yiming: Right, local talent is still very important for truly localized operations.
Qian Yingyi: At present, 70% of Huawei’s income comes from overseas. When would you say Toutiao is a globalized company? In your mind, what does a globalized Toutiao look like?
Zhang Yiming: I have a small goal in my mind: when more than half of our users are from overseas. 
Qian Yingyi: Huawei used to say more than half of its revenue. What percentage of overseas users do you have now?
Zhang Yiming: 10%. 
Qian Yingyi: From 10% to 50%… 
Zhang Yiming: The gap is not so big. 
Qian Yingyi: So it is a small goal. How many years do you think you’ll need to get to 50% from 10%? A conservative guess.
Zhang Yiming: With that in mind, three years.
Tech Buzz: This answer was the reason I wanted to translate this interview! We do not have official statistics on TikTok users ex-China, which would be the bulk of Bytedance’s overseas users, especially now that they’ve shut down TopBuzz. However, Hootsuite seems to think it’s somewhere around 300mm MAU this January (800mm total, and TikTok China / Douyin was supposedly over 500mm already by EOY 2019).  Now, Bytedance had claimed its global MAU was over 1.5Bn by mid-2019, but that seems to be a simple addition across all products when it’s pretty clear that there must be a good amount of overlapping users between its various apps.  Either way, let’s suppose Bytedance gets to 1Bn MAU like WeChat and covers pretty much all of Chinese internet users, can it get another 700mm MAU for TikTok and other products in the next year and a half to reach 50% (3 years after this interview)? Not impossible!!  I don’t know that this is a “conservative” guess, but it’s within the realm of possibility for sure, maybe even probability, especially if covid19 continues to make it necessary to replace physical interactions with digital ones. The most impressive thing though, is that Zhang Yiming thought this back in 2018, and articulated it in front of a domestic audience, where its value as a PR soundbite is pretty limited and probably went straight over most people’s heads.  Actually, the fact that so much of this conversation is focused on globalization is by itself pretty fascinating.  Again, remember, at this point in 2018, Douyin was just at 70mm DAU, well behind Kuaishou and Toutiao was struggling with negative public perceptions. Which makes this statement about globalization seem like an even more audacious goal. 
Estimated MAU for TikTok (including Douyin) at 800mm as of January 2020, pre covid19.
Estimated MAU for TikTok (including Douyin) at 800mm as of January 2020, pre covid19.
Qian Yingyi: You’ve left a lot of room. From 2015 to now, it has only been over two years to get from 0 to 10%. Starting from 0 is particularly difficult, but when you succeed, it gives you a lot of confidence. The example of and the other stories you shared are very interesting: we are all victims of habit and convention, including when we think of globalization. Through the specific examples you gave and also what you’ve been able to achieve, it shows us that objective reality can be very different from what we are told by conventional wisdom.
Qian Yingyi: We’ve been talking about Toutiao and yourself, so now let’s go one level above. This era is indeed changing. We are all familiar with the three Internet giants in China: Baidu, Alibaba and Tencent, collectively referred to as “BAT.” Now a new word “TMD” has appeared, representing the new three giants, Toutiao, Meituan and Didi, whose combined valuation exceeds $100 billion.
It is said that the word “TMD” was created after you, Wang Xing and Cheng Wei had a small gathering during the Wuzhen Internet Conference in November 2016. First, is that true? 
Zhang Yiming: We never said that at the gathering, but roughly around that time the media began to use this word.
Tech Buzz: Again, it is “T” for Toutiao and not “B” for Bytedance because it was only after this interview that the company adopted Bytedance as its public-facing name. TMD is still used, but more and more Pinduoduo has overtaken Didi to be one of the “new generation” of Chinese internet giants Meituan and Bytedance.
Qian Yingyi: When the word “TMD” appeared at the end of 2016, your collective valuation was not so high, but now all of you sum up to $100 billion. This leads to a lot of interesting observations. For example, for “BAT,” Baidu is in Beijing, Alibaba is in Hangzhou, and Tencent is in Shenzhen.
