Kuaishou, one of the main rivals to TikTok’s China sibling Douyin, showcased several fresh features for its text-to-video model Kling AI at the World Artificial Intelligence Conference (WAIC) in Shanghai last week, including the ability to generate videos up to 10 seconds. 

At WAIC, visitors queued to experience the Sora-like tool that is currently available by invitation only. Users sent simple prompts to generate videos, such as “a panda eating salmon” and “the Mona Lisa putting her glasses on with her hands”, with the resulting clips demonstrating Kling AI’s ability to render the inputs almost perfectly.

AI-generated videos have subsequently flooded the Chinese internet, with Kling AI being used to create clips featuring characters from historical films undertaking modern day tasks and spawning multiple memes.  

A video featuring Rong momo, a character from “My Fair Princess” who has become a well-known internet meme in China, feeding Princess Ziwei a chicken drumstick has gone viral on social platforms these days. The AI-generated video is based on the drama’s most famous scene in which Rong momo tortures Ziwei by repeatedly stabbing her with a needle.

Why it matters: Kuaishou will be hoping that its suite of self-developed large model series, including language model KwaiYii, image-focused Kolors, and video-centered Kling, will give it an edge as it continues to challenge to ByteDance’s Douyin and TikTok.

Details: More than 500,000 users have applied to help beta test Kling, senior vice president of Kuaishou Gai Kun revealed last weekend at a WAIC forum, with the number of videos generated reaching 7 million as of now. The Sora rival’s hype is such that English language posts teaching users outside of China how to apply for a Kling AI trial can be found on X, formerly known as Twitter.

• Kuaishou provided practical tips on the screen at the WAIC event, including advising users to use simple words and sentence structures and to avoid overly complex language. It also emphasized that its model is not sensitive to numbers, giving an example that if the prompt is “10 puppies on the beach,” the number might not be consistently maintained in its outputs.
• A member of staff from Kuaishou’s large language model team told TechNode that they were not at liberty to disclose the data used to train Kling AI, but indicated that it was open source.
• The TikTok rival meanwhile announced at WAIC that its Midjourney-like model Kolors would become open source, a move which Kuaishou said aims to contribute to a more prosperous ecosystem for the text-to-image generation community.
• Kuaishou’s investment in research and development has quadrupled over four years, with expenditure increasing from RMB 2.9 billion in 2019 to RMB 12.3 billion in 2023.

Context: Kuaishou, China’s second-largest short video company, launched its AI strategy in 2023, according to CEO Cheng Yixiao, who said that generative AI has a “very rich combination of business scenarios and huge value potential” for the content platform.

Editor’s note: ‘Landing AI’ is a series of special reports focusing on the field of Artificial Intelligence curated by TechNode. By investigating the development of AI landing in China and the behind-the-scenes stories of the industry, we’re going to dive deeper into everything that’s possible under the new wave of AI.

In a brief letter to Kuaishou staff from CEO Cheng Yixiao on Tuesday, the short video platform operator announced it had achieved its first yearly profitability since listing, and was offering staff vouchers of up to RMB 2,866 valid for purchases on Kuaishou as an expression of gratitude for employees’ efforts.

Why it matters: The rival to ByteDance’s Douyin (China’s TikTok sibling) accelerated its monetization efforts in real estate and short dramas after achieving its first quarterly profitability in the second quarter of 2023. Rapid growth of these sectors in turn appears to have boosted the Beijing-based company’s further attainment of quarterly profits.

Details: China’s second-largest short video platform, Kuaishou deepened its focus on the real estate industry in a recent restructuring following impressive sales results.

• The platform’s real estate operations saw housing agents and professional property influencers engage potential homebuyers via videos and livestreaming sessions, following up with on-site property viewings, and in some cases, remote contract signings resulting in the postal delivery of keys for their new house or apartment.
• According to data revealed by Kuaishou, during a one-month campaign in September, more than 5,500 properties were sold on the platform, valued at more than RMB 6.9 billion in total. In 2022, over 100 million users on Kuaishou watched real estate sales livestreams or related videos; total sales of the sector for that year surpassed RMB 10 billion.
• Mini web dramas, meanwhile, have served as another business sector with growth potential for Kuaishou. As widely popular short video platforms have reshaped user preferences for content delivering quick fire stimulation, short and cheap to make series with episodes lasting little more than five minutes, have gained favor with large Chinese audiences. 
• Kuaishou said last week that daily active viewers of its short dramas reached 270 million by the end of 2023, with 94 million people watching more than 10 episodes per day.

Context: In the first nine months of 2023, Kuaishou reported a net profit of RMB 2.79 billion compared with a loss of RMB 12.15 billion in the same period of the year before. 

China’s 618 shopping festival, the country’s mid-year online deals event, is coming to a close after a month-long campaign. This year’s 618 is the first major shopping event since China reopened in December, offering some insight into China’s current consumer sentiment. 

It’s also an interesting test for Chinese e-commerce giants Alibaba, JD, and Pinduoduo, all of whom have recently undergone management adjustments. Each company continues to face significant growth pressure in the face of fierce competition.

Alibaba, JD competing on lower prices with Pinduoduo

This year’s 618 festival encapsulates the escalating price war in China’s e-commerce industry. With the slowdown in economic growth, consumers are actively seeking cost-effective products. In response, multiple Chinese e-commerce platforms have followed Pinduoduo’s marketing strategy by offering higher discounts to attract buyers.

During the month-long mega promotion, Alibaba customers have received a discount of RMB 50 (about $7) for every RMB 300 spent across Tmall stores. In addition, Taobao has introduced an “RMB 10 billion subsidy” project, adopting a similar approach and bearing the same name as Pinduoduo’s signature campaign. Through this channel, products were directly sold at lower prices without the usually complicated coupon application.

JD, with former CFO Sandy Xu recently taking over as CEO, offered the most generous discounts compared to other platforms. Buyers have been able to get RMB 50 back for every RMB 299 spent. Prior to the festival, Trudy Dai, CEO of Alibaba’s newly independent Taobao Tmall Commerce Group, expressed the platforms’ commitment to making a “historical investment” in this year’s event, while JD announced its intention to undertake “industry-wide investment efforts” during the festival.

Pinduoduo, known for selling ultra-low prices goods, prominently displayed a slogan on its 618 promotion interface that roughly translates to “no need to compare with other platforms because we offer the lowest prices.” Pinduoduo has also been offering RMB 30 off for every RMB 200 spent.

“Encouraging consumption became the priority for the government, the market, and the e-commerce platforms in all aspects,” said Fabian Sinn, a managing partner at e-commerce marketing firm Genuine. “As a result, there were more subsidies and more affordable prices to attract consumers and stimulate the market’s economic recovery.”

Retail sales, as a key figure indicates consumer confidence, rose 12.7% in May, falling short of market expectations and down from 18.4% in April. The recovery in China’s consumption sector is not as strong as it appears.

The rise of Pinduoduo, which has steadily gained market share in an e-commerce industry once dominated by Taobao and JD, has combined with the emergence of live commerce platforms like Douyin and Kuaishou in recent years to have a significant impact on price-sensitive consumers. These consumers now consider the price differentials and after-sales services offered by various shopping outlets when making their purchasing decisions.

Copying from each other’s playbooks

In a heated competition, Chinese e-commerce platforms are copying strategies from each other. Rising content commerce platforms like Douyin and Kuaishou are copying from the majors, trying to offer more serious online shopping experiences like Taobao and JD on their apps, adding new dedicated shopping sections rather than directing people to shop while they are watching content like they used to. While majors like Alibaba and JD are trying to offer more video entertainment and content, making the shopping experience more casual in their apps. 

Douyin and Kuaishou, known for stimulating consumption via livestreaming and short videos, have focused on leveraging various promotional activities to drive sales through dedicated shopping channels called “marketplace,” where product listings can be displayed in columns. 

Wei Wenwen, president of Douyin’s e-commerce unit, recently highlighted at the TikTok sibling’s ecosystem conference that the GMV generated from the “marketplace” accounted for over 30% of its total sales in 2022.

Douyin and Kuaishou “have been steadily capturing more market share, despite offering similar products to other major platforms,” Jacob Cooke, CEO of WPIC, an e-commerce tech and marketing firm that helps foreign brands sell in China, told TechNode.

“People use these short-video apps for entertainment and knowledge acquisition,” added Cooke, “and the platforms have cleverly integrated e-commerce so that users are exposed to brands and products that relate to their interests, which has been a catalyst for impulse buying and consumer engagement.”

Mainstream shopping sites are adopting a content-driven approach as a defensive strategy to promote sales. The content-based browsing was repeatedly emphasized by Trudy Dai at the 618 Merchant Conference held on May 10. Dai promised that Taobao would provide a wide range of products, short videos, and livestreaming services to enhance user engagement.

Alibaba is investing heavily in its content ecosystem. The e-commerce giant announced at the Merchant Conference that over 50,000 new livestreaming hosts would make their debut during the annual mid-year discounts on Taobao and Tmall. 

Notably, on May 31, US tech giant Apple made its first foray into livestreaming on Tmall, an event that drew 1.28 million viewers. Football celebrity Messi also joined Taobao Live for nearly 20 minutes on June 14, as part of his Chinese trip schedule, which drew over 2.5 million viewers and even caused the stuttering of the livestream event when Messi came onto the scene.

JD Live is also leveraging top influencers to attract user transactions. Smartisan Technology founder Luo Yonghao, who previously had an exclusive partnership with Douyin, joined JD’s livestream on May 31 and helped sell goods for more than RMB 150 million.

Chinese short-video platform Kuaishou reported impressive growth in home appliance sales on the platform as China’s mid-year 618 shopping festival gets underway. Kuaishou saw single-day GMV of home appliances on June 1 top RMB 100 million ($14 million), a 42-fold increase compared to last year, data from the company showed.

Why it matters: Kuaishou is seeing results from the continued expansion e-commerce on the platform. In 2022, the Chinese short video platform generated over RMB 900 billion from its livestream commerce business. 

• Chinese content platforms, whether short video apps such as Douyin and Kuaishou or social content apps like Xiaohongshu, are increasingly looking at e-commerce as a way to commercialize their popularity. 

Details: In the first three days of June, the GMV growth rate of household appliances that have high unit prices on Kuaishou increased by nearly 500% from a year earlier, making it the category with the largest increase, according to data released by the firm.

• On June 1, 15 merchants selling home appliances saw their total sales exceed RMB 1 million. Chinese brands TCL, Haier, and Aucma were the top three brands in terms of sales volume.
• Taking the Haier 470L refrigerator as an example, users can purchase it for RMB 3,599 in Haier’s official store on Kuaishou. This price is consistent with the flagship Taobao store of the brand. But users can earn cashback of RMB 300 after they complete their order on Kuaishou. However, the same refrigerator is priced at RMB 3,099 on value-oriented platform Pinduoduo.
• In 2022, the repurchase rate of Kuaishou’s e-commerce business was basically stable at 70%, according to data compiled by Southwest Securities. Meanwhile, Kuaishou recorded over 100 million monthly active paying e-commerce users in the third quarter of 2022; it did not update these figures in its latest earnings report. 
• The Douyin rival launched the “Stream Initiative” program this January, which aims to help merchants identify their target customer base through KOL (influencer) distribution and accurately recommend merchants’ self-operated livestreams to potential clients.
• Since the first quarter of 2023, Kuaishou has started to charge commission revenue from influencer distribution.

Context: Categories with higher unit prices, such as home appliances and consumer electronics, are currently showing more growth on Chinese mainstream live-commerce platforms, although the timeframe of the statistics differs from platform to platform.

• TikTok sister app Douyin saw GMV generated from the home appliance industry increase 808% compared to the same period last year during this year’s 618 pre-sale period, which started from May 25 and lasted five days. Douyin saw seven home appliance brands surpass RMB 50 million in sales on the platform.

Kuaishou, China’s second-largest short video firm, has achieved a quarterly profit for the first time since its listing in early 2021, thanks to strong growth of its short video drama series, recovery ad revenue in China, growth in e-commerce revenues, and narrowed losses overseas. The company reported an adjusted net income of RMB 42 million ($6 million) in the January to March period, compared to a loss of RMB 3.722 billion a year earlier.

Why it matters: It is still uncertain whether Kuaishou can sustain its profitability going forward. The company’s first quarter profit was driven mostly by growth and recovery in the Chinese market, which generates 98% of the company’s revenue. Kuaishou has managed to narrow losses by 55% in its overseas revenue. 

Domestic business: Short soap opera-style video series are a key offering that sets Kuaishou apart from other short video platforms, both in its domestic and overseas operations. These short video series, catering to mobile video audiences, have attracted more advertisers for the company and become a growth driver. In the first quarter of 2023, revenue from advertising sponsorship of Kuaishou’s short video dramas increased by more than 300% year-over-year.

• Kuaishou launched a total of 55 short video dramas during the 2023 winter break period. Among them, a show called Donglan Snow accumulated 100 million viewers within a record-breaking 40 hours of its launch, according to the company’s earnings report.
• Beijing-based Kuaishou has been profitable for four consecutive quarters in its domestic business, with operating profit standing at RMB 963 million during the latest quarter. 
• Kuaishou’s advertising business generated revenue of RMB 13.1 billion, marking a 15.1% yearly increase. Online marketing services and livestream business accounted for nearly 90% of Kuaishou revenue in the quarter that ended in March, while the e-commerce sector is gradually providing a boost to the short video platform. 
• Kuaishou’s livestream business revenue grew 18.8% reaching RMB 9.32 billion, and the number of monthly paying livestream users increased by 6.4% to 60.1 million in the first quarter of 2023.
• With an increasing number of monthly active paying e-commerce users and a rising average order price, Kuaishou’s e-commerce business achieved total sales of RMB 2.25 trillion in the first quarter. This contributed to a yearly growth of over 50% in other services, including e-commerce, totaling RMB 2.834 billion.
• Cheng Yixiao, the founder and CEO of Kuaishou, also told an earnings call that the company’s large language model is in the “training phase” and is leveraging the firm’s “previous technical expertise in AIGC algorithms and LLMs.” Kuaishou has already established an LLM model research and development team to explore the application of AI technology in its products.

Overseas business: Kuaishou’s overseas operations are currently focused on Latin America, with the short-form video app Kwai running in countries such as Brazil, while it also operates the SnackVideo app in Indonesia. This quarter, Kuaishou’s revenue outside of China grew more than six times year-over-year to RMB 338 million. The firm’s overseas business has maintained an extremely high growth rate for nearly a year, recording a 1,328.5% increase in revenue growth in the second quarter of last year alone.

• However, its overseas business remains in the red, even as its operating loss narrowed by 55.42% year-on-year to RMB 823 million in the first quarter.
• The TikTok rival did not release the latest data on daily active users and user time spent in markets including Brazil and Indonesia, but said “both have improved.” As of last June, overseas daily active users spent an average of more than 60 minutes a day.
• Kuaishou has also launched a content model in Latin America called TeleKwai, which aims to provide distribution opportunities for short video pieces created by local producers and content creators, usually under two minutes in length.

With its peak daily order volume for food deliveries surpassing 60 million last year, Meituan continues to sit pretty at the top of the tree when it comes to China’s local life services sector. The app spans everything from movie tickets and restaurant bookings to medical appointments, and recorded a total of 677.9 million users making transactions in 2022.

Yet Meituan’s dominance is increasingly facing challenges. Major Chinese companies including social media platform Xiaohongshu and ByteDance-owned TikTok sibling Douyin have been making inroads into the local life services market as Covid restrictions have eased. By linking consumers with nearby service providers or merchants and encouraging them to make purchases digitally before going to have the experience offline, these newcomers are looking to such transactions as a way to monetize their huge user bases.

For the moment, Meituan claims to be unperturbed. Meituan CEO Wang Xing described Douyin’s expansion into food delivery as having “a limited impact” on the company during its Q1 earnings call. However, the delivery platform recently made takeout livestreaming a monthly event and has launched group-buy delivery services in what many see as a bid to stay competitive in the face of these new entrants.

The total size of the local life services market is expected to reach RMB 35 trillion in China by 2025, though its online penetration rate was only 12.7% in 2021, according to data from Chinese research firm iResearch and cited by Chinese media outlet 21jingji, meaning there’s still plenty to play for.

Here’s a short introduction to new players in this vibrant market.

Xiaohongshu

Experience-sharing lifestyle platform Xiaohongshu, the latest major entrant to this competitive sector, has over 260 million monthly active users. The platform has maintained a thriving user base and sense of community for years and serves as a lifestyle search engine for many of its users. Now, it is making one of the biggest moves in the local life sector.

Xiaohongshu is currently inviting caterers and service providers to test the sale of group-buying packages on its platform. Participating merchants can sign up without paying a deposit or commission to Xiaohongshu for revenue earned through the service, according to tech media outlet GeekPark. Meanwhile, the platform’s influencers are able to earn commission by posting information about retailers that offer group buy options.

If the Shanghai-based company can leverage its feed algorithms while encouraging users to complete transactions within the app, it may see Xiaohongshu emerge as a serious challenger to Meituan, while also accelerating the company’s monetization quest. In 2020, 80% of Xiaohongshu’s revenue was generated by ads, the Financial Times previously reported, citing research firm LeadLeo, but the company is increasingly looking to diversify its revenue streams.

READ MORE: Xiaohongshu bets on e-commerce livestreaming to accelerate monetization: report

Douyin

Douyin has made significant strides in expanding its presence in the local life market, with its services sector reportedly generating over RMB 77 billion ($11.1 billion) in total sales last year, while advertising revenue amounted to just RMB 8.3 billion.

Growth in the platform’s brightest business continues to be strong. Local media outlet 36Kr reported that the unit generated more than RMB 10 billion in GMV in every single month in the first quarter of this year.

The TikTok sibling app has expanded its offerings to include group-buy delivery, sightseeing tickets, hotel reservations, and manicures in recent months. In mid-2022, Douyin allowed short video viewers to order meals directly on the app through a mini-program operated by Alibaba’s food delivery service Ele.me. In March, the service was introduced to 15 new cities, expanding the service to a total of 18 locations in China.

These efforts reflect the fact that ByteDance, Douyin’s owner, is stepping up its push to monetize users on the widely popular platform.

The head of Douyin’s local life business, Zhu Shiyu, recently stated that life services was a vast market worth more than ten trillion yuan, and that only a small proportion of transactions were currently being conducted online.

