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Chinese Reactions to TikTok Ban

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Dear Tech Buzzers, I’ve (not fully) given up on the long newsletter that I started writing two weeks
 

Extra Buzz from Tech Buzz China with Pandaily

August 3 · Issue #19 · View online
Extra Buzz from Tech Buzz China with Pandaily

Dear Tech Buzzers,
I’ve (not fully) given up on the long newsletter that I started writing two weeks ago about the US ban of TikTok, which is taking an excruciatingly long time to unfold versus the decisive India action in June, something I’ve also written about. (TLDR; the fact that many of the “banned apps” weren’t even available at the time of ban or had minimal downloads in the Indian market makes it difficult for me personally to see it as an issue of upholding national sovereignty, but I digress.)
I did learn that sitting on a developing story actually makes it much harder to finish – the longer you’ve spent on it, the more result seems mediocre in comparison and doesn’t seem to justify the time spent, which then involves you spending even more time on it and (usually) worsening this ROT (return on time) measure.  So, I am trying something new. I am going to get this out the door today. And any corrections and addendums will come later.
And so here is today’s (free) Extra Buzz issue, for all Tech Buzz newsletter subscribers, which I hope entices more of you to turn into paying customers … !
Best,
Rui

Chinese Reactions to TikTok Ban
As Supchina has reported, there is a lot – I’d almost use the words overwhelming except it’s difficult to tell without proper analytics – anger at Zhang Yiming on the Chinese interwebs from regular netizens on his “meek acquiescence” to Trump’s demands. The (illogical) logic goes something like this – if Huawei could “keep up a fight” with foreign governments when its overseas revenue is something like half of the total, and TikTok is a measly 500 million dollars … why isn’t ByteDance putting up more of a fight? Furthermore, why doesn’t it just shut the app down?  (Clearly, these are not people who know how geometric growth and company valuations work.)  There is even fear that Chinese users’ data end up in the hands of the American government because of … I guess, distrust that ByteDance can sell the product to a US entity and not … have the US government somehow get their hands on the software and have the Chinese data be then compromised?  Something like that.  Less paranoid but no less cynical views are represented by this influencer (one of my favorites because of his hilarious sarcasm, not because of his insight), who asserts that this is all just Trump trying to cow all of Silicon Valley.  If I can do this to TikTok with its millions of users, what makes you think I can’t mess with you?  (On this last point, there are definitely folks here who think this is the beginning of how Trump corrupts the Valley, so … I don’t know what to say about that except at least he isn’t alone in thinking so?) 
Obviously, such speculations are not conducive to rational discussion, so I am not going to include any more words about them.  Instead, I’ve picked two articles that give you a sense of what more level-headed insiders are thinking, with my own personal commentary below:

Which I think is better titled as “Dear Facebook: TikTok is not Snapchat”
TLDR Summary: The leaked audio of Facebook’s Mark Zuckerberg rallying the company against TikTok was re-examined.  Kudos to Mark for understanding the grave threat TikTok poses to his social media empire, and we can go back to the how-Facebook-defeated-Snapchat playbook for clues on how Facebook might rise up to this challenge.  Effectively, copy, clone, and scale.  While yes, Lasso, Facebook’s first attempt at cloning TikTok has failed, we see that this trajectory is to be expected since Facebook did the same when trying to quash Snapchat’s rise (Poke and Slingshot and Threads etc.), but the ultimate winning solution was just to have it be part of Instagram itself (IG Stories).  But this worked because all of these apps were based on the social graph.  TikTok skips the social graph altogether. The app is not really a social one but an algorithmic entertainment platform.  This solves a few issues: 1) the user does not need to make any decisions about what to do … it comes to them in a stream, 2) because the distribution is algorithmic versus social, the platform can also create trending topics and is not just reliant on the users’ creativity, making working with brands and the like much easier; 3) it’s also more friendly towards new / unknown creators … they don’t need to be anyone or know anyone with an audience in order to become known because it’s all algorithmic! There’s more “upward mobility.”  This obsession with content creation is also something that US companies are becoming aware of – one of TikTok’s competitors, Triller, just hired well-known TikTok influencer as Chief Strategy Officer
Tech Buzz: I thought this piece made good points, although these are points that have been made over and over about ByteDance and its success.  So in addition to the points above, I wanted to emphasize that China and Chinese tech analysts overall have very high familiarity with what’s going on in the US ecosystem, even with very new, just emerging platforms, which you can see through the detailed recounting of Facebook’s past efforts.  Additionally, because ByteDance’s algorithm-driven success has been visibly successful in China beginning with Toutiao’s launch back in late 2012, the pros and cons of such a platform is just so much better-understood in China versus elsewhere.  I especially like point #2, which highlights the difference between a 1.0 platform like Facebook or Instagram, which might suggest to you what to watch, but not what to do, even today.  Part of this is because Chinese users are “lazier,” by which I really mean that the relative newness of creating content means that Chinese companies had to be more innovative about how to get the average user to, well … participate. (The story I like to cite is how difficult it was for the Chinese Tumblr clone diandian to get their users to post, a reason for his failure, and also a reason why Chinese companies are just better at these little details that lubricate the user experience … they’re generally working with less savvy users.)  If you’ve been listening / reading us, you know that campaigns are just part of it, there are also lots of subsidy programs, similar to the $200mm creator  fund that TikTok announced.  But campaigns are indeed a huge part of the platform (it’s the “Discovery” icon in TikTok, the first function after Home!) and we translated how ByteDance got that off the ground in China with Douyin.  Whatever gets users to create, is what ByteDance has figured out is one of the key levers they must use.  One final point on Triller – I actually worked briefly with this team on a project at the beginning of last year, and so know a bit about them.  The CEO, Mike Lu, is Chinese American and keeps an eye out on both markets. One of their investors, Jaeson Ma, who I also know, is similarly bicultural, and was just profiled today by a popular tech newsletter, where he talked about how his successful investment in musical.ly led him to Triller. +1 for immigrant / global citizen / multicultural founders and investors! 

Which I think is better titled as “What Really Matters is Who Wins in the Long Run”
TLDR Summary: This was primarily an interview with an “early investor” (2017 Series D, $1Bn raised at $10Bn valuation) Zhang Qian and her thoughts on the TikTok ban. She believes that all of this drama around TikTok is a learning opportunity for Zhang Yiming and team.  Also that he is very long-term oriented in his thinking and will not be pursuing any alternatives that only look good for the short term.  If given the opportunity, she would increase her stake in ByteDance by investing further.  She’s also not fearful that ByteDance’s valuation drops steeply in the case of a TikTok ban. Not only does the current business contribute minimal revenue, but there are plenty of other business opportunities both domestic and abroad.  Of course, it may affect the next round valuation.  The piece notes that ByteDance has been communicating to the investment community that they are accelerating developing new businesses in China, including new hit apps. In conclusion, TikTok has achieved a lot, but globalization comes with challenges, and real winners don’t complain about unfair environments, because that’s inevitable when you’re playing on such a large stage. 
Tech Buzz: Since this is an existing investor in ByteDance who is speaking on the record, I’d take her words with a grain of salt on whether or not she’s worried about ByteDance’s prospects and potential dips in valuation.  But even she acknowledges there is “less room for imagination” in the short-term valuation-wise for ByteDance.  However, what I do agree with her is that, based on all of my research on ByteDance over the last several months, and talking to people who know him firsthand, there’s every evidence Zhang Yiming plans for the long term, and won’t be just trying to squeeze every single dollar out of a potential TikTok sale.  Also, “born to be global” is his mantra for ByteDance, and the outsized success of TikTok has only proven him right, so I don’t see him letting up on those efforts, although I’m sure he’s going to adapt his tactics accordingly.  For example, pretty much everyone has noted that ByteDance’s government relations efforts came too little too late.  As for the investor’s line of thinking that running into difficulties is “unavoidable” for Chinese companies looking to globalize, this is very much echoed in nearly every conversation I’ve had with other Chinese VCs.  Chinese tech companies are the newcomers, and they have a tough road ahead.  The incumbents are not going to go down without a fight, so Chinese companies must upgrade themselves accordingly, in every aspect.  I think it’s also worth noting that Chinese companies are used to regulatory uncertainty at home, ByteDance included, not to mention egregious anticompetitive practices and immense competition, so in a sense, they’re more hardened to existential crises of this sort.  I wouldn’t say that they are just shrugging it off like it’s nothing, but with every opportunity comes risk, right?  There is an air of acceptance about it, and a “let’s move on to solution-finding.”  
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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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