Zhang Yiming: Yes, from north to south.
Qian Yingyi: “TMD” is different. All three of you are located in Beijing, very close to Tsinghua University. I have been to all three companies. You’re closest to Tsinghua, then Didi, then Meituan, you’re all roughly between the third ring road to the sixth. Why are you all in Beijing? Is this by accident, or there is a reason? 
Zhang Yiming: The overall infrastructure in Beijing is pretty good, and the most important thing is that there is a lot of talent. This wave is faster than the last one. Tencent reached $10 billion in valuation in 2008 but that took 10 years as it was founded in 1998, not as fast as people imagine. 
But “TMD” has taken much less time. Because the factors of production are plentiful in Beijing, including funding and talent. So there is some randomness to the fact that we are all in Beijing, but Beijing’s good infrastructure is very, very crucial.
Tech Buzz: Another important point is that Chinese venture capital was at an all-time high when this interview was being conducted in early 2018.  It’s since come down by quite a bit but was and continues to be significantly better than when TMD were founded much earlier in the decade.  In terms of talent, this map shows pretty clearly that Beijing has a disproportionate number of major universities in China.  We’re talking multiples higher than available in most other cities.
Source: Crunchbase. The numbers can vary quite a bit depending on who is collecting the data, but this rough trend is pretty consistent no matter which source you use.
Source: Crunchbase. The numbers can vary quite a bit depending on who is collecting the data, but this rough trend is pretty consistent no matter which source you use.
Qian Yingyi: Where you guys studied is also geographically similar. Two of you, Wang Xing and Cheng Wei, studied in Beijing, and you were in Tianjin, not too far from them. Interestingly, Cheng Wei is from Shangrao, Jiangxi province, while you and Wang Xing are both from Longyan, Fujian province. Apparently your parents know each other, which is so rare. Longyan is an old Communist revolution town, and often has top scorers on the national college entrance exam, and now we know that Longyan also produces entrepreneurs. Two leaders of “TMD” are from Longyan. Tell us something about what Longyan is like.
Zhang Yiming: About Longyan, we should note that the overall digitization and the popularity of the internet were both relatively early in Fujian. The internet became popular when I was in high school, so this may have something to do with Wang Xing and I becoming entrepreneurs.  The earlier you were exposed to the Internet, the earlier you became interested. The internet was popularized earlier in Fujian, so there are more internet entrepreneurs throughout Fujian.  
Tech Buzz: Usually most people like to attribute their successes to internal factors and failures to external circumstances.  It’s nice that Zhang Yiming acknowledges that he is a product of his environment and was, comparatively speaking, fairly lucky.  At least these days, Longyan as a whole is pretty well off, with its average annual salary for residents reaching ~$10,000 in 2018.  It is a city of almost 3 million people, of which the majority are of Hakka descent.  Besides Wang Xing and Zhang Yiming, another influential entrepreneur from Longyan is Fang Sanwen, who is the founder of Snowball Finance AKA Xueqiu, often called a Chinese version of SeekingAlpha.  
Qian Yingyi: What we’ve just been talking about are superficial things, but the rise of “TMD” is actually very significant. Why? I’m an economist. Economists have always been excited about the success of “BAT”, but we also have a concern: “winner takes all” is likely to happen in this situation, which delays further Innovation. Entrepreneurs may think “I didn’t seize my opportunity, now it’s all BAT’s, and I have no chance.“ That’s from the perspective of economists and individuals.
Toutiao, Meituan and Didi were all founded in such an environment. I especially want to hear from you whether you think there are any restrictions to new entrepreneurship opportunities that are posed by these technology-enabled platforms. How come Toutiao, Meituan and Didi succeeded under the shadow of "BAT”?
Zhang Yiming: Despite the internet rewards scale, we actually see more and more entrepreneurs and investors succeed, and the overall trend of entrepreneurship and innovation is getting better and better.
This is firstly because while scale is important, innovation is more so. A good macro environment is also needed. Whether it is the law or industry self-discipline, leaders must not abuse their scale and maintain a good competitive environment.