Kuaishou

Kuaishou, another leading short video-sharing platform in China with 366 million daily active users, has been expanding its presence in the local life services space in an effort to also capture market share, although it currently has less of a presence than rivals Douyin and Meituan.

Kuaishou had been active in offering lifestyle services in Shanghai, Qingdao, and Harbin, with Hangzhou the next major city to see local services rolled out. Kuaishou aims to provide local life services for different cities through a replicable model developed through experimentation. The short video operator incentivizes local merchants to sign up for the service while supporting local influencers who are willing to promote shops on the app.

Xiaogu, head of Kuaishou’s local life business unit, noted that since it entered the Qingdao market on Feb. 10, it has added over 300 local businesses. Kuaishou reportedly recorded around RMB 5 million in local sales in the seaside city in its first month, and already saw some influencers generate around 200,000 yuan in a single month.

Major Chinese tech companies like Xiaomi and Baidu are increasing their offerings in fictional short video series, an area in which established short-video platforms Douyin and Kuaishou excel. These short dramas are typically low-budget, under 10 minutes per episode, made for verticle viewing and target mobile users. Many of these short video dramas are adapted from web fiction, some are original content. 

Local online media Tech Planet reported on Monday that ByteDance, Baidu, and Xiaomi have recently increased their offering in short video series and are looking to “deeply cultivate the online literature and short drama industries”.

Why it matters: The adaptation of web fiction and online literature into new “mini-dramas” offers Chinese internet companies a new model for monetization amid sluggish advertising growth – potentially attracting new users and increasing time spent on the app. Tencent, Kuaishou, and Alibaba are all considering expanding their presence in the sector according to the report.

Details: The report said that Baidu, Xiaomi, and ByteDance are keeping the production cycle for these short video series within 10 days, with production costs mostly within hundreds of thousands of yuan (under $1,400). 

• The report said Xiaomi has recently launched an app called “Duohua short video (our translation)” allowing paid users to watch short video series, which are still mainly provided by third parties. The Chinese phone vendor acquired e-reader service provider Duokan Technology in 2012 and now offers third-party web novels through the app.
• Baidu’s online free novel app Qimao also plans to start a short video business, and has been hiring related talents recently, the report said.
• TikTok’s parent company ByteDance started its online novel business in 2015. Its free literature app Tomato Novel has reached 93.27 million monthly active users as of December 2021, and the Beijing-based firm also has at least eight paid novel apps. The company uses Douyin, which has more than 600 million active daily users, to distribute short video series.
• Douyin also sees the online novel business as a new way to tap into more potential users, with TikTok’s sister platform testing a dedicated novel channel on the homepage of its tablet app this June, which allowed users to select and read e-books. 
• Short-video platform Kuaishou also excels in short video series. There are more than 2,000 series with over 100 million views on the platform, with genre spanning from romance, country to animation.
• Kuaishoul also launched its first novel app Kuaishou Free Novel this September.
• Kuaishou and Douyin have already launched numerous short series, with the former stating in its creator meeting held in July that the number of daily users watching Kuaishou mini-series has surpassed 260 million, and half of these users watch more than 10 episodes on the app every day.
• Chinese long-form video platforms, including Youku, iQiyi, and Tencent video, have also invested in short series productions and added a quick link to this content type on their apps’ home pages.

Context: China’s web literature market size has exceeded RMB 30 billion with 502 million users by the end of 2021, according to a report conducted by the Chinese Academy of Social Sciences.

• Major internet companies recorded a slowdown in advertising growth amid sluggish macroeconomic environment, for example, Kuaishou posted a 6.2% growth in advertising revenue in the third quarter, compared to a 32.6%, 10.5%  growth year-over-year in the first and second quarter this year, respectively.

Chinese short video platform Kuaishou has undertaken an organizational restructuring in recent weeks after setting up a new management committee in early August.

Why it matters: Kuaishou’s latest reshuffle, one of a number of organizational adjustments the company has made over the past year, reflects the firm’s emphasis on e-commerce and local life services as major avenues for new growth.

Details: CEO Cheng Yixiao will lead Kuaishou’s e-commerce unit from mid-September, in a sign of this sector’s growing importance within the company. The Douyin rival has also upgraded its local life services unit, carving it out as an independent business department and placing it under the leadership of Xiao Gu, Kuaishou’s senior vice president and former head of the e-commerce sector.

• The internal adjustment will also see Kuaishou increase the operating budget for local life services, according to Chinese media outlet LatePost, with the newly established department set to build its own sales team and actively approach more service providers as it looks to compete with Douyin.
• Kuaishou’s e-commerce GMV reached RMB 680 billion ($97 billion) in 2021. Caixin previously reported that the company set a 2022 GMV target of RMB 900 billion, but reached just RMB 366.3 billion in the first half of this year.
• Overseas business is also now a priority for Kuaishou, after the company created a new department for international commercialization in March. Local media outlet Jiemian reported last week that the department has divided overseas markets into three tiers, with the top tier occupied by Brazil and Indonesia, countries where Kuaishou has the largest daily active user numbers outside of China.

Context: Advertising revenue generated by its e-commerce business has allowed Kuaishou to grow its income despite a sluggish macro environment in which most Chinese internet companies have seen a sharp decline in advertising.

• As China’s economy slows, Kuaishou is also focusing on commercialization and attracting local advertisers in Latin America, Southeast Asia, and the Middle East, largely avoiding European and American markets where TikTok is dominant.

TikTok’s Chinese rival Kuaishou posted better-than-expected financials for the fourth quarter of last year, but the company’s shares dropped more than 6% as regulators signaled a tightened scrutiny of livestreaming e-commerce.

Why it matters: Kuaishou’s share drop reflects market concerns over further potential regulatory measures aimed at the livestreaming industry. The Chinese government has already stopped some of the top livestreaming celebrities, such as Viya and Cherie, from livestreaming and removed their public social media profiles due to their tax evasion behaviors.

READ MORE: The Big Sell | Tamed livestreamers and Tencent stake cuts 

Details: Kuaishou’s revenue increased by 35.0% in a year to RMB 24.4 billion ($3.8 billion) in the fourth quarter of 2021, exceeding the high end of forecasts ($3.76 billion) compiled by Yahoo Finance. The company’s total revenues for 2021 grew by 37.9% year on year to RMB 81.1 billion.

• However, the company’s shares dropped 6.24% today on the Hong Kong stock exchange despite opening high this morning after its Tuesday earnings report. A commentary posted by China’s state-backed China Taxation News may have triggered a change in market sentiment, according to local media. The state tax media called for stricter taxation policies for livestreamers.
• Analysts remain bullish on the long-term prospects of the company. Thomas Chong, analyst of investment bank Jefferies, said he expects “market share gains to continue in online marketing and e-commerce GMV with solid user growth trends and rising engagement” in the first quarter of 2022. 
• The company’s annual report also revealed a major change in its revenue structure. Online marketing services overtook livestreaming to become the firm’s largest revenue source in 2021. Kuaishou’s online marketing services recorded RMB 42.7 billion of revenue last year, a 95.2% yearly increase. That’s 52.6% of the company’s total revenue, up from 37.2% a year earlier. Meanwhile, livestreaming revenue decreased by 6.7% in a year to RMB 31 billion in 2021. Its share of the company’s total revenue dropped to 38.2% in 2021 from 56.5% in 2020.
• E-commerce is another revenue driver for the company. Revenue for the company’s other services, mainly e-commerce, doubled to RMB7.4 billion in 2021. The company attributes the growth to “optimizing supply, content, services, technology and user experience.”
• The company’s globalization initiative, a move to compete with ByteDance on the international market, started to show “positive effects” in the fourth quarter after boosting operational efficiency and implementing more disciplined budget plans. The company said it saw increased daily active users, user time spent, and retention rates in the overseas market without further details.
• Kuaishou’s average monthly active users hit 578.0 million in the fourth quarter of 2021, growing 21.5% in a year.

Context: After a high-profile IPO in March 2021, Kuaishou has been fighting an uphill battle amid fierce domestic competition from TikTok sister app Douyin. The Beijing-based company recently underwent massive layoffs alongside other Chinese tech majors downsizing in the economic downturn. 

• Kuaishou made its overseas business a priority in March by creating a new department for international commercialization.

Additional contributions by Ward Zhou

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees. The company is the latest Chinese tech firm to cut workers as Beijing enters the second year of tightening regulations. 

Why it matters: Youzan, which develops software helping merchants to sell products on various Chinese online platforms, has faced substantial challenges as one of its major clients, social video giant Kuaishou, is developing its own software services as it aims to rake more profit from the booming livestream retail sector.

• The contribution from marketers on Kuaishou has fallen by half from its highest level when it accounted for 20% of Youzan’s gross merchandise volume (GMV) in the first half of 2021, according to its interim financial report released in August.

Details: Earlier this month, Hong Kong-listed Youzan kicked off a wave of layoffs in departments involving research and development (R&D), Chinese media Sina Tech reported Thursday, citing people with knowledge of the matter.

• More job cuts will be conducted among various departments this year, as the people estimated that more than 1,500 employees would be forced to leave the company. Hangzhou-headquartered Youzan had 4,358 employees as of Sept. 30.
• The company recently parted ways with Chen Jinhui, a former executive at Baidu’s takeaway service who joined the company as a vice president of sales channels in mid-2017.
• Youzan did not immediately respond to TechNode’s request for comment.

Context: Multiple Chinese big tech companies, including Bytedance, Baidu, and Kuaishou, have been carrying out layoffs and lowering their growth targets amid a slowing economy and a tightened regulatory environment.

• Youzan reported a 10% year-on-year decrease in revenue to RMB 1.17 billion (around $185 million) for the first three quarters of 2021, while its losses nearly doubled from RMB 340 million in the same period of 2020.

Read more: INSIGHTS│The TechNode community reviews China tech 2021

Chinese short video platform Kuaishou has opened its e-commerce store to local merchants managing online-to-offline services, including everything from food delivery to hospitality.

Why it matters: Continuing its recent focus on e-commerce, the Beijing-based company is expanding into the competitive local services market, which already includes fierce rivals such as Meituan, ByteDance’s Douyin, and Alibaba’s Alipay.

• Kuaishou’s move to extend its homegrown services business comes on the heels of a December partnership with Meituan. Under the deal, Kuaishou users have gained access to Meituan’s services through a Meituan mini-program within the short video app.
• The short video app has begun venturing into e-commerce, along with livestreaming and gaming, to commercialize its user base.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: In addition to physical products, merchants can now sell various services through Kuaishou’s online store Kwai Shop, according to a Tuesday statement from the company.

• Merchants offering 15 categories of services, including food and drink, hospitality, healthcare, entertainment, film, and transportation ticketing, can apply to set up their own stores on the platform from Jan. 15.
• With their own Kuaishou store, merchants can manage their service listings to drive transactions and potentially convert online customer attention into offline service sales.
• To attract merchants, the platform is offering incentives to business operators. Kuaishou has pledged to encourage new store registrations with a promotion plan that offers individual stores up to RMB 1,000 ($158) and viewership from 50,000 customers.
• American chain KFC, hotpot chain Haidilao, Meituan’s hotel booking service, and healthcare clinic chain iKang are among the earliest brands to launch their stores on the platform.
• “The growth of the traditional in-store group-buying business model is slowing down, and merchants are in urgent need of new service models to attract users and to promote purchasing frequency,” Zhu Yunbo, head of Kuaishou’s local life service unit, said in a statement shared with TechNode on Tuesday. 

Context: Kuaishou, China’s second-largest short video-sharing app, reportedly laid off up to 30% of its workforce in December as Chinese tech giants weather a market downturn.

• Rival ByteDance has been increasing investments in the online services market over the past year with the most recent move being the acquisition of cinema ticketing platform Yingtuobang this week.

Livestream e-commerce is proving to be a trend with staying power, rather than a flash-in-the-pan phenomenon driven by pandemic-crazed online consumption.

E-commerce sales achieved through livestreaming represented more than 10% of China’s total online retail sales in 2020, according to data from iResearch. The research agency forecasts that the proportion will reach 24.3% by 2023. 

E-commerce giants, such as Alibaba and JD.com, as well as short video sites, notably Douyin and Kuaishou, have tapped into the livestream boom to boost their online commerce businesses.

For now, e-commerce platforms still rule the livestreaming roost, but Douyin and Kuaishou are catching up quickly as Chinese users’ experience and shopping preferences evolve. Experts we talked to said short video apps pose a threat to Alibaba’s dominance in live e-commerce.

READ MORE: How e-commerce and livestreaming became frenemies

Same service, different operating rationales

From a user’s perspective, e-commerce and short video apps offer very similar livestream shopping experiences. However, the operational models of these two types of platforms mean they approach live e-commerce differently.

Users on e-commerce platforms like Taobao and JD open these apps with clear shopping intentions. Therefore, the livestream sales performance of stores on Alibaba’s Tmall depends on the traffic to the store or brand itself, an employee from a business process outsourcing company in the livestream industry told TechNode. 

“If the store (brand) is well-recognized and has its own user base, the sales will be high, and vice versa,” he explained, asking to stay anonymous because his employer did not give him the permission to speak.

Meanwhile, the primary goal of livestreaming on Douyin is always to drive sales—not platform branding or customer relations—said the same source. “Most Douyin users haven’t established the habit of shopping on the short video platform. It’s highly probable that they are diverted to the livestreaming session for potential impulse buys while browsing some funny video clips.” 

It’s thus not surprising that Taobao’s traffic is more stable while traffic from Douyin and Kuaishou tends to be sporadic and unpredictable. The difference in platforms leads to different demands on livestreamers and support teams. Tmall store livestreamers tend to adopt a lean approach. One livestreamer can run a session after becoming familiar with prices and basic product information.

In contrast, Douyin’s livestreamers, whose primary goal is to retain audience attention and convert that attention into sales, usually need about three support staff to run a session. The extra staff perform tasks such as uploading the product links and changing prices, he explained.

Douyin versus Kuaishou

As for the livestream battle within the short video arena, Douyin has the upper hand over Kuaishou so far. Douyin aims to reach RMB 1 trillion ($160 billion) in gross merchandise value (GMV) on its platform this year. Meanwhile, Kuaishou expects to achieve a GMV of RMB 650 billion this year. That’s a downsized adjustment from the beginning of the year, when it set a GMV target of between RMB 750 billion and RMB 800 billion. 

“Kuaishou’s commercialization started earlier by building e-commerce based on social trust and connecting directly to the starting point of the supply chain,” said Xin Youzhi, a top livestreamer widely known as Xin Ba. He has 95.6 million followers on Kuaishou. 

To compare Kuaishou and Douyin, the livestreamer sales star explained that Kuaishou has a strong bond with users, who have dubbed themselves lao tie, or “buddies” in English, a term of endearment for the fans of livestream hosts. First gaining popularity among users in China’s lower-tier cities, the Tencent-backed firm is often described as the less sophisticated rival of ByteDance-owned Douyin. 

Merchants on Kuaishou were among the first to adopt the C2M (consumer-to-manufacturer) model, under which they directly give user feedback to upstream supply chain manufacturers. They thus can significantly reduce the marginal and intermediate costs and enable customers to buy more affordable products.

Meanwhile, Douyin has more social media features than Kuaishou. But the two video platforms are learning from each other to strengthen their e-commerce ecosystems, said Xin.

Short video as e-commerce challengers

E-commerce platforms are still far ahead in livestream e-commerce revenues. Taobao Live achieved a GMV of more than RMB 500 billion in the 2021 fiscal year ended March 2021. Douyin’s livestream GMV was RMB 100 million in 2020, according to a comparable fiscal calculation standard adopted by Alibaba. Douyin boasted a livestream GMV of RMB 500 billion in 2020, of which RMB 100 million was achieved through Douyin stores, according to a report by Forward Research Institute.

Compared with e-commerce platforms, short video platforms have advantages in terms of customer traffic and livestreaming scenarios, according to Xin Youzhi.

“Livestream e-commerce” for now puts the emphasis on e-commerce, not livestream. “Users on e-commerce platforms like Taobao and JD will buy, with or without livestreams,” said Sandy Shen, VP analyst with the digital commerce team at research and advisory company Gartner.

“As people spend more time on short video platforms, the apps could become super apps like WeChat, which cover every aspect of our daily lives, including e-commerce,” said Shen. 

Young shoppers lead the way

The trend is already apparent among Chinese youth. “Millennials, the core user group of short video apps, could be easily converted to consumers on these platforms,” said Shen. 

She added that short video apps are becoming an important entertainment and information channel for people from lower-tier parts of the country, where e-commerce platforms like Alibaba and JD have lower penetration. For this group, it’s natural for them to buy through a platform they are familiar with, according to Shen.

User attention is only the first step on the way to winning the e-commerce market, however.

“In the early stage, the live commerce industry relied on customer traffic, KOLs and livestreamers, but the core of live commerce is still e-commerce. That means e-commerce is always driven by products rather than by people. Customer traffic is not a panacea,” said Xin, who also runs his own retailer and livestream company Xinxuan Group.

In the meantime, the industry is also getting to the point where it has to face and adapt to a new developmental stage. The industry needs to push its limits with respect to people, goods and business models, according to Xin.

The short video apps still need time to improve behind-the-scenes capabilities from supply chain and logistics to KOL talent training and regulation compliance, Xin added.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined by regular guest Michael Norris to review some Q2 earnings highlights of Kuaishou, Tencent, and Xiaomi: The three companies have faced dramatically different fates in recent months, and their trajectories may offer insights into the current state of China’s tech and its regulatory overhaul.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD.com
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

First it was one Tencent gaming studio. Then it was Kuaishou. Then ByteDance and Meituan’s groceries division in one week. In the last month, we’ve seen three major Chinese tech firms abolish weekend work after years of popular criticism of “996 culture.” (None of these companies had been on the actual 996 schedule of 9 a.m.-9 p.m., six days a week).

The change comes amid a fad for a dropout style known as tangping—“lying down.” At least some young people are looking for alternatives to the corporate rat race.

The last time this column wrote about overwork, our headline was “Why 996 just won’t go away.” Are things turning around? Is it time to imagine that you can work at a Chinese tech major and—just maybe—have a life?

Bottom line: Could be. More Chinese people are dissatisfied with overtime schedules and voting against “996” with their feet. Bytedance and Kuaishou could start a wave of reforms. 