Secondly, the birth of Toutiao, Meituan or Didi is related to a new wave. Meituan was founded in 2010, Didi and us in 2012, and the rapid development of Meituan was also after 2012. When there are big changes, it’s like the movement of tectonic plates, the entire ecology will change again, and new species will have the opportunity to expand rapidly.
“When the big wave comes” is a very important foundation. The big wave is often brought by technological innovation, for example, from computers to the internet to the mobile internet. The “big wave” is a crucial timing. Wave after wave, but is the next wave still related to the internet? Not necessarily. Technology means to create things with new and better methods. Since new and better methods are now being used to create things, there must be a new wave being created. Generally speaking, new entrepreneurs have better opportunities.
Tech Buzz: Whether or not the BAT will stifle innovation (and competition!) in China has been hotly debated for most of the last decade.  Not surprising that the founder of one of the most successful upstarts gives this answer.  However, I think that the reality is a bit more complex than that.  Chinese internet giants often engage in anti-competitive practices that would not fly in the US, such as banning direct links and reposts, and Tencent in particular has been Bytedance’s nemesis for a while.  While yes, “TMD” have reached impressive scale, Bytedance is the only one to do so without significant capital and resources from BAT.  And even then, it did get investment from Alibaba-invested Weibo, although that is a pretty indirect connection, and so not comparable at all to the 20% Tencent owned in Meituan, for example.  So have these new internet darlings really beat (B)AT*, or do they just add to (B)AT’s ever expanding empire because (B)AT remain a key source of capital / funding and traffic / user acquisition, both very important “infrastructure factors,” as Zhang Yiming would say?
*I put B or Baidu in parentheses because it’s a distant third vis-a-vis Alibaba and Tencent, particularly the latter, who has invested in over 800 companies and 160 unicorns. 
Source: Crunchbase. The trend has only continued.
Source: Crunchbase. The trend has only continued.
Qian Yingyi: No matter how powerful BAT is, there are places they don’t see, or shall we say, they still make mistakes. We can see from your story, the fact that you could still rise in this situation, well, many people are curious about this. 
Zhang Yiming: First, accurately locate the market opportunity and be half a step ahead to the blue ocean. At the same time, when you’re in an environment of innovation, if you don’t take a step forward, you’re actually falling behind. So any enterprise has to maintain a keen sense of what’s happening outside. With the internet wave, Yahoo caught the portal navigation opportunity, but did not catch the search and social media opportunities. After failing to catch these two small waves, Yahoo faded away. This is also a reminder that companies have to remain active, or get swallowed up by more dynamic up-and-comers.
Tech Buzz: I find that many Chinese entrepreneurs have a similar perspective, and that is this sense that one’s lead is not secure and always under threat from competition.  Maybe it’s just that Chinese philosophy is rooted in the concept of “cycles,” loosely speaking, and the only constant is change.  Either way, there is little complacency, and in fact, the entire industry runs on anxiety.  It also looks like there’s a “lack of focus,” since that’s precisely what it is, the pressure to jump on every trend and not be left behind because you missed “the next wave.”
*BAT below refers to Baidu, Alibaba, Tencent.  TMD refers to Toutiao (ByteDance), Meituan (local services, including food delivery), Didi (ridesharing).
Qian Yingyi: The next problem is the similarities and differences between the two generations [of entrepreneurs]. Among the “BAT”, Jack Ma, Robin Li and Pony Ma were born in 1964, 1968 and 1971 respectively, and Tencent, Alibaba and Baidu were founded in 1998, 1999 and 2000. For “TMD”, Wang Xing was born in 1979, you and Cheng Wei were born in 1983; Meituan was founded a bit earlier than the rest in 2010, Toutiao and Didi were founded in 2012.
On average, the year of birth of the two groups of people is separated by 14 years, and the time of founding your companies by about 12 or 13 years. This is roughly the gap. A decade or so is not quite a new generation, but in terms of how quickly technology develops, it can be seen as two generations. Robin Li, Jack Ma and Pony Ma, two of them studied technology: Robin Li and Pony Ma. Jack Ma studied English. “TMD” is the same. You and Wang Xing [of Meituan] studied technology. Cheng Wei [of Didi] studied management.
What are your thoughts on the two generations of entrepreneurs? What are the similarities and differences between you? Of course the times are different, but please analyze and compare. 
Zhang Yiming: I have contact with them. We have learned a lot from “BAT” entrepreneurs. For example, I have read the book on Tencent. I think the similarities between us are: focus on the user experience, have users be the center, create value for users, and value our talent.
Differences: first of all, the entire domestic entrepreneurial environment around 2012 was relatively good, the internet penetration rate was high, and users adapted to our products and services quickly. Second, it was much easier for us to make and receive investment and also to recruit. I believe that things weren’t too bad in 1998 and 1999, before the dot com bubble burst, but recruitment was probably quite hard in 2001 and 2002. Nowadays internet companies are very competitive as places of employment. The college entrance test scores of the computer science department is said to be higher and higher each year because of good employment prospects. 
The TMD CEOs, from L to R: Wang Xing of Meituan, Zhang Yiming of ByteDance, and Cheng Wei of Didi.
The TMD CEOs, from L to R: Wang Xing of Meituan, Zhang Yiming of ByteDance, and Cheng Wei of Didi.
Qian Yingyi: They [the CS department] mainly compete with our school.
Zhang Yiming: Yes. Third, there is a greater supply of talent. Fourth, the new generation of entrepreneurs are trying to globalize earlier. It wasn’t only us that attempted globalization, Meituan and Didi also did. This is because we did not start behind overseas companies; we began at almost the same time. Fifth, we are more willing to develop new businesses. The two of them (Meituan and Didi) are developing new businesses that compete with each other. We are less afraid of failure, because of this high tolerance and overall good conditions, we’re more willing to take risks in general, so we can develop business faster. Everyone can see that this group of companies founded around 2012 is growing faster.
Tech Buzz: It’s important to emphasize here that as far as Zhang Yiming is concerned, he is not “behind” any of the US tech companies that started at the same time.  He is not alone in thinking this.  While this interview took place in 2018, it had actually already become the dominant narrative as early as 2016.  By the beginning of 2017, I remember attending conferences in Beijing where Chinese entrepreneurs began their keynotes with statements like “as we all know, China leads the world in consumer internet,” a sentiment that hasn’t changed and has only deepened since then.  Also by 2016, numerous experts proclaimed that the time for Chinese apps to globalize (in Chinese: 出海, or go abroad) had come.  To their credit, lots of Chinese companies such as APUS (software) and Xiaomi (hardware) were expanding abroad very quickly and doing so successfully.  APUS in particular was founded in 2014 but was already investing in India by the following year, which was quite aggressive for the time, but a great example of the optimism that infused the industry back then. Another worthwhile highlight is Zhang Yiming’s observation that the new crop of internet companies are more willing to “develop new businesses,” even if they encroach upon the turf of an existing category leader.  If there is opportunity, there is nothing that is off limits.  We have seen this from ByteDance’s own expansion into education, gaming, and more.  As for the Meituan and Didi battle, that has been ongoing since at least 2018, and there were even suggestions of an acquisition recently, given the overlap of services offered.  Lack of focus or pragmatic opportunism?  I am now increasingly of the belief it is the latter.  What do you think?
Meituan’s nonstop expansion into more and more product categories.
Meituan’s nonstop expansion into more and more product categories.
Qian Yingyi: I totally agree. The six of you have close contact, but it is true that TMD leaders are different mentally. In your opinion you guys are more willing to try something new. 
Zhang Yiming: Our group of entrepreneurs are not likely to “run out of money,” since as long as the business is good, we can always find investment. The environment is better.