However, many are still willing to work these intense schedules. Tech workers may want to put off that down payment on a timeshare in Sanya—there’s going to be pressure for hard work even if you don’t have to clock in on Sundays.

Some tech majors are moving to make jobs better. In the last month, three tech giants have abolished weekend work. All three previously used the big week/small week schedule, which requires working on alternate Sundays.

• A gaming studio at Tencent appears to have moved first, with a policy ending weekend work and requiring employees to leave the office at 6 p.m. on Wednesday, announced in early June.
• Short video company Kuaishou first eliminated weekend work across the company on July 1. Kuaishou was relatively late to adopt weekend work, adding working Sundays in January during the runup to the company’s IPO.
• ByteDance will follow suit Aug. 1.
• Local services giant Meituan currently requires weekend work only in one division, grocery delivery. It announced plans to end working Sunday this week.
• JD.com promised this week to double bonuses for office staff by 2024, an effective 14% boost to take-home pay. The company also promised to improve pay for some delivery workers.

Plus a signal of state action? Jiemian reported this week that Siemens was given a symbolic fine of about $2,000 for excessive overtime in Shanghai. With a fast-moving crackdown on unpopular parts of big tech, it could be a harbinger of labor law enforcement.

Check out TechNode’s Techlash Tracker for an overview of the crackdown.

How overwork works

Not every extreme schedule is “996”: Overtime work takes different forms in different companies.

• The “996” schedule is the most famous: 9 a.m. to 9 p.m., six days a week.
• Also popular with Chinese internet companies is the “big and small week” schedule, working alternate Sundays.

Butts in seats: 996 means more than a 72-hour work week. Some employers go to Foucaultian extremes to control workers’ time.

• Companies on the schedule often require employees to check in with a GPS-enabled app from the office by 9 a.m., and schedule meetings late into the evening to make sure staff are still on site. 

• Chinese magazine Renwu alleged in November that tech majors limit bathrooms and time trips to them to keep workers at their desks.
• Nikkei Asia reported last month that major firms are using software called “Third Eye” to keep employees from visiting non-work sites during long workdays.

Case study—ByteDance: ByteDance employees describe long hours on the big week/small week system, but relative flexibility and substantial overtime pay. ByteDance will end working Sundays at the start of August, according to a July 7 internal memo.

• Unlike other Chinese companies though, Bytedance does not monitor employees with a “check-in, check-out” system, and allows flexible start and stop times.
• Peter, a former employee, told TechNode that employees were allowed to ask for time off on a working Sunday without spending vacation days, but it was rare in practice. 
• ByteDance paid double time for Sunday—making two Sundays of work a month an approximate 20% boost to base pay.
• So far, the company has not announced plans to raise salaries to compensate employees for lost overtime.
• Former employees say that there are not enough toilets, but no timers.

It’s not just big tech: Overtime is common across the Chinese economy. Official data suggests that the average “information technology and software” worker actually works fewer hours than the average overworked Chinese employee.

• Overtime culture is rooted in the extreme competition faced by skilled labour: if employees are not willing to work overtime, someone else will be. As conservatives say online: “Better 996 than 007.”
• Most Chinese companies do not compensate for overtime.
• Average Chinese working hours are high on a global scale, at 46.8 hours per week, compared to 38.7 in the US.
• According to the China Labour Statistical Yearbook, workers in “information technology and software” do an average of 44.2 hours per week.
• About 15% of workers in the sector report doing more than 48 hours per week.

Are people turning on overtime?

Tune in, turn on, lie down: Former factory worker Luo Huazhong became a celebrity after quitting his job to “chill out.” He wrote a viral blog post about cutting back on consumption to escape work, what he called tangping—“lying down.”

• The principle behind tangping is to get by living frugally and working a minimum amount, rejecting ambition and consumerism. 
• In 2019, the term went mainstream, alongside a Github-based protest against “996” schedules called “996.ICU.” Of course, it was rapidly commercialized by T-shirt manufacturers and other slogan-peddlers.
• Many believe that only those who have rich parents can afford to “lay flat.” A source told TechNode: “they quit their jobs, and go lie in their parents’ Beijing apartments.”
• State broadcaster CCTV published an article attacking the trend (in Chinese). Since then, all products using the slogan have been taken down from e-commerce platforms.
• But other state media have lined up against overwork. People’s Daily-owned glossy magazine Renwu (literally, People Magazine) has been on a tech crusade for much of last year. In addition to the toilet article, other critical coverage included a viral investigation into the pressures on delivery drivers.

More people want jobs—just better ones: While few people have walked away from the workforce entirely, more seem to be looking for work/life balance.

• Eric Tarchoune, founder and CEO of Dragonfly Group, an HR recruiting agency for MNCs in China, says candidates are turning to multinationals because they are tired of “996.” The trend is strongest among workers in their 30s, he says.
• Yet, MNCs competing in the tech industry with Chinese champions, such as Tencent and Alibaba, still struggle: they cannot offer the pay and bonuses, shares, or even the national pride of working for a Chinese champion. Instead, they offer more training and a work-life balance.
• Priscilla Zi, CEO and HR Manager of Chengdu-based education gaming startup Bosijie, has been increasing her team size recently. After noticing increased efficiency when her team rested on the weekend, the startup has a strict “weekends off” policy. Most of her recent interviewees cited leaving the “996” work schedule as a reason for changing jobs.

Some workers agree:

• A young worker surnamed Huang, for example, said he chose an offer from French company Haulotte, rather than a Chinese tech firm, primarily because of the work-life balance offered by the former. 
• Many of Huang’s colleagues across different seniority levels also chose Haulotte for the same reason: in this company even if you frequently work overtime, you are paid for the extra hours.

There’s evidence overtime doesn’t work: A Harvard Business Review article by Sarah Green Carmichael outlines evidence that extreme overtime is counter-productive for companies.

• Output is not necessarily higher—a study by John Pencavel demonstrates that the productivity of work hours beyond 50 hours per week is significantly reduced.
• Stress-induced health problems boost insurance costs. This may be less relevant in China, where there is a social insurance package
• Pressure negatively affects interpersonal communication, making judgements, and keeping sight of the bigger picture.
• The unsustainability of the “996” model is shown by the short time employees spend at these internet companies. At Bytedance, the average tenure is one year, while at Alibaba or Tencent, it is only slightly longer at two to three years. 

Don’t count 996 out yet

Plenty of young people are still applying for jobs at the majors. They still offer workers powerful incentives: prestige, advancement, and high pay.

• Typical entry level salaries of Chinese internet companies range from 300k to 400k a year, with the equivalent of 3-month-salary as a bonus (in Chinese).
• This compares to an average yearly salary of just over 200k for graduates at elite Tsinghua University, the university with the highest average in China (in Chinese). 
• An internal survey conducted by ByteDance showed that a third of employees preferred to keep working Sundays in return for higher pay, according to Chinese media reports.

Abolishing big/small weeks won’t reduce pressure to produce. There are broadly two types of overtime: the first, due to large amounts of work; the second, requirements to be in the office on standby, either for show or in case your boss may need you. Eliminating Sunday attendance rules may reduce the latter type, but not the former.

• For many jobs in China—particularly at entry level, overtime work is a given. At least the internet giants admit, compensate, and recognise it.
• Some also view “996” as a necessary stepping stone in their careers: work hard for some time at a big name, before moving on to a more relaxed job. 

READ MORE: Insights | Why ‘996’ just won’t go away · TechNode

And bosses love 996: Alibaba founder Jack Ma, JD’s Richard Liu, and Pinduoduo’s Colin Huang have all endorsed the intense work schedules, and big China tech companies show a track record of being willing to ignore public pressure. 

It may take state pressure to change: Public pressure or not, tech bosses respect their regulators. This could be coming: the wave of working hour reforms has fed rumors that Chinese regulators have decided to take action on overwork, and Siemens’ fine in Shanghai could be a leading indicator. 

In the past year, Chinese regulators have been on a roll of populist crackdowns on big tech, over issues ranging from privacy, to e-commerce monopolies, to high-interest loans. An effort to win workers’ more balanced lives would fit right in.

Online education platform Geekbang secured a Series B. Short video app Kuaishou said it exceeded one billion monthly active users, marking a milestone for the company. Two online grocery upstarts, MissFresh and Dingdong Maicai, debuted to lackluster US IPOs.

Geekbang receives funding

Online educator Geekbang secured RMB 70 million ($10.8 million) in a Series B. Sunshine Insurance Group invested, Thriving Capital served as a financial advisor. The company offers online courses on programming and software engineering and provides enterprise services to businesses looking to digitize. Geekbang will use the fund for marketing, upgrade its on-demand software platforms, and develop new content, according to 36Kr. (36Kr, in Chinese)

Kuaishou reaches one billion users

Short video app Kuaishou reached one billion monthly active users, Chief Executive Su Hua said in a speech on June 23. The figure counts users from all its domestic apps and global ones, including Kwai and Snack. By comparison, Kuaishou’s competitor ByteDance has 1.9 billion global monthly active users in short video apps Douyin and TikTok, and WeChat has 1.2 billion. Kuaishou’s stock price moved up 6% on the news. Kuaishou went public in Hong Kong in February. Its stock price has dropped more than 50% in four months, from a high of HK$417.8 to HK$194.8 ($53.8 to $25.08) as of Wednesday. (SCMP)

Cooling appetite for online grocers

Online grocery delivery startup MissFresh raised $273 million in a Nasdaq IPO on June 25, pricing its shares at $13, the low end of the expected range. The Tencent-backed company’s shares dropped by 26% on the first trading day, closing at $9.6. The price continued to fall on Monday to a low of $8.8, losing more than 30% since the initial offering. (TechNode)

Three days after MissFresh’s disappointing Nasdaq debut, its rival Dingdong Maicai slashed target for a US public offering by nearly 74%. The company said in an amendment that it plans to raise $94.4 million instead of the original $357 million, reducing its share offering from 14 million to 3.7 million. (TechNode)

Douyin to incubate new retail brands

Short video app Douyin launched an accelerator program to cultivate startup e-commerce brands on June 21. The short-video app is also a robust livestream platform. The program pledges to help 100 new brands to reach millions in sales in a year, leveraging its popular livesteaming channels. Douyin requires those brands to be under five years old. Douyin said in the launch that the program aims to help a new generation of brands mature on the platform. (Sohu, in Chinese)

Chinese short-video app Kuaishou said it would end a controversial weekend work schedule starting from next month, local media reported on Thursday, in a sign that employers are reconsidering extreme schedules like 996. Kuaishou’s current work schedule, known as “big and small weeks,” requires employees to work every other Sunday. Other Chinese tech companies, including ByteDance and Alibaba, also use the schedule for many workers. 

Why it matters: Kuaishou is one of a few Chinese tech companies beginning to cut back long working hours. This ongoing shift comes amid increased scrutiny on tech companies, both from the public and the Chinese government. 

• Chinese tech firms have faced public outrage for creating a culture that compels employees to work long hours. In 2019, an online protest against the “996” schedule drove a national conversation about overwork. “996” stands for working from 9 a.m. to 9 p.m., six days a week.

Details: Kuaishou told staff in an email on Thursday that it would stop the “big and small week” schedule starting from July 1, Chinese media Time Weekly reported.

• The company said in the email that it hopes the changes would bring “more efficiency across the company” and “make staff happier.”
• The company added that it would compensate employees who work overtime without specifying the pay. Chinese labor law requires companies to pay employees twice their salaries if they work on weekends and three times on national holidays.
• A Kuaishou representative did not respond to TechNode’s request for confirmation on Wednesday.

READ MORE: Beyond 996: a beginner’s guide to China big tech culture

Context: Kuaishou asked all workers to start working every other Sunday in January, which many viewed as a final sprint for the company’s subsequent plan to go public in Hong Kong. 

• In January, Kuaishou human resources head Liu Feng told staff in a meeting that longer workweeks would allow “closer cooperation between teams.”
• Other Chinese tech companies are also cutting back overtime hours. Earlier this month, Lightspeed & Quantum Studios, a Tencent gaming unit, canceled all weekend work schedule and required employees to finish working at 6 p.m. on Wednesdays and no later than 9 p.m. on other days.

China’s second largest annual shopping festival, 618, has traditionally been a key battleground for the country’s e-commerce companies. But this year, the stakes are higher. E-commerce platforms not only have to contend with each other, but with an ambitious group of short-video and grocery delivery apps looking to grab a piece of the pie. 

Since online retailer JD.com launched the shopping festival in 2010 to mark its anniversary on June 18, the event has grown into a mid-year shopping extravaganza. The festival is second only to Singles’ Day, created by Alibaba in 2009 and held annually on Nov. 11. 

This year, e-commerce sales across platforms grew by a quarter year on year to reach RMB 578.5 billion ($89.6 billion) during the festival, data from China-based data services company Syntun shows. 

E-commerce platforms still hold the home-court advantage, but are defending multiple fronts. New rivals like short video platforms Douyin and Kuaishou offer enticing interactive and social content at a time when e-commerce companies are grappling with the increasingly diverse demands of users.

Upcomers

The decade-old 618 shopping extravaganza is no longer a three-horse race. Gone are the days when Alibaba, JD.com, and Pinduoduo were the only players going head to head. Now, nearly all major Chinese apps are looking to capitalize on the event. 

While it’s not the first time that short video apps Douyin and Kuaishou have taken part in 618, the two companies appear to be getting serious about the event. Neither have released their sales figures for the shopping festival, but both companies are making significant inroads. 

• Douyin went all-in on 618 promotions this year by hosting  a slew of promotions. The company started its pre-sales campaign as early as May 25. The company also rolled out a game called “The Interaction City” to engage users, and provided commissions to entice merchants. 
• Douyin didn’t reveal sales figures, but said merchants on the platform nearly tripled their revenue compared with last year.
• Instead of 618, Kuaishou celebrated its own shopping festival, dubbed 616, on June 16th. Held just two days earlier than 618, the festival is able to capitalize on the shopping season but is unique enough for Kuaishou to brand the festival as its own. Like 618, 616 is a month-long event that spans from May 18 to June 16. The company didn’t release overall figures, but said its sales in May more than doubled compared with a year earlier. 

Varied approaches

While short video apps have large user bases with extended user retention, they have relatively underdeveloped e-commerce ecosystems. 

To make up for this, the apps have taken different approaches to expand their e-commerce businesses, either by integrating online shopping into their platforms to convert awareness into purchases, or by leveraging established advantages in content to expand market share and deepen cooperation with brands, Chris Mulliken, consulting partner at EY, told TechNode.

“Others continue to expand sales conversions but through external links to other platforms,” said Mulliken. Short video apps have also partnered with e-commerce platforms—as long as the retailers only play the role of supplier or logistics service provider.

In the lead up to 618 last year, Kuaishou reached a deal with JD, allowing Kuaishou users to  purchase the e-commerce giant’s self-run products without leaving the short video app. This allowed Kauishou to lock users into its app, while leveraging JD’s stock and delivery capabilities. Douyin struck a similar deal with Suning in 2020.

Grocery delivery

Short video apps aren’t the only one with their sights set on 618, grocery and fresh produce delivery platforms are also upping the ante. Overall sales through on-demand grocery delivery apps, such as JD Daojia and Meituan Shangou, reached RMB 17.8 billion during this year’s 618, Syntun data shows. The Syntun report shows JD Daojia topped the category, followed by Alibaba’s fresh produce delivery service Taoxianda and Meituan’s Shangou.  

• JD-backed on-demand retail platform JD Daojia doubled sales from June 1 to June 18 compared with the same period last year. On June 18, the peak of the festival, the company set a new sales record of more than RMB 300 million, the most it had ever made in a 24-hour period.
• Meanwhile, Meituan’s grocery delivery business Meituan Shangou rolled out 618 promotions for the first time, targeting the grocery category.

“In the post-pandemic era, O2O platforms are seizing more opportunities brought by change in consumer behavior and economic recovery”, EY’s Mulliken said.

“We see a future wherein all of these future trends converge—social media, online video, livestreaming, e-commerce—into integrated platforms that provide a premier customer engagement experience which then can conclude with the consumers making a purchase,” he added.

E-commerce giant still rules, for now

This years’ 618 saw new sales records, but growth is slowing. 

As China’s mobile internet population reaches its ceiling, there are fewer first-time online users to acquire, forcing the companies to go after the existing internet users. This group tends to maintain a loose connection with a particular app and use multiple apps at the same time.

“It is the ‘relationships’ and ‘content’ that triggers online purchases, rather than promotion activities,” according to Zhuang Shuai, the founder of Beijing-based consulting firm Bailian. Nevertheless, e-commerce companies are still coming out on top.

China’s overall e-commerce sales across platforms for the 18 days from June 1 to 18 reached RMB 578.5 billion ($89.6 billion), according data from Syntun. Sales grew 26.5% year on year, but slowed from a growth rate of 43.8% in 2020. Growth during last year’s  618 was mainly driven by recovered consumption demand and government support to drum up China’s post-Covid recovery. It’s a big increase from 11.8% year on year growth in 2019.

Syntun’s report shows that livestream e-commerce has gained traction. During this year’s festival, sales through livestreaming reached RMB 64.5 billion, or 11% of the total value of all goods sold. 

Alibaba still leads the pack in terms of total 618 sales. The company is followed by JD and Pinduoduo, according to Syntun. JD was the only company to release sales figures, while all other companies described growth in vague terms. 

• Alibaba published overall sales data last year but did not release figures for this year. The company recorded RMB 698.2 billion in gross merchandise volume last year. Tmall, the company’s business-to-consumer marketplace, more than doubled the number of brands it offers on the platform, reaching 250,000 this year. 
• Huge discounts are still a major selling point for Tmall, which served up RMB 10 billion in consumer coupons and subsidies for this year’s festival. 
• Livestreaming was another highlight for Alibaba. All three of China’s top livestreaming celebrities—lipstick king Li Jiaqi, Viya, and Cherie— aired on Taobao Live during the festival. 
• This year’s 618 was a big deal for Alibaba. It was the first shopping festival since the company’s record antitrust fine. 

JD did release sales numbers. The company racked up a record RMB 343.8 billion between June 1 to June 18, up from RMB 269.2 billion last year. 