Tech Buzz: While there has been a steep drop in venture capital funding in China since this interview took place, that should not affect top players like ByteDance.  But is it a problem overall?  Well, if you are to believe DCM, storied global (China + Japan) venture capital fund with Silicon Valley roots and their managing partner David Chao, this is what he said upon the close of their latest $880mm fund in July 2020: while there are some pension funds pulling out of investing in China, it’s probably not going to make a dent in the money being raised.  His argument? China is still going to grow faster than the US in the next decade, so capital will continue to flow. Your thoughts? 
Qian Yingyi: Some people metaphorically refer to “BAT” as the “first half” of the Internet, and “TMD” as the “second half”. What are the essential differences between these two halves in your opinion? Can artificial intelligence be used to define the so-called post-mobile era and post-internet era? There was “BAT”, followed by “TMD”, and then there will be other “XYZ” in the future that many people sitting here today want to be part of. This is the dream of many students born after 1995 and 2000. In your opinion, using time as a marker, what are your thoughts on the first half, the second half and the future overtime game?
Zhang Yiming: My impression is that the phrase “first half, second half” came from describing the disappearance of the “user dividend.” You won’t have many new users when most people have smartphones and have installed all the apps. Using this perspective, we see that typical internet applications work like that. 
After that, you won’t be able to exploit the user dividend through simple means such as marketing, but there are still several directions you can go for breakthroughs. You can go deeper, deepen the scenario / use case, provide a deeper service with a stronger value chain for the same group of users. You can go wider, either go global or open up new dimensions, such as Mobike or ofo who put a chip on bicycles to connect them to the Internet of Things, so you can think of that as a sort of extension. And now there is the Industrial internet of things (IIOT). That’s not part of the traditional consumer internet or corporate internet as we know it, it’s an extension.
There is another very important dimension, which is what I expect from Chinese internet technology companies. In the past, we have all worked with customers, but actually the to-B business is more difficult. The databases, cloud computing, chips, or even the payment systems that C-end [consumer] products use is actually the lower level of the ICT industry. If we can enter the enterprise infrastructure upstream after we are done with consumers, the entire Chinese technology industry will have been upgraded.
Tech Buzz: The “user dividend” (Chinese: 用户红利) pops up often in speeches by Chinese internet entrepreneurs, like this one by Wang Xing back in 2016. It’s a similar idea to the concept of “demographic dividend” (Chinese: 人口红利) that explained so much of China’s astounding growth in the past two decades, including its internet sector. (Basically, there are more young people than old, resulting in a boost in the economy because there are more folks working than there are not.)  You’ll see this analogy of “dividend” applied to all sorts of other internet concepts too, like “time spent dividend” (时长红利) and “traffic dividend” (流量红利).  In my opinion, this is an example of the Chinese mindset, where the environment matters as much as the product.  In the West, we talk about the entrepreneur’s biggest challenge as “solving a real problem,” but in China, it’s just as important that the founder is [also] taking advantage of “favorable macro conditions.”  Dividends are shorthand for these favorable tailwinds.  
Using this perspective, it should not surprise you ByteDance’s expansions into various other sectors.  One goes where the dividends are.  Especially when it comes to B2B products, which is a well-known growth opportunity in China.  No wonder that Bytedance has not only launched Lark and other productivity tools, but also a whole suite of enterprise products in its recently unveiled Volcano Engine.  I would not expect it to stop there. The (productivity? automation?) dividends are calling!
ByteDance unveiled its cloud services platform called “Volcano Engine” officially in July 2020.
ByteDance unveiled its cloud services platform called “Volcano Engine” officially in July 2020.
Qian Yingyi: Compared to Chinese companies, companies in other countries still have an advantage in the to-B [enterprise software] business. 
Zhang Yiming: Amazon excels in cloud computing, and Oracle and Salesforce do a good job as well in the to-B business. No matter whether it is to obtain the so-called user dividend, for marketing or social growth purposes, becoming more globalized will help in going more upstream and doing the more difficult work there.
Qian Yingyi: Upstream is deep technology, both of these are difficult. Or maybe you go beyond the traditional internet, which is also hardcore. From a broader perspective, the two countries with the most unicorn companies in the world are the United States in first place followed by China. If “BAT” was behind American companies 10 years ago, today “BAT” is up to par with those leading American companies, and “TMD” is even ahead of American companies that started in the same period.