• The figure represents a growth rate of  27.7%, lower than last year’s  33.6%. 
• JD’s 618 marketing campaigns ran between May 24 and  June 20, during which more than 90% of the core brands on its platform participated in the event, the company said. 
• Around 90% of consumers received their orders either on the same day or with next day delivery during the festival.

Pinduoduo also did not publish its overall sales figures. The company said it offers value-for-money products throughout the year, so its users don’t need to wait for shopping festivals to get good deals. 

• The company emphasized celebrating the two year anniversary of the RMB 10 billion subsidy program in late May, rather than 618.

Suning booked a 117% year-on-year increase in sales volume of imported beauty products and a 106% year-on-year jump for imported wellness products, the company said, without providing concrete figures. Suning said it saw a “significant increase” in sales of imported products during its 618 shopping festival, according to the company. 

Free from forced exclusivity

With stricter regulation on monopolistic practices, this year’s 618 was China’s first forced exclusivity-free shopping festival of the past decade. 

Forced exclusivity, which forced merchants to sell exclusively on one platform, was widely adopted by e-commerce companies as they sought merchant resources. This was especially true during shopping festivals, when every merchant is scrambling to fill orders. 

Massive orders during a few peak days may result in over-subscription from buyers. As a result, platforms signed exclusivity agreements with merchants to ensure sufficient stock to fill orders.

One of the most notable forced exclusivity incidents occurred during 618 in 2019. Home electronics manufacturer Galanz accused Tmall of hiding its products from search results after the company rejected Tmall’s plea to remove its listings from rival platform Pinduoduo.

Without forced exclusivity, brands can list on as many platforms as they want in order to access customers, resulting in a situation when every e-commerce platform offers a similar lineup of brands and products. Under these circumstances, providing users with unique shopping experiences, through livestream and short video for example, could be key to the success of platforms in the future. 

However, the over-subscription issue could persist, leading to more pressure to fulfill orders and increase delivery efficiency during the festival. 

For e-commerce latecomers like Douyin, removing forced exclusivity levels the playing field, allowing short video apps that aspire to expand into the e-commerce market to avoid the harsh battles Pinduoduo faced when challenging Alibaba a few years ago.

Aihuishou, a Chinese electronics resale platform backed by e-commerce giant JD.com, applied to an initial public offering (IPO) on the New York stock exchange on Friday. 

Why it matters: The Shanghai-based company is one of China’s largest second-hand goods platforms. Unlike its larger peers, Alibaba’s Xianyu and 58.com’s Zhuanzhuan, it focuses on electronics. JD.com is Aihuishou’s biggest investor, owning 34% of its ordinary shares before the offering. 

• Expect to see a new wave of Chinese technology companies from lesser-known sectors file for IPOs as more Chinese unicorns are maturing. 

Details: Aihuishou is operating at a loss, but it is narrowing the gap.  

• The company listed a placeholder amount of $100 million in its Friday IPO filing to the US Securities and Exchange Commission (SEC) with no price range for the shares.
• In the first quarter of this year, the company’s net revenue increased by 118.8% yearly to RMB 1.5 billion. From 2019 to 2020, revenue increased 24% from RMB 3.9 billion to RMB 4.9 billion in 2020. 
• From 2019 to 2020, the company narrowed its operational loss by 37% from RMB 731.8 million to RMB 458.8 million. It booked an operational loss of RMB 111.4 million in the first quarter of this year.
• Kerry Chen, the company’s CEO, said in a Friday investor letter that the company was long “misunderstood” as “a company that simply dismantles smartphones and re-purposes metals,” but it has since “set new industry standards” by standardizing a previously chaotic market. 
• The proceeds raised from the offering will be used to develop technology, diversify service offerings, and the company’s online marketplace’s sales channels.  

Context: The company was founded in 2011 as an online platform buying and reselling second-hand phones and other consumer electronics.

• In June 2019, Aihuishou acquired Paipai from JD.com. Paipai is an online retail platform that allows businesses to sell pre-owned products directly to consumers. 
• The company entered into a partnership in May with the popular short-video app Kuaishou to reach the video-streaming platform’s massive user base.
• China’s second-hand electronics market is lucrative. In 2020, Chinese people bought and sold 189 million used devices, generating RMB 252 billion in gross merchandise volume, according to a report cited in the company’s IPO filing document.

China is taking aim at its flourishing livestream e-commerce market with the introduction of new regulations released Friday from seven government agencies including the nation’s top cyberspace watchdog and market regulator.

Why it matters: The new rules are the latest in China’s tightening grip on the internet sector. Regulators have in recent months stepped up antitrust regulations on tech firms and halted fintech firm Ant Group’s mega dual listing.

• Livestreamed e-commerce has become essential to marketing in pandemic-era China. According to China’s Ministry of Commerce, more than 4 million e-commerce sessions were livestreamed in the first quarter of 2020.
• Major e-commerce and short-video platforms have tried combining the two markets, with Alibaba’s Taobao Live, Tencent-backed Kuaishou, and ByteDance’s Douyin emerging as leading players in the field. 

Details: Central government agencies including the Cyberspace Administration of China, the Ministry of Public Security, and the commerce ministry rolled out on Friday new rules targeting the livestream e-commerce space that will go into effect on May 25. 

• The regulations require livestream platforms to set up a system to internally rank users by metrics such as views and transactions.
• Platforms should also establish risk management systems to guard against suspicious or illegal marketing tactics, taking measures such as pop-up warnings, limiting traffic, and stopping the livestream, according to the new rules.
• Platforms must verify livestream the identity of livestream hosts prior to every session. Regulators also called for platforms to take the necessary steps to secure users’ personal information.
• The rules forbid minors under the age of 16 from hosting livestream e-commerce sessions.

Context: The State Administration for Market Regulation, China’s top market watchdog, previously introduced a set of rules governing livestream sales, misleading practices, and user data privacy on March 12 at the annual 315 consumer rights protection gala. These regulations were an important complement to the E-Commerce Law in 2019 as selling via livestream gained popularity. 

• Taobao Live is one of the largest livestream platforms in terms of merchant size, user base, and sales volume, with an estimated 2019 gross merchandise value (GMV) of between RMB 200 billion and 250 billion ($30.5 billion to $38.5 billion). 
• Kuaishou launched a livestream feature in 2017 and reportedly sold an estimated GMV of RMB 35 billion in 2019. Livestream e-commerce accounted for 19% of the company’s revenue that year. 
• The China Advertising Association (CAA) issued the first livestream e-commerce code of conduct on June 24, detailing rules against false and misleading advertising on livestreams and requiring real-name registration from merchants and individual livestreamers. 

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, James and Elliott are joined by frequent CTI guest Michael Norris to cover the 2020 Q4 earnings of Pinduoduo, Kuaishou, and Meituan. The guys also answer some questions posed by listeners of the show on Twitter.

Sorry folks, we had a little trouble with our recording setup and there’s some interference in the audio.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:                   

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, James and Elliott are once again joined by regular guest Michael Norris to discuss Kuaishou’s blockbuster IPO. They cover what it is that Kuaishou does as a business, its financial situation, and where its growth prospects are going forward. Is Kuaishou a good company? Or is it the fast-growing short video segment which is drawing the investor interest?

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:              

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Kuaishou IPO risk factors

Stricter regulation of e-commerce livestreams, a potential revenue growth engine for short video app Kuaishou, brings uncertainty to the Douyin rival’s imminent Hong Kong listing. Analysts have said increased regulation from Beijing could slow the booming market’s momentum and harm the profitability potential of involved companies. (SCMP)

Alibaba earnings

Alibaba Group topped market revenue expectations for the December quarter and reported first-ever profits for its cloud computing business. The company’s revenue in the December quarter grew 37% year on year to RMB 221.08 billion ($33.88 billion), while non-GAAP diluted earnings per share was RMB 22.03, an increase of 21% year over year. (TechNode)

Singles Economy

The Singles Economy, involving the production and consumption of goods and services aimed at singles or people who live alone, is on the rise in China, according to reports from Pinduoduo and Nielsen. Beijing’s call for people to limit travel during the upcoming weeklong Spring Festival holiday to prevent another coronavirus surge has proved a boost to the trend, which involves marketing petite home appliances such as rice cookers and refrigerators and smaller food portions. Market segmentation is on the rise in China as the silver economy for senior citizens and the “small town youth economy” for youngsters in lower-tier cities and towns gain recognition. (Pandaily)

Job board IPO

Chinese online job listing site Boss Zhipin, also known as Zhipin.com, has chosen Goldman Sachs and UBS as underwriters for its US stock market debut through which it aims to raise $300 million. The company plans to go public this year. CEO Zhao Peng said in July 2019 that the company is already profitable. (IPO Zaozhidao, in Chinese)

Holiday online spending surge

Parcels for Spring Festival purchases processed by Alibaba’s Cainiao Logistics network from Jan. 20 to 31 surged 50% compared with the corresponding time period preceding last year’s holiday (Jan. 6 to 17), highlighting an increase in online purchases for the holiday. (Sina, in Chinese)

Online travel regains investor interest

Hong Kong-based online travel platform Klook announced the completion of a $200 million Series E led by Aspex Management and followed by existing investors including Sequoia Capital China, SoftBank Vision Fund 1, Matrix Partners China, and Boyu Capital. (Caixin Global)

Douyin, ByteDance’s Chinese version of TikTok, said on Tuesday it had sued Chinese social media giant Tencent for monopolistic behavior including blocking Douyin’s content on its WeChat and QQ instant-messaging apps.

Why it matters: The legal move comes as China tightens antitrust regulations for tech companies and refines its laws to better rein in the internet sector. While similar lawsuits had often resulted in a stalemate, it is believed that officials and judges will now be less tolerant of internet companies and anti-competitive behavior.

• The lawsuit is also seen as a tactical move as Douyin’s biggest domestic rival, Tencent-backed short video platform Kuaishou, is preparing to list in Hong Kong.

READ MORE: China’s tech giants aren’t ‘immune’ to antitrust any more

Details: ByteDance has filed a lawsuit with the Beijing Intellectual Property Court, accusing Tencent of violating China’s Anti-Monopoly Law by restricting WeChat and QQ users from sharing Douyin’s short-video content, the company said on Tuesday.

• Tencent’s practice, it said, ran afoul of the Anti-Monopoly Law’s provision of forbidding “misusing a market-dominant position, and antitrust behavior of excluding and restricting competition” (our translation).
• ByteDance asked the court to require Tencent to cease such behavior and make a public apology. The Beijing-based firm is also seeking compensation of RMB 900 million (around $13.9 million) from Tencent.
• There are no other operators that provide services that rival WeChat and QQ, ByteDance said, meaning that Tencent enjoys a “market-dominant position”—the threshold for citing the Anti-Monopoly Law in court.
• Tencent said in a statement that ByteDance’s accusations were “false” and that the company will bring a countersuit.
• Tencent said Douyin had acquired WeChat users’ personal information by “means of unfair competition” and had breached the platform’s rules.

Context: China has ramped up antitrust regulations in the tech industry in recent months. In December, the State Administration of Market Regulation (SAMR), China’s top antitrust regulator, issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR had previously proposed an overhaul of the Anti-Monopoly Law in January and introduced a set of antitrust guidelines tailored for the internet industry in November.
• In March, ByteDance complained that WeChat had started blocking links to its enterprise messaging app and productivity tool Feishu.

Baidu’s billionaire founder Robin Li. “Home appliance queen” Dong Mingzhu, of electronics maker Gree. Luo Yonghao, the indebted online celebrity founder of smartphone maker Smartisan. China’s livestreaming industry has welcomed a flurry of high-profile figures over the past few months.

Livestreaming is really, really big. From its low-budget, grassroots origins, it has become a mainstream habit and an essential part of marketing in post-Covid-19 China.

Livestreaming is closely intertwined with e-commerce, short videos, and gaming. China’s livestreaming-derived market grew to RMB 61 billion (about $8.6 billion) in 2019, and is projected by research firm Equalocean to achieve a 12% compound annual growth rate to reach RMB 100 billion by 2023.

Among various segments under the umbrella concept, livestreaming e-commerce has emerged as a key monetization model for players in the field—and a key marketing tool for businesses trying to reach China’s digital audiences. China’s livestreaming e-commerce market is expected to reach RMB 23.6 billion, on a 520 million live-show app user scale in 2020, the Equalocean report says.

Spokesperson or salesperson?

The most famous streams are hosted by celebrity KOLs, who build up loyal audiences with QVC-style online shows. The most famous, like “lipstick king” Li Jiaqi, are household names and fodder for memes far beyond e-commerce platforms.

But thousands of humbler streamers act as virtual salespeople, explaining products to potential customers. Lu Lu, who runs a virtual vegetable shop on Taobao Live, is a good example. When an order comes in, the stream (requires app download) shows her weighing out produce and preparing it for shipment.

Many e-commerce livestreamers come across more like a virtual salesperson than celebrity endorser, patiently explaining products on camera and fielding questions from live viewers. While browsing the product page for, say, an electronic toy or a brand of face cream, shoppers will often see a link to either a livestream or a recorded stream in which one of these streamers demonstrates the product.

Turbocharged growth comes with some serious growth pains, and the industry may have to contend with more regulation soon. Users have complained about false advertising, vulgar content, and misleading exaggerations. Currently, rules on false advertising are not applied to KOLs’ “product reviews,” but this loophole could be closed.

The Covid boom

Covid-19 was an unexpected boon for livestreaming e-commerce in China. Many brands and retailers have turned to livestreaming to help reduce the impact and losses from the epidemic. It has prompted businesses closely tied to offline showrooms to try online events—even electric carmakers Nio and Tesla.

According to China’s Ministry of Commerce, more than 4 million e-commerce live broadcasts were hosted in the first quarter of 2020, the key period when China was under countrywide lockdown due to the outbreak.

Compared to entertainment livestreaming, livestreaming e-commerce has a better chance of turning windfall users into recurring users by building up new marketing options for brands and an enriched shopping experience for consumers.

Read more: INSIGHTS | Brands turn to livestreaming as China stays home

The livestreaming players

Pretty much every company with a stake in either e-commerce or livestreaming has tried to combine the two. E-commerce platforms, like Alibaba, Pinduoduo, and JD, as well as short-video platforms such as Douyin and Kuaishou have all jumped on the bandwagon.

With a significant head start and a massive user base, Taobao is the elephant in the room, the one everyone else is responding to with varying success. In an increasingly crowded field, the challenge now for each of these platforms is how to differentiate itself from its peers and stand out by targeting different groups of buyers and brands.

It’s hard to compare exactly how the players stack up—as data on this phenomenon is still limited—but here’s a rough guide:

Taobao Live

• As one of the earliest pioneers of the “livestream + e-commerce” model, Alibaba’s Taobao Live is the clear heavyweight champion, with estimated 2019 GMV between RMB 200 billion and 250 billion.
• It’s one of the largest livestreaming platforms, whether in terms of the merchant size, user base, or sales achieved. 
• The platform accounted for nearly 60% of e-commerce streaming transactions in 2019. 
• It generated sales of RMB 20 billion during Alibaba’s November 11 Singles’ Day 2019 shopping holiday, or 7.5% of the total RMB 268.4 billion sales.
• Taobao Live is available both as an in-app feature on its parent marketplace Taobao, and as a standalone app.
• Just like Taobao, Taobao Live’s most popular product categories are women’s garments, skincare, food, and jewelry. 
• The platform is introducing big-ticket items such as cars and real estate, as well as consumer electronics.
• These popular categories reflect the fact that the platform is dominated by women and younger users. 
• Nearly 70% of Taobao Live’s audience are women, while most of the consumers belong to the post-’80s and post-’90s generation, says a Taobao report (in Chinese).
• Sales on the platform are driven heavily by top-tier KOLs, like Viya and “lipstick king” Li Jiaqi, who have highly sophisticated MCNs (multi-channel networks) behind them. 
• These professional content production agencies, now numbering more than 6,500, are a major force driving China’s livestream boom.
• An overall 20% (around 140) top MCN institutions on the platform contributed almost 75% of Taobao Live’s traffic and 80% of its GMV, according to the 2020 White Paper on Taobao Vendors.
• However, Taobao’s dependence on professional MCNs is highly costly to vendors. 
• Everbright estimates that marketing costs on Taobao Live eat up about 20% of GMV, with 70% of the spend going to MCNs, while Alibaba marketing platforms Alimama and Taobao Live take 10% and 20% respectively.

Social media: The most serious challengers to Taobao Live come not from e-commerce, but rather livestreaming. As livestream e-commerce matures, social media players Kuaishou and Douyin have made plays that leverage their traffic and KOL resources. 

These forays began as partnerships with e-commerce platforms to pilot livestreaming e-commerce features, but the companies gradually built up their own e-commerce capacities and ended the partnerships as trials developed into full-fledged services that keep users in the app when they buy.

Kuaishou

• Kuaishou launched livestreaming in 2017 to a relatively gender-balanced user base with a typical user in a third- or fourth-tier city..
• Kuaishou reportedly achieved an estimated GMV of about RMB 35 billion in 2019, and aims to multiply that to RMB 250 billion in 2020.
• Livestream e-commerce accounted for 19% of Kuaishou’s RMB 55 billion revenue in 2019, although 60% of the revenue still came from virtual gifts associated with traditional entertainment livestreaming. 
• These figures reflect the platform’s KOL-centered online culture, where users address each other as laotie (“old chap”), a colloquial term used in northeast China to refer to unbreakable brotherhood.
• Thanks to strong connections with users, Kuaishou’s e-commerce conversion is five to ten times higher compared to its peer Douyin, according to a report by Frees Fund. 
• But the products are mainly low-margin and low-price, with sales under RMB 50 accounting for 63.3% of total sales, compared with Douyin’s 41.5%.
• The most popular categories are personal care, cosmetics, clothing, local specialty foods, and alcohol.

Douyin

• Douyin did not emphasize livestreaming until 2019. Since then, the business has grown very quickly by encouraging KOLs to transfer their accumulated fans from short-video to livestreaming and online consumption.
• Douyin predicts RMB 200 billion in GMV on the platform in 2020.
• Unlike Kuaishou, Douyin relies on short-video quality and attractive products to make sales, rather than relationships between fans and content providers.
• Douyin users are largely concentrated in higher-tier cities, with purchasing power that results in larger ticket orders.