The valuation of the three “TMD” companies might be even higher than the valuation of the top three unlisted unicorn companies in the United States. The valuation of the three “TMD” companies is now $100 billion, higher than Uber, Airbnb plus any other company in the U.S. What do you think of this? On the other hand, we also have our own characteristics and weaknesses. What do you think of that?
Zhang Yiming: We can’t say that we have too big of an advantage. Take ride hailing as an example, many countries have localized the services using regulations. If you look at single markets, yes, China has a large population, the overall growth of the economy is fast, the value of each customer is high, and China does not have so many car owners.
Airbnb has done a great job in globalization, but it is a relatively slow business. To eventually achieve greater results, a competitor needs to make a breakthrough either in the value chain or globalization. In the same few years, we haven’t surpassed them but we have at least achieved equal progress. A few years ago, “BAT” was basically one fifth of the market value of comparable American companies. Baidu’s listing price was about one fifth of Google’s market value, and this was considered quite high at the time. Now China’s entire economy has improved, as has the basic infrastructure, so these are all helpful factors. 
Tech Buzz: I don’t know how Robin Li will feel reading this portion of the interview but as of July 2020, Baidu’s market capitalization is only about 4% of Google’s ($42Bn vs $1Trn). Alibaba is at $480Bn, while Tencent is at $630Bn, versus Amazon at $1.4Trn and Facebook at $670Bn, two companies that are often cited as (very) rough Western analogues. Just using market capitalization as a proxy, it looks like BAT is about one-third now of Google / Facebook / Amazon. This is a highly flawed measure, but nonetheless one data point that is often used, and so one I thought worth updating.
Similarly, the TMD also has one notable underperformer, Didi, which has fallen by more than one-third from its peak valuation-wise.  As mentioned earlier, it’s even considered an acquisition target by Meituan, who is now trading at around $160Bn.  The main protagonist of our story, ByteDance, however, is rumored to be worth at least $100Bn.  While the US still exceeds China in terms of number of unicorns, its most valuable startups have fallen in value, not grown, such as Airbnb and the finally public Uber.  For this most recent batch of top (let’s again default to top 3) post-2010 internet companies, China has done significantly better than be “one-fifth” of the value of US counterparts.  It’s more at “3x” or even “5x” the value …! It will be mighty interesting to see what the next 10 years brings.
Youth is more important than maturity, don’t take a negative and critical attitude towards new things
Qian Yingyi: So far you’ve objectively analyzed globalization and deep tech companies. The last few questions are related to personal growth and insights.
I read a report about you once and was very impressed. You like to describe concepts using coordinates and matrices. You think that mathematics is the description of the basic relationship between material things. Even the advertising profit model and entrepreneurial strategies of ByteDance you have a set of sophisticated algorithms. Mathematics is a way of thinking. I used to study mathematics. What role does mathematics play in your way of thinking and working? We attach great importance to mathematics here, but students can’t see its usefulness, so please introduce what that might be.
Zhang Yiming: I couldn’t see it either when I was a student (laughs). Mathematics is important, but at the same time I think language is also very important. Both language and mathematics are tools for describing things. Sometimes things are suitable to be described by mathematics, and sometimes they are suitable to be described by language. Language and mathematics are both operations. For example, legal issues also have causal analysis and nested concepts, which is very similar to coding or mathematical proofs. When describing things using language, different adjectives can also be mapped with coordinates.
However, compared with mathematics, the description of language is more difficult to quantify. Many problems can not be solved well if they cannot be described accurately, so mathematics is needed. Take our recommendation system as an example, we make a user profile for each user. Many people think we describe each user with a lot of labels and words, but in fact, we regard profiling as a vector, they are relationships in a space. (Mathematics) is important in describing the advertising system, including the variety of descriptive content, the degree of convergence, and the degree of generalization, which all need to be quantified before they can be improved.
Qian Yingyi: You are born in the 80s, a very young successful entrepreneur. Many users of your product are even younger people, like Wukong Q&A, Xigua Video and so on. How do you make sure people born after 1990, 2000 or even 2010 like your products?
Zhang Yiming: This is actually quite challenging. I attach great importance to this matter myself. You said that user demand is changing and the product is evolving, so it is very important to stay young, our products are used by mostly young people.
Qian Yingyi: We’re all growing old, how to stay young?
Zhang Yiming: Spend more time on Douyin (laughs). We have an all-hands staff meeting every two months, and an employee once asked, how does the company become more mature? My thinking is the opposite, we should always stay young and don’t take a negative and critical attitude towards new things. There must be a reason for the emergence of new things. We must experience it, try it, and observe its development. We have many requirements for the team. Very early on, I found that the management team didn’t use Douyin and I was very anxious. I told them to shoot two short videos every month, they had to get a certain number of likes, as a way to force everyone to stay young. Our company’s corporate culture is to always be entrepreneurial. Similar to Amazon’s Always Day 1, we should always think like we do on the first day of the company, always wondering about what users are thinking.
Tech Buzz: Amazon (along with Nike, Netflix, Facebook, Google, and a host of other leading businesses globally) is one of the companies Zhang Yiming looks up to and “copies” from.  When I visited their Silicon Valley office, foil balloons in the shape of the letters and numbers that make up “Day 1” greeted me at the door.  The company unabashedly takes great ideas from others and adopts them as their own.  With attribution, too.  Not only are employees treated to posters proclaiming “Day 1” in the office (and sometimes bathrooms, too), they are told it sprouts from the wise mind of Jeff Bezos and are encouraged to read The Everything Store
A version of the Day 1 poster that hung in ByteDance offices in China. As you can see, The Everything Store is a recommended read at the company.
A version of the Day 1 poster that hung in ByteDance offices in China. As you can see, The Everything Store is a recommended read at the company.
Qian Yingyi: These words are the best publicity for Douyin. For sure the number of users will increase greatly; everyone wants to stay young. The following question is from my point of view. I teach at a university. What do you think college students should do in order to meet the needs of future technology companies, especially when it comes to training? There are also some teachers here in the audience.
Zhang Yiming: As an employer, we prefer people who can learn multiple skills and abilities. For example, many of our product managers were engineers, some of them were designers. The leader of the human resources department studied electronics, and the leader of the administration department studied computer science. Your major doesn’t matter that much. What is more important is the ability to learn a variety of knowledge, and maintaining that ability to learn may be more important than accumulating knowledge. Now you can get any information from the internet, so I think your ability to organize your knowledge structure and update it may be more important.
Tech Buzz: In countries like the US, this seems obvious: what you major in often doesn’t have much to do with your ultimate choice of vocation or employability.  But in China, there is still a lot of inertia behind the thinking that your field of study dictates your future career prospects.  Although this mindset is quickly receding, it continues to exist. 
Qian Yingyi: When you were in college, you were interested in biology. You studied electronics, computer science, and business administration. You also liked reading biographies.
Zhang Yiming: If I had the opportunity to learn again, I would learn more.
Qian Yingyi: Tell me two things you would want to learn.
Zhang Yiming: I want to learn more mathematics.
Qian Yingyi: Math is still valuable. Anything else?
Zhang Yiming: I want to learn more physics.
Qian Yingyi: We just opened a new physics course called a brief history of physics. When he was here, [Elon] Musk said that he double majored in physics in addition to business administration, which makes sense. Another question that many people wonder, there was no mobile internet when you were a student, and you just said that you read a lot of books systematically at the time. Now that everyone is reading pieces of content on the mobile Internet, what are your suggestions for students? In this case, everyone only reads some short messages, articles, and 15-second Douyin. Should we still systematically read paper books or e-books? Do you have any suggestions?
Zhang Yiming: I think Toutiao, Douyin, Wukong Q&A, or Xigua Video can all enrich and expand your horizons, and give you a lot of information.  However, I still think you have to read books, especially textbooks if you want to build up a basic knowledge structure.