Read more: Why Kuaishou beats Douyin for e-commerce

Other e-commerce players: Taobao’s e-commerce peers are stuck in the lightweight division for livestreaming, with substantially smaller user bases and sales than Taobao and the video platforms, handicapped by business models that emphasize value for money over fashion-driven impulse buys. Nonetheless, Pinduoduo and JD have built real, if smaller, user bases around livestreaming.

Duoduo Live:

• As a marketplace, Pinduoduo has enjoyed robust growth since its establishment with a unique model that encourages users to get together with friends to buy in bulk.
• But livestream e-commerce didn’t win attention from Pinduoduo until recently, when growth slowed down.
• The Shanghai-based firm officially rolled out Duoduo Live as an add-on within the app in January 2019—after testing the livestream feature the previous November—making it a relative latecomer to the field.
• Over 1 million, or 20-30% of Pinduoduo’s 5.1 million active merchants have opened livestream sessions, according to data from the company.
• Users aged between 20 to 35 years old contribute the most to GMV.
• Pinduoduo’s approach to livestreaming is drastically different from Alibaba’s. With its distinctive consumer-to-manufacturer model, it has leaned heavily on the virtual salesperson model. 
• Duoduo live audiences likely have a potential buy in mind before loading a stream (e.g. drawn in by a discount or social referral), and will use the stream to gain more information before making a decision.
• Duoduo Live’s livestream sessions are centered around products, meaning they’re cheaper for merchants than Taobao Live’s slicker MNC-driven streams. 
• The anchors, often amateur KOLs, are mostly people with a stake in the product—CEOs of manufacturers, government officials for promoting agriculture products from their towns, or even the sellers themselves. 

JD Live

• Livestreaming is a poor fit for JD’s brand, which is built on keeping things simple for users. 
• JD Live is still playing catch-up to Taobao Live, following a similar high-production value approach. Many streams use an “expert + celebrity + host” format, which combines rich content with expert knowledge and a link to purchase. 
• It also serves as a medium to educate users and build brand awareness. 
• Like Taobao, this model means high costs for merchants.
• JD Live has partnered with both Douyin and Kuaishou to leverage their traffic and KOL network, in addition to building up super KOL celebrities to promote premium products. 
• On Wednesday, JD announced a new deal with Kuaishou which will allow Kuaishou viewers to make purchases from JD without changing the app.
• Like Taobao Live, JD Live is also diversifying product categories from consumer electronics, beauty, and food to big-ticket items like real estate. 

Who owns livestreaming eyeballs?

As e-commerce and content blend together, shopping and video platforms are becoming frenemies. On the one hand, they rely on each other: Video apps boast traffic and content, while e-commerce sites have brands and supply chains. On the other hand, they are competing to be the central platform for the new model.

Alibaba has the best of both worlds, with its Taobao Live emerging as a major content platform in its own right.

But the rival e-commerce sites do not have the same traction with in-house content, creating a dilemma. For JD and Pinduoduo, integrating with video apps means handing over some of their crown jewels—control of advertising, product search, and customer data. It’s no wonder that these partnerships can fall apart.

Power seems to be shifting toward video platforms. In the previous partnership model, video apps usually directed users to e-commerce apps such as Taobao and JD to finalize the purchase.  

However, as a new deal between Kuaishou and JD allows users to purchase JD products without leaving the app, JD is giving up its users’ eyeballs to drive sales.

Short video app Kuaishou and e-commerce giant JD announced today a new partnership as the Chinese tech titans are gearing up for China’s biggest mid-year shopping extravaganza 618 on June 18.

Why it matters: China’s e-commerce platforms and short video apps are working closer while livestream e-commerce is gaining traction. In the tie-up, e-commerce apps have their strengths in brands, supply chain, and after-sales support, whereas video apps have their advantages in rich content and access to potential buyers.

• Kuaishou’s closer relationship with JD comes a few months after a hiccup with Taobao Live, the Alibaba-backed livestream major that supports a similar referral feature.
• Livestream e-commerce, on the cusp of its boom, is expected to become a new driver for the upcoming shopping spree 618.
• The festival comes when the country is trying to boost domestic consumption to offset the economic slowdown resulted from the coronavirus outbreak.
• JD shareholder Tencent invested $2 billion in Kuaishou last year in Kuaishou’s $3 billion pre-IPO round, giving Kuaishou a valuation of around $28.6 billion.

Read more: Why Kuaishou beats Douyin for e-commerce

Details: The new deal allows Kuaishou users to purchase JD’s self-run products directly without leaving the short video app, offering a more streamlined shopping experience.

• An existing deal between the two parties, inked last June, transfers Kuaishou users to JD app for completing the purchase.
• This deal ensures Kuaishou users always stay inside the app, encouraging more impulse buying.
• Buyers who place orders through Kuaishou could enjoy the same delivery and after-sales services provided by JD, according to a statement from the online retailer.
• In addition, the two companies will work together in building up their supply chain networks, brand marketing, and digital capacities.
• The new feature will be live in mid-June during JD’s mid-year shopping festival 618 and Kuaishou’s 616 shopping festival.

Context: Kuaishou reportedly multiplied its goal for live e-commerce gross merchandise volume (GMV) this year to RMB 250 billion ($35 billion), up from last year’s RMB 35 billion.

• In comparison, Taobao Live achieved a GMV between RMB 200 billion to RMB 250 billion in 2019, while Douyin’s goal for this year is RMB 200 billion, according to local media.
• Both Alibaba and JD are working Kuaishou rival Douyin for similar e-commerce referral features.

Kuaishou and Douyin are the two largest short video platforms in China. However, due to the difference in their audience demographics, the two platforms have evolved quite differently: 

• Daily Active Users (DAUs) reached 300 million 
• Kuaishou stores over 20 billion videos, making it the largest short-video library in the world

Comparatively, Douyin has a larger audience, with 400 million DAUs as of Jan 2020.

The major difference between Douyin and Kuaishou is user demographics. 24% of Douyin users come from tier 1 cities, against only 10% for Kuaishou. Kuaishou has 34% of its users coming from Tier 4 cities or smaller, against only 22% for Douyin.

This difference in the user profile is the key difference between Douyin’s and Kuaishou’s social engagement, e-commerce conversion, and advertising potential.

Kuaishou: focus on social engagement

Relationship-based vs. algorithm-driven content distribution 

According to Huang Hai, from the VC firm Frees Fund, Kuaishou’s main “Discover” section selects 40-50% of content from accounts that the user already follows. By contrast, Douyin will show 80-90% of content from non-followed accounts popular among other users.

Douyin has more users living in tier 1 and tier 2 cities. These users are more likely attracted to high-quality content. Thus Douyin will display the best and most viral content to entertain urban users. This also shows in its mission statement “record your beautiful life.” This emphasis on beauty translates to professional content with viral potential, often created by top KOLs. 

Kuaishou has more followers living in villages, with a tighter social circle. Mundane content created by someone who they might know offline is still interesting.

The graph below shows the number of followers that top-100 KOLs have on Douyin and Kuaishou. Kuaishou’s curve (yellow) is a lot smoother compared to Douyin’s (black). 

Douyin puts a heavier weight on premium content distribution, so the top KOLs would get more traffic. Kuaishou distributes content more evenly among KOLs. 

Thus users and smaller KOLs are more likely to upload content on Kuaishou since they are more likely to become viral. Kuaishou already has 20 billion videos uploaded, which makes it the largest short-video content platform (by the number of videos) in the world.

Engagement 

Since Kuaishou users live in smaller communities, Kuaishou content is distributed based on users’ social relationships. The content on Kuaishou, therefore, has a higher engagement rate compared to Douyin. 

More live-streaming on Kuaishou 

Kuaishou’s Local Content section is 50% composed of livestreams, compared to 25% on Douyin. Kuaishou users are more likely to start or watch a live-stream. 

The top-ranking live-streaming is often not the most popular one, and often only has less than 5 viewers. The viewers can thus engage with live-stream hosts on a more personal level. 

Kuaishou’s live-streaming has quite a lot of features. For example, you can sing karaoke with an audience from your city listening in. Many live-streaming hosts allow call-ins to a chat room. Some live-streaming thus becomes a casual chatroom for two strangers.

Kuaishou even provides a chatroom for up to six users to co-host a livestream. Each chatroom has its own rules, often requesting specific gifts in exchange for asking the host to give a performance (such as singing a song, sharing their personal WeChat account, or private messaging).

Such intimate engagement between the host and followers is driven by Kuaishou’s social-driven recommendation system.

E-commerce conversion 

Kuaishou is a stronger relationship-based platform; thus e-commerce conversion rate on Kuaishou is higher than on Douyin.

According to Kuaishou Report by Frees Fund, Kuaishou’s e-commerce conversion is five to ten times higher compared to Douyin. The monthly sales via the Kuaishou platform in 2019 reached more than RMB 10 billion (about $1.4 billion).  

For example, nine out of ten top-selling Taobao third-party live streaming during Double 11 (excluding native live-stream from Taobao) last year were from Kuaishou. Only one of them was from Douyin.

Many top-selling Kuaishou influencers are owners of small businesses or factories. They often create content related to their day to day business. For example, the production steps for packing a product. This type of content creates trust from the users, thus is more likely to convert into sales. 

Not all kinds of products sell well on Kuaishou. The top three categories of products sold on Kuaishou are low-priced cosmetics, clothing, and food. 

Kuaishou is heavily pushing its built-in e-commerce system. It currently integrates with six e-commerce platforms and requires most platforms to share e-commerce data. According to the Kuaishou Report by Frees Fund, Alibaba refused to share purchasing data with Kuaishou. It’s likely Kuaishou will continue to develop its own e-commerce solution. 

Kuaishou is blocking any content that tries to drive traffic to a third-party platform. For example, if a live-streaming host mentions his/her number to add on WeChat, it’s possible to shut down the stream and penalize the host by limiting access to live-streaming features for a certain time. 

On the other hand, Taobao has signed a strategic alliance agreement with Douyin to spend RMB 7 billion on Douyin ads. Huang Hai from Frees Fund Capital suspects that in return, Douyin will give up its proprietary e-commerce infrastructure and focus on Taobao integration. 

Kuaishou weak in ad revenue 

Despite strong KOL e-commerce conversion, Kuaishou is weak in attracting display ads. The biggest ad category for Kuaishou is performance-driven ads such as gaming and App downloads.

According to Huang Hai from Frees Fund, in 2019, Kuaishou had around RMB 10-15 billion display ad revenue; Douyin made RMB 50 billion in ad revenue during the same period.

Conclusion 

Kuaishou has stronger user engagement, more live-streaming content, stronger e-commerce conversion, more social features but is weaker in generating advertising revenue.

These differences create interesting opportunities for e-commerce players trying to pick the right platform to promote their products.

From short video to live streaming and gaming, the coronavirus outbreak in China has driven people confined at home to spend their time consuming online content. Products such as short video app Douyin and Kuaishou and mobile games have seen a surge in downloads and active users. These are good times to be in the online entertainment business—but we still don’t know if platforms can bank lasting gains. 

Bottom line: Online content platforms provide a replacement for people to kill their time when they are not able to dine out or go shopping, but they will not be indispensable when things go back to normal. Companies still need to address quite a few challenges before they can turn new users into regulars. In a protracted downturn, entertainment can be a resilient sector, but reliance on ads for monetization could mean unprofitable eyeballs.

Windfall users: The Covid-19 outbreak in China which has led to more than 2,700 deaths is pushing the country’s already tech-savvy population further online for entertainment, groceries, and healthcare, wrote TechNode reporter Emma Lee.

• Short video apps added nearly 150 million new daily active users (DAU) during the extended Spring Festival holiday compared with a year ago, according to a Quest Mobile report published on Feb. 12.
• DAU for short video apps combined reached 574 million during the 10-day holiday which ran from Jan. 24 to Feb. 2. The number was 426 million during last year’s week-long holiday.
• Douyin, known as TikTok internationally, saw its DAU surged 39% year on year to 318 million during the period. Its main rival Kuaishou amassed 227 million DAU, up 35% year on year.
• The percentage of total time users spent online jumped to 17.3% for short video apps during the 2020 holiday from 11.8% during the holiday last year, a 47% increase.
• Users spent 139 minutes on social media apps during the 2020 holiday period compared with 121 minutes in the holiday period a year earlier, growing 14.9%. Users spent 105 minutes on short video apps during the 2020 holiday compared with 78 minutes during the 2019 holiday period, a 34.6% surge.
• The gaming sector has seen a surge of engagement with the average time spent on mobile games increasing to 159 minutes during this year’s holiday from 113 minutes during the Spring Festival 2019.
• Taobao Live, the live streaming unit of e-commerce behemoth Alibaba, said last week that the number of live broadcast rooms on the platform had doubled and livestream events surged 110% year on year during the month as of Feb. 18.
• The overall mobile app market is also booming. Smartphone users in China made more than 222 million downloads through Apple’s App Store in the week starting Feb. 2, and average weekly downloads of apps during the first two weeks of February jumped 40% compared with the average for the whole of 2019, according to the Financial Times.

Challenges: One of the biggest challenges for online content platforms is how to turn new users seeking novelty into recurring users. 

• Gong Yu, founder and CEO of video streaming site iQiyi, said in an earnings call with analysts Friday that the company had seen a “more-than-expected” increase in paid subscribers in the past month. However, he warned that momentum won’t last in the remainder of the year.
• “As people start to go back to work [after the Spring Festival Holiday], the growth of news paid members began to slow down,” said Gong.
• Some worried that people would spend more time and money consuming offline when things go back to normal. “After the crisis, cultural consumption will come back with a vengeance, and most of which will happen in the offline world,” Liu Jingjing, deputy director of the College of Cultural Industries Management of the Communication University of China, told Chinese media.

An inferior good? Belt tightening potentially cuts both ways for online platforms. Economics suggests that digital entertainment may be an “inferior good”—i.e., consumers will pay for more of it as overall budgets decrease. A month of premium Bilibili costs less than a night out at the cinema or drinking with friends. 

But most of the money in online entertainment isn’t subscriptions. Rather, platforms sell ads—or, in the case of e-commerce live streaming, sell luxury goods directly. If consumers aren’t willing to buy stuff sold on these platforms, more eyeballs could still mean less revenue.

• Companies may struggle to monetize new users amid the virus-hit economy. 
• Most digital content companies depend on online advertisements to earn money. Bytedance, the company that owns TikTok, Douyin, and news aggregator Jinri Toutiao, earned RMB 50 billion (around $7.2 billion) from digital ads in the first half of 2019, accounting for 86% of its first-half revenue.
• A subscriptions up, ads down scenario could be better for subscription-based video-streaming platforms such as IQiyi, which is known as China’s Netflix, generated RMB 29 billion in revenue in 2019 with earnings from subscriptions accounting for 39.3%.
• According to an online survey conducted by Beijing-based fintech company Rong360.com, 31.4% of respondents said they would not increase consumer spending in the short term after the outbreak is brought under control.
• In the long term, 64.4% said they would be more “restrained” in spending, and 12.6% said they would cut spending.

Slow growth ahead: The surge of new users for online content platforms is caused by a “black swan”—the coronavirus—not the improvement of their content quality or increased marketing budget. Once the crisis is under control, companies will inevitably see growth slow down and face an uncertain future as the country’s economy recovers from the impact of the virus.

Chinese short video apps added nearly 150 million new daily active users (DAU) during the extended Spring Festival holiday compared with a year ago as residents search for ways to stay entertained during the Covid-19 outbreak, according to a recent data analytics report. 

Why it matters: The Covid-19 outbreak is pushing China’s already tech-savvy population further online for entertainment, daily necessities, and even health care. Consumption habits formed during the crisis may be helping to reshape a new normal for Chinese consumers. 

• The impact has varied across industries. Verticals with an offline business core such as online travel and mobility has cratered, while online entertainment and online sales of daily necessities saw a spike. 
• Social media growth is still robust, but was outpaced by short video.

Details: DAU for Chinese short video apps combined reached 574 million during this year’s extended Spring Festival, which ran 10 days from Jan. 24 to Feb. 2. Short video apps had a combined DAU of 426 million during last year’s week-long holiday, and prior to the holiday on Jan. 2 to Jan. 8 this year, the DAU count was 492 million, according to a Quest Mobile report published on Feb 12.

• Douyin led the pack, with DAU surging 39% year on year to 318 million during the holiday, while Kuaishou followed in second place with 227 million DAU, up 35% from the holiday period a year ago. Both of the apps recorded a peak in DAU peak on Jan. 24, the eve of the Spring Festival day, largely driven by red packet cash prizes for various holiday galas.
• The percentage of total time users spent online jumped to 17.3% for short video apps during the 2020 holiday from 11.8% during the holiday last year, a 47% increase.
• Users spent 139 minutes on social media apps during the 2020 holiday period compared with 121 minutes in the holiday period a year earlier, growing 14.9%. Users spent 105 minutes on short video apps during the 2020 holiday compared with 78 minutes during the 2019 holiday period, a 34.6% surge.
• Fresh produce e-commerce platforms nearly doubled DAU to 10.1 million in during this Spring Festival holiday from 5.3 million during the holiday a year ago.
• The gaming sector has seen a surge of engagement with average time spent on mobile games increasing to 159 minutes during this year’s holiday from 113 minutes during Spring Festival 2019.
• Covid-19 concerns sparked user growth of online healthcare apps led by Ping’an Good Doctor and DXY.
• Online travel platforms were hit the hardest, recording a 40% drop in traffic during the holiday.

Context: The shift in user attention to short videos is reflected in the migration of brand ad budgets, a major source of revenue for tech firms.

• Kuaishou handed out RMB 1.1 billion (about $143 million) worth of cash giveaways to users during the Spring Festival Gala, an annual event held by the state-backed China Central Television.

Short video platform Kuaishou is rolling out a vastly expanded music library following an agreement with Tencent Music Entertainment (TME) for one of the largest-scale copyright deals in the short video industry, media outlet 36Kr reported.

Why it matters: Kuaishou and its rival Douyin have been working to expand their libraries of original music, which has been a major draw to short video platform users.

• Douyin reached a music licensing deal with TME near the end of 2019, marking the first major partnership between parent company Bytedance and Tencent.

Details: A selection of songs on Kuaishou that users can select as background music for their videos are labeled “Tencent Music,” but the rollout appears to be in the early stages. Song offerings from official sources remain limited compared with the number of user-uploaded tracks, TechNode has observed.

• Kuaishou and Tencent began negotiating the licensing deal as early as the second half of 2018, according to people familiar with the matter.
• It is unclear when the music-sharing deal was finalized, but the two companies began research and development for music-sharing across their apps in the first half of 2019, according to the report.
• Kuaishou declined to comment when contacted by TechNode on Sunday.
• Currently, a large number of licensed songs from TME is being brought to Kuaishou with the goal of becoming one of the main sources of music on the app.
• The licensing deal also allows Kuaishou’s other apps such as video-sharing website AcFun and video editing tool Kuaiying to access TME’s music library.
• In November 2019, Kuaishou partnered with TME to support and promote independent musicians across TME’s music streaming and karaoke apps, including QQ Music and Kuwo Live.

Context: Despite pouring resources into its own short video app Weishi, Tencent has also been investing heavily in Kuaishou in an attempt to compete with Bytedance-owned Douyin.

• In December 2019, Tencent was reported to be in the final stages of negotiations with Kuaishou for a $2 billion investment in the platform’s $3 billion pre-IPO round of financing. The investment would give Tencent a nearly 20% stake in Kuaishou.
• As the owner of some of the largest music-streaming platforms in China, Tencent has been known for signing exclusive deals with major music labels and passing the costs to smaller competitors such as NetEase Cloud Music.
• Tencent also recently led a consortium to buy 10% of Vivendi’s Universal Group for $3.4 billion, according to a Bloomberg report.

Kuaishou has suspended an e-commerce referral feature for Taobao products. The feature previously allowed listings from the e-commerce marketplace to be displayed in the short video app, local media reported.

Why it matters: The short video app has been doubling down on e-commerce features in the hope of commercializing its huge user base. Amid the company’s push into the e-commerce market, its potential cut of external partnerships with Alibaba’s Taobao might be a signal that the firm wants to foster its own e-commerce capability.

• Content-driven e-commerce is a growing trend in China. More and more sellers use short video apps like Kuaishou and Douyin as effective ways to promote products. They are competing head-on with traditional e-commerce marketplaces like Taobao.
• Tencent is reportedly going to invest $2 billion in the short video app’s $3 billion pre-IPO round at a valuation of $28.6 billion.

Details: Merchants on Kuaishou found that the can’t add product listings from Taobao stores since 23rd December.

• A Kuaishou spokeswoman told TechNode that the feature suspension is caused by a system update, but she didn’t specify when the update will be finished and whether the feature will be restored after the update.
• Product referals to other third-part platforms like JD, Youzan and Kuaishou-backed Mockuai are still available.

Kuaishou announces plans for 2020 Spring Festival Gala

Context: The company claims more than 200 million active users who spend an average of 60 minutes on the app per day. Of the total users, over 80% are post-90 generation youth. At present, the number of users who get income on the app reaches 19 million, according to the firm.

• China’s new e-commerce law, which came into effect at the beginning of this year, broadens the definition of e-commerce operators to include players who do business through various online channels such as messaging apps like WeChat and video apps.
• Douyin is also boosting its e-commerce features.
• Similar to other e-commerce platforms, the Chinese short video app looks to tighten up its e-commerce offering.

Short video app Kuaishou on Wednesday announced its plans for the 2020 Spring Festival Gala, including RMB 1.1 billion (about $143 million) worth of cash giveaways and 666 warm-up events. The Spring Festival Gala is an annual TV event held by China Central Television (CCTV). In 2019, more than 1.17 billion viewers tuned in.  The Gala will be held on Jan. 24 2020.

Why it matters: Kuaishou is betting on one of the most viewed shows in China to narrow the close to 100 million daily active users (DAU) gap between itself and Douyin.

• Kuaishou only lagged behind Douyin’s 150 million DAUs by 15 million in February 2019. The gap soon inflated to 100 million in June, with Douyin reporting 320 million DAUs and Kuaishou reporting 200 million DAUs the month before.
• In June, Kuaishou announced its plan to boost its DAUs to 300 million before the Spring Festival. This was later broken down into having a peak DAU of 300 million before the holiday and reaching an average DAU of 300 million three months after the holiday.

Details: In addition to spending RMB 1 billion on Spring Festival hongbao, the short video app would also give away RMB 100 million in a prize money raffle.

• The company will hold 666 online warm-up events for the Spring Festival Gala, starting from Jan. 1, 2020. The events will be categorized into six themes such as “upvoting the real China” and “upvoting our lives.”
• Kuaishou secured the position as the exclusive interactive partner for the Spring Festival Gala in August. They beat heavyweight competitors such as search giant Baidu, as well as e-commerce platforms Alibaba and Pinduoduo.
• In 2019, the total viewership of the Spring Festival Gala reached 1.17 billion.

Context: A number of Chinese state media have registered official accounts on the platform, including Xinhua News and CCTV’s most-watched program “Xinwen Lianbo.”

• The first Kuaishou video of “Xinwen Lianbo” surpassed 100 million views in less than 24 hours.

Short video platform Kuaishou will send out cash red packets (hongbao) totaling RMB 1 billion ($142.6 million) on the eve of the Chinese New Year, LatePost is reporting. The holiday falls on Jan. 24 2020,

Why it matters: Kuaishou entered “battle mode” in June. The company wants to boost users to 300 million daily active users (DAUs) before the Spring Festival holiday.

• The goal was broken down into achieving a peak DAU of 300 million before the Spring Festival and reaching an average DAU of 300 million three months after the holiday.
• Kuaishou Lite is expected to contribute 60 million DAUs to the 300 million goal by late January. The lightweight version of the app loads faster, but has fewer features.
• The current DAU for Kuaishou is between 200-210 million.

Details: If successful, Kuaishou’s spending will exceed the RMB 900 million Baidu spent on Spring Festival hongbao in 2019.

• Cash red packets are only part of Kuaishou’s Spring Festival campaign, which was finalized in mid-December after two months of internal competition between eight teams.
• Kuaishou will also issue vouchers for some e-commerce platforms.
• Some Kuaishou employees did not go home for two weeks to prepare for the campaign.
• Kuaishou replaced Baidu to become the exclusive interactive partner of China Central Television’s 2020 Spring Festival Gala, one of the most-watched television shows of the year.
• Kuaishou recently fired an employee for disclosing details of the company’s Spring Festival campaign and some e-commerce data to Chinese media. The company also confiscated all of the employee’s shares.

Context: Chinese people give each other red packets as a gesture of good fortune during Chinese New Year, but tech companies have increasingly used it as a means to market their products and boost their user base.

• Tencent’s WeChat was the first app to start issuing hongbao but has stopped in 2016. Alibaba’s Alipay also followed suit and canceled cash hongbao in 2017 but still kept other celebratory activities giving away cash.
• In 2019, Baidu’s Spring Festival giveaway totaled RMB 1 billion, led only by Bytedance, which offered RMB 1.6 billion of cash prizes across Jinri Toutiao, Douyin, and Duoshan for the period.

Short video platform Kuaishou has launched a short video app named “Kuaishou Qingchunji” for underage users, featuring curated educational content from Kuaishou’s main app, TechPlanet reported.

Why it matters: Kuaishou has been actively building out its content app ecosystem to compete with Bytedance, which has several popular short video apps such as Douyin, Huoshan Video, and Xigua Video.

• In October, Kuaishou launched a curated short video app named “Taizan.” The app uses videos uploaded to Kuaishou and does not allow user uploads.

Details: Kuaishou Qingchunji has eight feeds, two of which are the normal “following” and “recommended,” with the rest focusing on topics such as news, interesting facts, practical skills, and children’s mental health.

• Short videos from Kuaishou Qingchunji come from content creators on Kuaishou, but view count and likes on the two platforms are not synchronized.
• Underaged users can follow content creators and like videos but are not allowed to post comments or create their own videos.
• TechNode observed on Wednesday that Kuaishou Qingchunji excludes some of the most popular video categories on Kuaishou’s main app, such as pranks, comedy, and dancing videos.

Tencent to conclude $2 billion investment in Kuaishou this month: report

Context: In June, Kuaishou announced that it had set a goal of reaching 300 million daily active users (DAUs) before the Spring Festival holiday, which will fall in late January. However, the company’s average DAU in October was only around 200 million to 210 million, according to a TechPlanet report.

• This gap prompted Kuaishou to revise its goal to include both Kuaishou’s main app and its lightweight version, Kuaishou Lite, according to 36Kr.
• Executives at the company expect Kuaishou Lite to have 60 million DAUs by late January, a Jiemian report said.
• The company also detailed its DAU goal: reaching a peak DAU of 300 million before late January 2020 and reaching an average DAU of 300 million three months after Spring Festival.

Additional contributions by Eliam Huang.

2019 was the year livestream e-commerce took off, with 250% year over year growth from 2018’s RMB 126.6 billion (around $18.0 billion), according to Chinese financial services firm Everbright Securities (in Chinese) and an estimate by Coresight.

The livestreaming e-commerce market is worth an estimated RMB 440 billion (around $63 billion) in 2019, according to Everbright. This equates to almost 9% of China’s total estimated e-commerce sales this year ($723 billion), or roughly 1% of the 2019 official estimate for total consumer good sales. According to the company, Everbright’s estimated sales revenues generated by livestreaming is based on industry forecasts, and surveys with major industry players, such as Taobao Live.

Online QVC

Livestreaming is becoming a go-to option for Chinese consumers seeking new products, promotions, or an impulse buy on a deal, especially for categories such as beauty and fashion, food, and home products. For instance, Taobao Live, Alibaba’s dedicated livestreaming channel, generated sales of RMB 20 billion during Alibaba’s Singles’ Day 2019 shopping holiday on November 11. This accounted for around 7.5% of the company’s total Singles’ Day sales of RMB 268.4 billion.

Livestreaming is like television shopping—think QVC—upgraded for the 21st century. It hosts real-time broadcasting of video content by presenters that model or try products. Viewers are able to immediately purchase the item from an embedded link online. Just like presenters on QVC, livestreaming hosts sell a wide range of products, from apparel and cosmetics to electronics and cars.

The big platforms

Taobao Live currently holds the largest share of the livestreaming e-commerce market in China.  The next largest players are short-video platforms Kuaishou and Douyin, according to Everbright.

Taobao Live was launched in 2016 and was the first service to use livestreaming to facilitate e-commerce. Following suite, Douyin linked up with Taobao and Tmall in March 2018, allowing viewers to buy products from these platforms without leaving the TikTok app. In June that year, Kuaishou introduced a similar feature that enables livestreamers to sell goods through an on-platform store.

Taobao Live features a wider range of products than its major rivals, including apparel, beauty, and parent-and-baby products, whereas Douyin is focused on the beauty and fashion sector. L’Oréal’s official Douyin account has over 121,000 followers, as of November 23, 2019. Livestreaming hosts on Kuaishou often help brands to clear inventories (in Chinese), as well as selling rural fresh produce and local handcrafts. The orange retailer “Home of Tangerines 471” (ganju zhi xiang 471), which sells local fresh tangerines, has 71,300 followers on Kuaishou as of December 5, 2019.

Even group-buying giant Pinduoduo is reportedly exploring adding livestreaming function to their platform, according to 36kr (in Chinese). Pinduoduo has posted job ads hiring a “live streaming celebrity manager” and a “creative video manager” on on Lagou.com (in Chinese).

How to use it

To some extent, livestreaming is a 21st-century iteration of television shopping. While lucrative for companies who sell products there, the latter has always been a niche retail channel: We estimate that television shopping channels accounted for less than 1% of total retail sales in the US in 2018, for example. By contrast, livestreaming may already contribute 1% of total retail sales in China, according to our analysis of estimates by Everbright Securities.

Brands and retailers should consider the most appropriate livestreaming platform depending on their product category. For instance, Douyin is the best channel for targeting beauty consumers, whereas Taobao Live offers greater category range, including apparel, beauty, and parent-and-baby products.

Even while livestreaming is helping to power e-commerce growth, history may suggest a natural cap on the impact of this channel. Livestreaming is still quite a small portion of retail, accounting for 1% at most of total retail sales in 2018. But we believe livestreaming is a good channel where shoppers look for deals and impulse buys, especially for categories such as fashion and beauty, food and home products.

But when livestreaming works, it does things traditional e-commerce doesn’t. Livestreaming works well with for certain kinds of e-commerce because it serves not only as a tool to showcase and deliver information about products, but also as a customer engagement channel in which shoppers can interact with the host. It gives customers feelings of a personal relationship.

This feeling of a relationship can help consumers overcome the confusion known as the “paradox of choice”: if shoppers have too many options, they might feel difficult to choose and end up not buying anything. A trusted host who gives shopping recommendations can help consumers to focus on one product and make purchasing decisions more easily.

Correction: An earlier version of this article wrote that the livestreaming e-commerce market saw estimated 71.2% growth from 2018 to 2019. The correct figure is 250%.

An earlier version of the chart “Taobao Live dominates livestream e-commerce by transactions” omitted the “other” category. It has been revised to include it.

Tencent is in the final stages of negotiations with Kuaishou for a $2 billion investment in the short video platform’s $3 billion pre-IPO round, which would give Kuaishou a valuation of around $28.6 billion, media outlet LatePost reported.

Why it matters: In addition to promoting short video platform Weishi to gain more market share, Tencent has also been trying to leverage Kuaishou to compete with Douyin.

• Bytedance unseated Tencent and search giant Baidu in the first half of 2019 to take the second-largest share of China’s digital ad market, trailing only e-commerce giant Alibaba.

Details: The investment, which is expected to complete by the end of December, would give Tencent a nearly 20% stake in Kuaishou.

• The $2 billion investment is higher than the $1 billion to $1.5 billion reported in August, while the stake it would give Tencent is lower than the 30% to 40% that Tencent was pushing for at the time.
• Other investors in the round include Alibaba-backed Yunfeng Capital, Boyu Capital, Temasek Holding, and Sequoia Capital.
• Kuaishou and Tencent also scrapped a plan to form a joint venture focusing on video games and opted for a partnership for exclusive gaming cooperation.
• Tencent declined to comment when contacted by TechNode on Tuesday.

Context: Kuaishou could go public in the US next year to raise funds for its fierce competition with Bytedance’s Douyin, Bloomberg reported in September.

• Kuaishou founder Su Hua reportedly declined an offer from Tencent to acquire the short video platform, according to an earlier report from LatePost.

Tencent aims to challenge Douyin with $1.5 billion investment in Kuaishou

“I can hardly believe that so many people abroad have seen my videos,” Chinese viral sensation Liu Shichao told TechNode.

Liu was shocked when told that some of his short videos had gone viral on Twitter, a social network blocked in the country he lives. “I’m very, very surprised because that video was made about two years ago, and I don’t even know who spread it abroad,” he said.

The 33-year-old Chinese farmer has never left China, nor has he ever accessed foreign social media platforms like Twitter or Instagram. But that didn’t stop his clips uploaded to Chinese social network Kuaishou from scaling the Great Firewall and racking up clicks in the West.

Liu’s videos join a growing trend in which Chinese viral content is reuploaded on Western social media accounts, bringing them global attention. And in most cases, the original creators are not even aware of it.

While one of his short videos originally posted on Kuaishou racked up nearly 12 million views on Twitter, Liu’s life remains relatively unchanged. When TechNode reached out to Liu last Thursday, he was busy harvesting corn in a small village in northern China’s Hebei province.

In the aforementioned video, Liu glugs down a half bottle of beer followed by a ghastly concoction containing the rest of the beer, a glass of burning baijiu liquor, a can of Pepsi, and even a raw egg. The whole process takes less than one minute.

He first became aware of the situation late last month when he woke to messages from many newly registered users on Kuaishou. It took a while for him to figure out why all these people were contacting him since the messages were mostly in English and he had to translate them.

“One message told me that I was a celebrity now in America,” he said. “So I chatted with the person [who sent the message] for a whole day, with the help of translation software.”

A picture of life in rural China

Liu is one of the thousands of Kuaishou bloggers who are willing to test their limits by performing dangerous or just plain bizarre acts, to please their followers.

The Beijing-based social network allows users to upload short videos varying in length from a few seconds to a couple of minutes each and has accumulated around 300 million monthly active users (MAU) as of July, dwarfed by Bytedance’s similar offering Douyin with over 400 million MAUs as of November.

Kuaishou is especially popular among rural communities and migrant workers in the country, leading some to refer to the app as a “mirror of life in rural China.”

Close to two-thirds of Kuaishou users live in China’s third-tier cities or below, which excludes most larger provincial capitals and major metropolises such as Beijing and Shanghai, according to a report by Chinese research firm TalkingData.

The app’s content, however, is often chastised by cyberspace watchdogs and state media for being “vulgar.”

In a yearlong campaign aimed at “cleaning up” the web, the Cyberspace Administration of China, the country’s top internet regulator, in March 2018 ordered Kuaishou to remove harmful and vulgar content. The app was later removed from the country’s Android app stores and was not allowed to provide updates for iPhone users via the App Store.

The app became available again after the company made a public apology and promised to remove vulgar, pornographic, or violent content.

Though the above-mentioned video was a hit on Twitter, it’s no longer available on Kuaishou, to which it was uploaded in January 2018.

The video racked up over 50,000 likes and 6,100 comments within one month of going live before it was taken down by Kuaishou. The platform marked the video as “inappropriate for publishing,” according to a screenshot of Liu’s Kuaishou user interface seen by TechNode.

Liu said that Kuaishou removed more than 100 of his clips and suspended his account for nearly four months during what he called “tough crackdown” in the first half of 2018.

He told TechNode that he rarely makes videos similar to that one because Kuaishou no longer “promotes this kind of content.”

“They might think that these videos encourage teenagers to consume alcohol,” he said.

He recently registered an account on Twitter and began to post similar videos that are no longer welcomed by Kuaishou. He soon amassed nearly 250,000 followers on Twitter and each of his videos usually earns him hundreds of retweets and thousands of views.

Kuaishou declined to comment.

Blurred boundaries

It is widely acknowledged that Chinese internet culture usually doesn’t translate well in a global context. It is rare to see Chinese internet slang or memes spread to other countries.

This is mainly due to language barriers, as well as the fact that the country’s strict internet controls force people to express themselves in more obscure ways.

But when it comes to online video content, international boundaries are disappearing.