Qian Yingyi: You mentioned two types of books. One is biographies. Tell us why we need to read textbooks. Textbooks are systematic, but may seem boring. Why do we need to read textbooks?
Zhang Yiming: Textbooks have the most concentrated and refined form of human knowledge. Popular science books can serve as general interest reading in certain fields, but in terms of concentrated knowledge, textbooks give you deeper insights. At school, it is still very important for teachers to supervise the study of textbooks.
Qian Yingyi: There is nothing else that can replace textbooks. It is the most systematic, structured, rigorous and refined type of book, relatively speaking. We’ve touched upon a lot of questions. The last question, what do you think is the most important thing for ByteDance in 2018? What is the most critical problem you have to solve as CEO in 2018?
Zhang Yiming: There are three things that are the most important for our company in our seventh year. For the company itself, I hope to continue to improve the company, including the management, culture and systems. As for business, I hope to go global. If (globalization) can succeed, it will be a milestone for us and a landmark for Chinese internet companies. Third, as a member of a society, a platform-based company, we hope to take on more corporate social responsibilities. In the past, we were more concerned about the growth of the business. Now we hope to put forward higher requirements for the management team and business leaders. We should not only care about business and globalization, but also have a broader perspective to understand and assume more social responsibilities.
Tech Buzz: Fast forward two years from the date of this interview, and that’s exactly what Zhang Yiming has done.  While he remains CEO of ByteDance, by creating new leadership roles for the company’s China business, he’s freed himself up to focus on global expansion and new initiatives, which is exactly what he has been saying is important to him all along.  His focus on upgrading the management and culture of the company also remains consistent.  Both of these points were emphasized in his letter to employees earlier this year on the eve of the company’s 8th anniversary in March 2020.  
Qian Yingyi: Business, globalization, corporate social responsibilities. There is still some time left, let’s have the students ask questions. 
Question: I am studying economics at the School of Economics and Management as my second degree. Many alumni in our department became product managers after graduation. Speaking of how to make products, I read a lot of articles that many think Toutiao [ByteDance] is a company relying heavily on data such as A/B testing for judgment. As a new generation product manager, is it better to judge based on data than your own intuition?
Zhang Yiming: This is a big misunderstanding of our company, a very big misunderstanding. We have always emphasized within the company that we need to communicate directly with users, get first-hand experience, and build perceptual knowledge. We think this is just as important as A/B testing. We are opposed to going from one logic to another, because that is easy to make big mistakes. First-hand experience can help us stay close to the truth. We are willing to bring the user’s feelings and experience to the company. The first thing we did when globalizing is to get feedback from overseas users. We provided contact information so that users can directly contact us.
Perceptual knowledge is very important. A/B tests cannot measure long-term goals. For many important judgments, especially in the early stages of the product, product intuition is very very important. You must have empathy with users to understand their feelings and do so through user interviews. As a product manager, the most important quality is empathy, not A/B tests.
Tech Buzz: This jives with what I’ve been able to glean from my research, but the impression of ByteDance as an only data reliant company persists. Part of it is because of the oft-repeated stories about ByteDance’s early days.  Why was the product called Jinri Toutiao? Because it performed the best in A/B tests.  How did the company decide to go after video in 2016, even though the field was so crowded and competitors so well-funded? Because they added a video option to Toutiao as an experiment and saw that users were spending up to half of their time there. 
Question: I am a class of 2021 undergraduate from Tsinghua SEM. We want to start a business, how can we prepare during our four years of college? As finance and management students, what other skills should we master in-depth other than our major in order to improve our future competitiveness?
Zhang Yiming: On starting a business, we must keep an eye on society and industry. Interest is a good mentor. The most important thing in starting a business is to find your direction. To be interested in things, you should read more news and learn more about other companies. 
I don’t have a good answer for the second question. (I think) It is very important to understand an industry, no matter what you do in the future.
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Unique insights and takeways on China tech that don’t always make it into English language coverage.
Unique insights and takeways on China tech that don’t always make it into English language coverage.
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