“Videos, animations, and games are more visual, so they are easier to absorb and understand,” Ross Settles, an adjunct professor of media innovation and entrepreneurship at the University of Hong Kong, told TechNode.

“The great thing about the short video is that it has to tell a very quick and simple story,” he added. “It’s very crisp and the message is very clean.”

The fact that most short-video content produced on China’s internet is light-hearted is also a contributor. Fun content is a universal need and a language that everybody can understand.

Chen Zhanwei, a 25-year-old vlogger based in the southwestern city of Chengdu, has also been garnering large viewer numbers on YouTube, another platform inaccessible within China.

These videos, which tell the stories of the four cats that he raises, were originally uploaded to Chinese video-streaming sites such as Bilibili and Weibo. But they have also gained a following beyond the Great Wall after Chen uploaded them to YouTube, despite them being in Chinese.

“It was unbelievable because my videos are all in Chinese, but there are millions of people watching them, and many of them are commenting in other languages besides Chinese,” said Chen, adding that his most popular upload on Youtube has attracted more than 43 million clicks.

Settles suggests that that Chinese internet culture used to thrive in platforms that were only used by Chinese or people connected with the country, such as Tencent’s social networking app WeChat. However, thanks to Chinese short video apps like TikTok, the international version of Douyin, Chinese internet culture is drawing eyes in the outside world.

“It’s not that Chinese internet culture is so different that no one would understand. It’s that it was just not visible for most international users,” he said.

Chinese online Q&A platform Zhihu completed a $434 million F-round of financing on Monday, led by short video platform Kuaishou.

Why it matters: The funding could help Zhihu to revive plans to go public. It previously failed due to profitability issues among other undisclosed reasons.

• The Beijing-based firm’s funding is the largest round seen in China’s online content and entertainment segment over the last two years.

“Zhihu, Kuaishou, and Baidu are very different products for very different user scenarios, but they are all in a larger segment, and their users have similarities. All three platforms face ‘information isolated island’ problems and the rising cost of accessing high-quality content.”

—Zhihu CEO Zhou Yuan responding to a Zhihu question about the financing (our translation)

Details: Search giant Baidu also took part in the funding round, along with several previous investors, including Tencent and Capital Today.

• Previous investor Bytedance did not participate in the round. Yicai reported that founder Zhang Yiming was unwilling to boost the amount of funding.
• Zhihu CEO Zhou Yuan and Kuaishou founder Su Hu agreed on the short video platform’s investment during a lunchtime meeting two months ago.
• The platform, often regarded as China’s version of Quora, will leverage the expertise of Baidu and Kuaishou to upgrade the format of content, as well as how it is discovered and distributed, according to Zhou.
• In an internal letter, he said that the circumstances and stage of financing dictated that the platform could not tolerate any slackness. “If we are fast, we will live, and if we are slow, we will die,” he wrote.

Context: Zhihu completed its E-round last August, raising approximately $270 million at a valuation of $2.5 billion.

• Founded in 2011, Zhihu only started to monetize in 2017.
• Zhihu could try to list again in 2019, 36Kr cited an investor close to the platform as saying.
• Zhihu responded to reports that it laid off hundreds of employees in 2018, stating that the numbers were vastly exaggerated and cuts were within a reasonable range.

Kuaishou has launched a new campaign to prevent shop owners on the platform from redirecting users to external channels. Shop owners do this to avoid incurring charges when completing transactions. The Chinese short video app looks to tighten up its e-commerce offering.

Why it matters: Content-driven e-commerce is a growing trend in China as more and more sellers use short video apps like Kuaishou and Douyin as effective ways to promote products. Some merchants encourage shoppers to pay privately via WeChat or Alipay to avoid extra fees and also to reduce their responsibility for after-sales service.

• Chinese short video apps are doubling down on e-commerce features in the hope of commercializing their user base, but these new channels are facing increasing challenges to bring order to their new-yet-flourishing ecosystem.

Details: Kuaishou’s new guideline specifies that users or promoters who sell outside of official payment channels like Kuaishou’s in-house feature, as well as e-commerce partners like Taobao, Youzan, and Pinduoduo, will be subject to tighter restrictions.

• The short video app, a rumored investment target of Tencent, has shut down 1,038 online stores in the app and delisted more than 30,000 products so far.
• The company claimed the user satisfaction index has increased by 50% after the campaign.
• From September, the company will block private trading covering eight product categories, including jewelry, skincare products, foods, medicine, pesticides, and antiques, among others.

Context: China’s new e-commerce law, which came into effect at the beginning of this year, broadens the definition of e-commerce operators to include players who do business through various online channels such as messaging apps like WeChat and video apps.

• Kuaishou adjusted its commission system for stores in July to boost its e-commerce offering and set up a bonus pool for stores offering quality services.

Tencent is in talks with short video app Kuaishou, known as Kwai in English, about investing between $1 billion and $1.5 billion in the platform. Details of a potential deal have already emerged on Chinese financial blog IPO Zaozhidao.

Why it matters: With its own short video platform Weishi underperforming and Douyin’s market share increasing, Tencent could leverage Kuaishou to compete more effectively with Bytedance.

• Daily active users (DAU) on Weishi, known as WeSee in English, rose by one-quarter month on month to hit 7.5 million in June, though IPO Zaozhidao said the growth only came thanks to “the support of half of the company,” indicating that significant resources have been poured in.
• Douyin’s DAU for June was 320 million.

Details: Tencent was not the only heavyweight investor to express an interest in joining the round. But the unnamed international player was put off due to the Tencent’s push for a significant stake in Kuaishou, between 30% and 40%, reported Beijing News.

• Although negotiations are still ongoing, the discussions are unlikely to see the international player get involved.
• The investment could push Kuaishou’s valuation to $26 billion.

Context: Over the weekend, Tencent removed restrictions on using Kuaishou within its WeChat app. Users can now share videos directly to WeChat’s ‘Top Stories’ feed, and their contacts can repost them at will.

• The unblocking came just a month after Tencent allowed users to share Kuaishou links on WeChat Moments as embedded videos.
• Tencent first invested $350 million in Kuaishou in March 2017, pushing its valuation to $2.5 billion.
• Kuaishou’s DAU in May was 200 million and in June, founders Su Hua and Cheng Yixiao set a target of 300 million by January 2020.
• Kuaishou is likely to gross more than RMB 40 billion revenue in 2019, an investor close to Kuaishou told IPO Zaozhidao.

Authenticity is the key to success on short video platforms, Kuaishou’s Maggie Long told the audience at TechNode’s ORIGINs conference, held during Malaysia Tech Week 2019. Short videos are emerging as the cutting edge of marketing as TechCrunch reports that users spend a shocking total of nearly 600 million hours per day watching short-form videos on their mobile devices in April 2019.

“Short video is a growing phenomenon in China and it is slowly spreading across the world. It is definitely not just a new wave of marketing for those in China, but it is applicable for all,” said Maggie Long, director of Global Public Relations & Communications of short video platform Kuaishou Technology. Kuaishou passed 200 million daily active users in May.

Long spoke at a fireside chat on short videos, grassroots influencers, and their impact on businesses with Daryl Chung, projector director of tech media outlet e27. 

The short video boom

Long said that the growth of short video is driven by the development of China’s technology infrastructure, which allows easy access to strong 4G or wifi networks; the simplicity of short video applications; and the format’s openness to everyone from the countryside to China’s biggest cities.

“Everyone’s lives can be seen and will be seen by everyone in the world. It creates a nation-wide community,” said Long.

A mine for businesses

Long said that short video platforms are an undiscovered mine for businesses. Short video platforms, she said, are equipped to help businesses in identifying their target audience quickly. This would benefit marketers as it would help them to craft their campaign to have a greater and more effective reach, added Chung.

Long added that short video platforms are a good way to reach consumers for both the business-to-business or business-to-consumer sectors.

“The key to capturing user’s attention would be the authenticity of the video and the uniqueness of the content,” said Long. She advises businesses not to do advertisements directly ion a short video feature, suggesting that they first create educational content to accumulate a strong, stable fanbase before marketing their product. “The conversion rate tends to be higher,” said Long.

Grassroot influencers

Long said that her platform’s stars are ordinary people—the sort of people many in first and second-tier cities see as losers. “They used to be commoners,” said Long. 

Geng Shuai, who’s known for short videos of unique and interesting inventions, has gained the attention of 3 million people and earns more than RMB 10,000 (about $1,450) a month solely through live streaming, Long told TechNode. 

Long also said that short videos help Chinese people find safe food: people follow and reach out to content creators who film the rearing process of their animals to buy meat.

How to do it

1.       Have a clear branding position

Long advises would-be short video stars to stick to a common theme. This allows the platform’s algorithms to better promote and distribute the content to relevant viewers. If streamers change the theme of their content every day, Long said, it confuses the algorithm, causing it to be unable to effectively promote the videos.

1.       Produce real and authentic content

Long said that users of short-video platforms are looking for videos that are truly authentic. “Videos that are not so professionally produced tend to fare better, as they have an element that makes them more relatable to viewers,” said Long.

1.       Engage closely with your followers

Long emphasised that interaction with the followers is crucial—it helps users develop a sense of trust in the content creator. This is crucial for business owners hoping to market products. “Once trust is established, people will be more likely to buy the product from you,” said Long.

Wrapping up, Chung said that this new form of marketing requires businesses to take on a new mindset. It is important for business owners and startups to realise that it is about making an impact and scaling their business along the way. Making money and new interesting products, he said, should not be the business’s only focus.

快手创始人发内部信：2020年春节前冲刺3亿DAU – 36Kr

What happened: Short video app Kuaishou plans to optimize its organizational structure and speed up the product refinement process to boost growth, with the goal of reaching 300 million daily active users (DAU) before Spring Festival of 2020, 36Kr reported, a major holiday which will fall in late January. Co-founders Su Hua and Cheng Yixiao expressed in an internal letter their dissatisfaction with the company’s loose structure and sluggishness among employees. In May, the vice president of the app announced 200 million DAU.

Why it’s important: Kuaishou has seen substantial growth since the start of 2019, increasing its DAU by approximately 40 million in the first five months of the year. However, compared with its major competitor Bytedance, which has dozens of products with a combined MAU of 1 billion, Kuaishou has made very limited progress in terms of new products. While boosting the DAU of Kuaishou’s flagship product won’t resolve this issue, it could still help Kuaishou grow its share of the live-streaming and short video market.

Markets in China’s largest cities are slowing and increasingly saturated. Many tech entrepreneurs are now pushing out into third- and fourth-tier cities and rural areas for future growth. As they do, enter a world where the texture and tempo of life can be quite different. Companies that want to thrive in small-town China must adapt to local logic. Those that do succeed are worth watching: they’re pioneering the strategies that are most likely to work in the emerging online markets of rural Asia and Africa.

Interest in this “other China” has grown in recent years with the rise of budget e-commerce platform Pinduoduo. Over 65% of its users come from third-tier cities and beyond, where incomes of less than RMB 3,500 (about $522) per month are the norm. Many are recent arrivals to e-commerce, buoyed by growing incomes, smartphone penetration, and 4G coverage.

Business media have dubbed this the “market outside the fifth ring road” (wuhuanwai shichang), referring to a Beijing orbital highway that draws a mental line between metropolitan China and the land beyond. In many ways, they are a world apart from the urban middle class that drove the first wave of e-commerce in China. The average spend on Pinduoduo is $6, compared to $60 on Jingdong.

As Pinduoduo CEO Colin Huang put it last year: “The new consumer economy isn’t about giving Shanghainese the life of Parisians. It’s about providing paper towels and good fruit to people in Anhui,” referring to a largely rural inland province. Alibaba has also got in on the act, launching a low-price shopping platform called Taobao Tejia.

Aside from shopping, a range of other apps have emerged catering to the needs and price points of small town and rural China. Short video app Kuaishou has become a channel for rural China, featuring family feasts on plastic stools and skits performed in farmyards. Compared to the more airbrushed, luxury aesthetic of rival Douyin, Kuaishou’s earthy (tuwei) feel is more relatable to its users, over 70% of whom earn less than RMB 3,000 a month.

Where there’s more time than money

The drop-off in income and education levels beyond the Fifth Ring is widely recognized. Less appreciated is a variable that slopes the opposite direction: free time.

Research by the Chinese Academy of Social Sciences (CASS) estimates that daily leisure time for residents of Guangzhou and Shenzhen has now fallen to around two hours, less than half that in the UK and US. Shanghainese and Beijingers fare little better.

Moving outside the Fifth Ring, a separate study by Professor Sun Jinyun at Fudan University found that working adults in lower-tier cities in Anhui, Jiangxi, and Zhejiang had an average of 5.8 hours leisure time each day. The typical lunch naptime was 55 minutes and over 20% of those surveyed played on their phones for over six hours a day.

Much of small-town China has a dearth of options for work or play, leaving residents underemployed, bored, or both. Across China, millions sit day and night in little corner stores (xiaomaibu) waiting for customers. It is little wonder then that apps aiming beyond the Fifth Ring are often designed to fill time, or even better, to monetize it.

News apps such as Qutoutiao and Huitoutiao that pay users through games that reward reading and sharing content. Pinduoduo entices budget-savvy consumers by incentivizing (and socializing) time spent shopping through group discounts. Damas (“big mamas”) in small-town China spend hours searching out bargains and rallying friends to save a few yuan on washing powder.

Younger peers in first-tier cities probably wouldn’t bother. Indeed, most apps for metropolitan China come with the underlying promise to help you save time (or at least feel like it); apps for chores, errands, getting around and planning your life. This efficiency imperative has also fueled demand for apps such as Dedao, which offers busy urbanites relief from “knowledge anxiety” (zhishi jiaolü) by squeezing the latest must-read book into a 15-minute audio summary.

Virtual stratification

Fed by disparities in free time and wealth, the emergence of a distinct constellation of apps for small town China reflects deep divides in Chinese society.

It seems natural that real-life inequalities are reproduced and refracted online. What is notable in China is that this virtual stratification is playing out vertically, through the emergence of distinct platforms, in addition to the horizontal sorting process that occurs between interest groups on the same platforms. This latter dynamic is more familiar in the US, where filter bubbles on social media have become a much-discussed topic.

Apps like Pinduoduo and Kuaishou may also give a glimpse of the future of the global internet. The International Telecommunication Union estimates that half the world will be online by the end of 2019. People in rural Asia and Africa make up most of the remaining 50%. As they come online—there are 16 million new connections a month in India alone—Chinese firms are already chasing them. Many of these new arrivals may relate more to the world outside the Fifth Ring than to global metropoles like Shenzhen or San Francisco.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss Xiaomi’s stock slump, problems in the smartphone market, and the wave of layoffs in China tech.

They are also joined by Masha Borak, a reporter for Abacus News and former reporter at TechNode. She recently spent a week immersed in content on 19 different Chinese short video apps, and lived to write about it! All joking aside, Masha shares her observations from her time on the apps and helps the guys understand their draw in China and abroad, as well as how they might be impacted by new regulations.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• com
• Pinduoduo

Guest:

• Masha Borak, @mashaborak

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull – @jameshullx

Podcast information:

• iTunes
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Animated cartoon avatars are now making their way into China’s popular bite-sized videos, with Tencent-backed short video app Kuaishou releasing an AR avatar feature dubbed “Kmoji.”

The new addition to the app allows users to create their own avatar by customizing facial features—including skin tone, hairstyle, and eyes—or by simply scanning their face via the camera. It then tracks facial expressions and head movements so that users can record their Kmojis while singing or talking.

The feature works much like iPhone’s Memoji. However, the company said Kmoji doesn’t rely on 3D depth-sensing, instead using 2D technology to map out facial features for the 3D avatar. The company claims it is compatible with any iOS or Android device and that it is less GPU and CPU intensive, even running on a low-end smartphone.

Kuaishou has been developing the technology over the past few months. It launched its own version of iOS’ Animoji “animated emoji” function, in July.

Cartoon avatars have taken the Chinese internet by storm. After South Korean app Zepeto found popularity in China, Meitu, a Chinese selfie-enhancing app, released a similar feature earlier this month.

Meitu allows users to snap a picture and create cartoon versions of themselves that can be shared on social networks. The South Korean company behind Zepeto plans to release a localized Chinese version of its app by the end of December.

Kuaishou is one of the most popular short video apps in China. In October, the company was reportedly in talks to raise funds targeting a $25 billion valuation. Last month, Kuaishou founder and CEO Su Hua claimed that it had 130 million daily users.

The market for user-generated content in China is booming, yet retaining users and driving traffic are not without challenges. Facing fierce competition from players like ByteDance-backed Douyin, known as TikTok internationally, Kuaishou focuses on lower-tier cities and has been expanding its in-app features.

The company launched a mini-game feature earlier this month, which allows users to play video games within its app.

Tencent-backed short video app Kuaishou launches mini game similar to WeChat’s offering – SCMP

What happened: Chinese short video platform Kuaishou has launched a feature allowing users to play video games within its app, negating the need to download them to their phones. So far there is only one game available within Kuaishou’s app. The new feature allows users to share their scores with other Kuaishou gamers. The mini-game was reported earlier this week by some users of the platform, though it currently appears to be under testing for selected users.

Why it’s important: Chinese tech companies are competing to become all-in-one entertainment platforms, aiming to keep users within their ecosystems for as long as possible. Kuaishou follows WeChat in launching its mini-game feature, the latter company including the ability to play in-app games last year. However, WeChat’s reach extends much further than just entertainment. It incorporates services including food delivery, bill payments, and travel bookings, among others. Earlier this year, Alibaba also added mini-games to its Taobao marketplace.

快手CEO宿华：超过1000万人在快手获得了收入-Tencent Tech

What happened: Over 10 million users have made money on China’s top short video site Kuaishou over the past year, said company CEO Su Hua at the World Internet Conference held in Wuzhen. He added that over 130 million users are recording and sharing interesting moments of their lives on Kuaishou every day.

Why it’s important: Bite-sized videos are flourishing in China. While Douyin finds its users coming mostly from higher-tier cities, its rival Kuaishou established a more solid foothold in lower-tier cities and rural areas. More than just bringing fun, Kuaishou is increasingly a means for users in poverty-stricken areas to gain the extra income for the improvement of their well-being. There are lots of poverty-alleviating stories on Kuaishou with farmers earning more by selling fresh farm products or through ecotourism. The company has launched an entrepreneurship course for the initiative.

China’s Video App Kuaishou Targets a $25 Billion Valuation – The Information

What happened: Video app Douyin’s domestic rival Kuaishou is said to be in talks with interested parties for undisclosed financing at a $25 billion valuation, a figure 38.9% higher than the $18 billion seen in previous funding round in January. The current proposed valuation is still much lower than $75 billion, the valuation Douyin’ parent company ByteDance had when acquiring a fresh $3 billion investment in August. Kuaishou declined to comment on the issue.

Why it’s important: Frequent financing requests regarding sizeable funding in the live-streaming and short video industry hint at commercialization and profitability problems.  With Beijing tightening content regulation, user generate content (UGC) platforms such as Kuaishou and Douyin may see challenges in driving traffic with new content creation. Meanwhile, fierce competition will force players to grab market share and channel partners first, at the costs of heavy investment.

微信解除对快手的分享限制？腾讯官方回复证实纯属“乌龙” – Tencent Tech

What happened: Tencent public relations director Zhang Jun said sharing short videos from Kuaishou as well as Xigua Video is still banned in WeChat Moments. Zhang said developers used mini programs to let users share those videos in WeChat, which led some to believe that the ban was removed. Local news media reported on Thursday that videos from Kuaishou can once again be shared on the Moments feed after a six-month ban.

Why it’s important: Although Tencent claimed that the restriction on short video was intended to keep vulgar and inappropriate content in check on its platform, popular speculations suggest the ban is part of Tencent’s strategy to compete with its rival Bytedance’s Toutiao. Currently, three Bytedance-backed short video apps Douyin, Huoshan, and Xigua Video are still banned from being shared on the messaging app.

Douyin rival, short video sharing and live streaming platform Kuaishou (快手), has 100% acquired Acfun (A站), a platform for ACG (anime, comics, and gaming) fans. No other information has been revealed.

After the acquisition, Acfun will be independent in branding, operation, team building, and future development. Kuaishou will provide support in technology and resources such as capital and channels.

The acquisition is a strategic move to increase survival chances in fierce competition. The two parties also hope to integrate possible resources to combat major players such as Douyin and Bilibili.

Kuaishou, targeting rural and lower tier city users, though holding around 100 million daily active users (DAU) and good traffic, is frequently under investigation due to improper content.

In 2016, famous Chinese new media author Huo Qiming published the article Cruel Stories from the Bottom: Chinese Rural Areas in a Video App (残酷底层物语: 一个视频软件的中国农村). The article depicted the world of Kuaishou where people from rural areas post videos including self-mutilation to win attention.

Recently, the government investigated cases of teen mothers showing off their young husbands, kids, and their elopements. Su Hua, CEO of Kuaishou, apologized publically and stressed “using the right value to guide algorithms.”(in Chinese)

The platform has built its business model on live streaming and advertisement. Amid tight content censorship and commercial competition, however, compared to Douyin’s 150 million DAU and stable commercial cooperation with major global brands, Kuaishou’s RMB 8 billion revenue and net profit RMB 700 million don’t seem that impressive

Meanwhile, Acfun itself has been under scrutiny for its content and lack of profit. Speculation puts the company’s loss in 2017 at around RMB 100 million.  On February 2, 2018, Acfun temporarily closed. The platform resumed operating on February 12th.

Though facing funding problems, Acfun’s reputation’s in Generation Z and domestic video sharing has brought powerful investors who are interested in taking over the business.

In 2017, there were rumors that YC Capital (云峰基金),  a private equity firm co-founded by Alibaba’s Jack Ma, was in talks with Acfun to acquire 20% of the business for around RMB 1 billion. Due to its close relationship with Alibaba, the market often read YC Capital’s moves as part of Alibaba’s intentions. In March, 2018, source close to the matter said YC Capital had abandoned the deal, and ByteDance instead was in frequent talks with Acfun.

Since ByteDance is behind Kuaishou’s major rival Douyin, Acfun will not be in any commercial deals with ByteDance in the near future.

WeChat rolled out tightened restrictions on sharing external audiovisual links in its Moment feed on May 18, which could have affected all the mainstream video and music platforms in China. Lucky for them, the tech giant has decided to remove the policy just three days later (in Chinese).

“WeChat would further restrict external links to protect users’ privacy and optimize customers’ experience,” reads a statement posted on its WeChat official account on May 18. “External links must not spread content containing audiovisual programs in any form without obtaining related government certificates.”

Update: Direct sharing of videos from Douyin is still banned. Users only can download the video and re-upload on WeChat Moment. We tested Kuaishou, Weibo and Ximalaya. Direct sharing through these apps works well.

If implemented, this could practically have banned links from all the popular sites like Douyin, Kuaishou, Huya, Ximalaya, with the exception of those backed or developed by Tencent. A photo shortlisting all the affected platforms dubbed Tencent’s rule as “the strictest-ever external link policy.”

Although the reasons behind Tencent’s quick shift in attitude is still not clear, its reason for initiating the blow is fairly obvious: to fend off increasing competition from thriving platforms like Douyin and Kuaishou, not only in defense for its home-grown video platforms, but also for its killer app WeChat which is losing users to the emerging rivals.

Tencent’s collision with upcoming competitors is best demonstrated in its fraught relationship with Toutiao. Earlier this month, once low-profile Tencent founder Pony Ma got into a spat with Zhang Yiming, CEO of Douyin parent ByteDance, who accused WeChat of making excuses to block Douyin out of the platform and plagiarizing Douyin with its own short video app Weishi (微视).

Also, the friction goes well beyond the public spat. Douyin has filed a lawsuit against Tencent for defamation and requesting RMB 1 million in damages including an apology.

John and Matt talk about Douyin, the breakout short video app of 2017, how it stacks up against Kuaishou (aka Kwai)—China’s “low” humor video app—and some predictions for short video apps in 2018.

Links

• China Tech Talk 08: How Chinese internet celebrities are taking over e-commerce
• Behind the success of Kuaishou, the biggest social video sharing app in China
• The Economist asks: Will China’s tech giants overtake Silicon Valley?
• Toutiao parent launches global competitor to musical.ly
• How Douyin became China’s top short-video App in 500 days

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina ChinaChannel

• iTunes
• RSS feed
• China Tech Talk.com
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Download this episode

Huoshan (火山小视频), the short video platform backed by Toutiao, has temporarily shut down the city channel (同城频道) to clean up the vulgar content. It is still unclear how long the channel will be offline, Chinese media TechWeb is reporting. 

A week ago China’s media regulator, the State Administration of Radio and Television and China Central Television criticized two short videos apps, Huoshan Short Video (火山小视频) and Kuaishou (快手), for displaying vulgar content. These apps disappeared in Android stores the following day but remain accessible in the Apple App Store.

Huoshan said that the current main page video page has undergone a comprehensive clean up, and will strictly follow the requirements from the regulatory authorities to further improve the standard during the rectification period, and conduct comprehensive cleaning up of existing and past contents on the platform.

At the same time, the Huoshan has now created a “Hello! New Age (你好！新时代)” topic on the recommendation site, focusing on “positive energy content” such as Chinese students wearing school uniform and doing sports together. It also features authorized content and positive energy video channel on the top.

Huoshan said that in the future, it will comprehensively increase the auditing standards, increase the intensity of content review, and check any suspected content. If there are any violations, it will shut down its uploading function and take permanent measures, and will not tolerate it.

On April 4, the State Cyber Information Office interviewed Kuaishou and the relevant person in charge of the Jinri Toutiao’s Huoshan and made serious crackdown, ordering a full clean up of its content. On April 6, the Huoshan short video announced that it will implement various management requirements one by one, in-depth self-inspection and self-correction, and establish correct values internally and externally. On April 7, Huoshan closed all accounts (in Chinese) of underage users.

Huoshan is one of the top four short video platforms, along with Kuaishou, Douyin, and Watermelon and was among the Spring Festival’s top 5 apps based.

Chinese entertainment app Watermelon Video (西瓜视频) has barred new mobile video uploads, live streams, and live comments, saying it is cleaning up the platform to meet legal standards, local media is reporting.

The move comes amid a crackdown on online content lead by China’s media regulator, the State Administration of Radio and Television (SARFT). It puts increased pressure on technology companies to police content on their platforms.

Watermelon Video said that it had scrutinized the content on its platform and had found 500,000 videos it deems inappropriate, resulting in the ban of 38,000 user accounts. It noted that in the future measures would be put in place to improve auditing standards through manual checks and the use of artificial intelligence.

The SARFT-led effort has already resulted in the suspension of video playback in Tencent’s messaging apps, the permanent closure of Toutiao’s Neihan Duanzi (内涵段子 “implied jokes”) app, the suspension of numerous news services from Chinese app stores, an apology from Toutiao’s CEO, and the temporary disabling of live streaming and comments in Toutiao’s Douyin (抖音).

Tencent has suspended the ability to play short videos in its WeChat and QQ messaging apps, requiring users to copy the link and paste it in their browser to the view the videos, local media is reporting.

The suspension will prevent users from viewing videos from the company’s own Weishi platform, along with content from Douyin, Kuaishou, and Xigua Video.

The move comes amidst a broader crackdown on online content. Bytedance’s apps have received a great deal of attention from China’s media regulator, The State Administration of Press, Publication, Radio, Film, and Television (SAPPRFT). Last week, it was told to better control the “inappropriate” content on its Jinri Toutiao platform.  Issuing the same order to Kuaishou, SAPPRFT said that dealing with vulgar content was of “high importance.”

Shortly after the order, Jinri Toutiao, along with Phoenix News and NetEase news had their apps suspended from various app stores in the country.

Toutiao was again targeted this week after it was ordered to permanently close its Neihan Duanzi (内涵段子 “implied jokes”) app for its inappropriate content. The platform offered a selection of short videos, jokes, photos, and memes.  The company’s CEO and founder Zhang Yiming later apologized, saying the that the company took full responsibility for the app being shut down.

“The content that appears [on Neihan Duanzi] goes against core socialist values, and we did not do a thorough job in guiding public opinion,” he said in an open letter.

The company also temporarily disabled live streaming and comments in its short video app Douyin (抖音), saying the platform is currently undergoing a “system upgrade” and that the features would return following the enhancements.

Four of China’s most popular news apps have disappeared from Chinese app stores as of 3pm today. The enforced takedown by authorities was reported by Sohu News before the deadline (the news on Sohu has since been deleted), and our checks of various domestic app stores show the apps have now been removed.

Jinri Toutiao 今日头条 will be suspended for three weeks, Phoenix News 凤凰新闻 for two weeks, NetEase News 网易新闻 for one week and Tiantian News 天天快报 for three days according to Sohu, which claims to have had the move verified by the Ali, Huawei, Xiaomi, 360 Mobile and OPPO app stores before the deadline. Tencent told them it didn’t have any comment.

The reason behind the takedown, as ascertained by Sohu, is “In order to regulate the dissemination [of news] in a legal manner, all online application stores must suspend the downloading of the four mobile applications”.

The takedown follows an announcement by the State Administration of Radio and Television on April 4 (in Chinese) that picked out Toutiao and Kuaishou as continuing to broadcast without having the relevant permits for online broadcasting, and for broadcasting programming opposed to social morality. The announcement also called on the two to go through their existing content and remove anything deemed unfit or pornographic and to reduce their overall output back inline with their management capabilities. Last year Toutiao explained how it was using AI to automate content-checking with humans watching a very small proportion. Its subsequent efforts to improve its content checking, including hiring Communist Party members, have not kept it safe from this round of suspensions.

Toutiao, the app to be removed for the longest period, had not responded to our request for comment at the time of publication. Its Toutiao Express app does not seem to have been affected by the move. Apple’s China App Store is still carrying the apps involved.

Kuaishou, a leading short video platform in China, is planning to add around 3,000 content checkers (in Chinese) to its existing 2,000-member team in order to help filter content deemed illegal or inappropriate by the authority.

According to the job description, the candidates should hold a bachelor degree or higher, have “high-level of morality and political awareness”, and preferably be members of the Communist Youth League or the Communist Party. Kuaishou already maintains a sizable censor factory that operates in six cities of Beijing, Tianjin, Wuxi, Wuhan, Harbin, and Yancheng.

This new recruitment spree could be translated as a measure to cope with the government crackdown on vulgar content. China’s internet watchdog SAPPRFT (State Administration of Press, Publication, Radio, Film and Television) issued an order to Kuaishou to clean up their contents last week, shortly after the platform was exposed by state media CCTV for its failure to censor videos featuring teenage moms.

Crackdowns like this are being launched with increasing frequency, affecting pretty much every major content-generating platform in China. Toutiao is named in the same SAPPRFT order to purge its contents, while Huoshan̦—the short video platform backed by Toutiao—closed all accounts (in Chinese) of underage users. Weibo was ordered to go with a sanitized version of their trending topics. Given the circumstances, in-house “content patrol” units are becoming a crucial part of all internet companies. Leading tech firms like Tencent and Toutiao are expanding their content checking team.

Meanwhile, the issue also brings back a yearlong debate on whether technology is morally neutral. Both sides of the argument have their advocates. Toutiao CEO Zhang Yiming said to local media “Technology should be neutral. No intervention is the best distribution principle.”

Kuaishou CEO, Su Hua, takes the opposite stance: “People have their own values and they will endow their values to the algorithm,” said Su Hua, Kuaishou CEO.

China’s regulator for the media and entertainment sector, SAPPRFT (State Administration of Press, Publication, Radio, Film, and Television), has just released a public statement (in Chinese) on their official WeChat account ordering Jinri Toutiao and Kuaishou to start cleaning up their sites and clamping down “inappropriate” content. The SAPPRFT said in the statement that the issue with vulgar content is regarded as “high importance” and that it has summoned and questioned the person-in-charge at both Jinri Toutiao and Kuaishou.

The government seems to be moving its crackdown on vulgar content up a notch. In the statement, the SAPPRFT criticizes both video streaming sites for letting vulgar content run rampant on their platforms and thereby ordering both Toutiao and Kuaishou to:

1. To remove all content regarded as “vulgar, violent, bloody, sexual, and harmful.”
2. Thoroughly examine all existing user accounts and, in the meantime, no new user accounts can be added to their sites. Both companies should take the necessary steps against the accounts that have violated the regulations, which may involve removing the upload function and permanently deleting the accounts, etc.
3. Investigate internal teams that are responsible for reviewing and auditing the site content.
4. Limit the number of videos uploaded to the site down to a scale that is proportionate to the site’s management capability. And no videos should be uploaded without being reviewed.

Jinri Toutiao and Kuaishou have been on the government’s radar for quite some time now and have stepped on a few red lines. Last Demeber, Toutiao was criticized by for spreading vulgar and low-quality content and was shut down for 24 hrs. And just today Kuaishou had to issue an apology for failing to censor content featuring teen moms.

Chinese short video platform such as Douyin and Kuaishou are being criticized for featuring video hosts who make and distribute counterfeit products on their videos, Tencent News is reporting.

Some video hosts on platforms such as Douyin, and Kuaishou are forming a black industrial chain: They openly demonstrate the process of homemade lipstick and foundation and then affix brand names, leaving their WeChat account details to receive money to send out goods. In addition to DIY brand-name cosmetics, when users search for keywords such as “luxury” and “prestige watches” on these platforms, they can find plenty of contents that show off fake luxury goods. Some suspected fake product videos even received these platform’s recommendations.

In recent years, the Advertising Law and relevant Internet laws have become increasingly stringent, forcing e-commerce platforms to abide by the rules. For example, a few days before November 11 in 2017—when Chinese shoppers make new records of year-on-year swelling shopping volume—the standing committee of the National People’s Congress introduced new provisions that ban false or misleading advertising about a product’s features, functions or quality, forbid falsifying sales data, user comments and awards.

Seeing how authorities are heavily regulating these e-commerce platforms, the sellers have transformed into “Weishang (微商, WeChat merchant)” and pushed social marketing for product sales. The cosmetics industry is one of the areas that Weishangs are quickly monetizing on their own branded cosmetics. Because of the huge traffic on these platforms, there was also a blind spot for supervision for entertainment and social platforms compared to e-commerce.

Under Advertising Law (广告法), the short video platforms should understand that its commercial nature is a user traffic, and should follow advertisement publishing rules. It is also expected that Bureau of Commerce and Industry will follow up with them in a timely manner.

Douyin stated that it will mark out those video creators advertising fake products based on its system identification, and manual auditing. They also said that they will stop recommending users suspected of counterfeiting or violating other rules on the platform.

For Chinese people, Spring Festival is all about seeing family and celebrating the new year, but it’s also the optimal time for using screens. Have you ever been on a train for 20+ hours? In China you’ll find, from little kids to 60-year-olds, everyone is using their smartphones. Surely, to kill time, content is king in China.

During the Spring Festival, from February 15th to 21st, the number of app users in three segments—mobile games, photo app, and mobile video app—increased significantly, according to QuestMobile’s “2018 Spring Festival Entertainment Insights Report,” Chinese media CSDN is reporting.

The report pointed out that Chinese people have both online and offline ways to enjoy Spring Festival. Online was mobile games and video; offline was watching movies.

Spring Festival’s top 5 apps based on the number of daily active users were:

1. Honour of Kings – 128 million
2. Douyin short video – 61 million
3. Huashan short video – 53 million
4. Toutiao – 97 million
5. Youku – 83 million

Top 20 apps that showed the biggest DAU increase during the Spring Festival included: Mini World that showed whopping 116% increase in DAU, Douyin short video (78%), Honour of Kings (76%), Faceu (69%), and Wuta Cam (64%).

Mobile games

Playing mobile games (手游) is one of the major leisure and entertainment activities of the Spring Festival. Apps encouraging social interaction saw amazing growth. During the Spring Festival, mobile games with social attributes such as the Tencent’s Honour of Kings—already boasting 200 million users—and Speed QQ (QQ飞车) saw some amazing increases in use. Games showed significant increase as Mini World that showed whopping 116% increase in DAU while Honour of Kings showed 78% increase in DAU.

Game live streaming market was less affected by the Spring Festival, and saw a small peak a week before New Year’s Eve.

Watching short videos

Number of users watching short videos during the Spring Festival also increased. Having to move long distances, and loving to share videos, Chinese people are increasingly watching short videos over live streaming.

China’s three major telecoms companies reduced data fees over the holiday, allowing short video apps to grow even further. Users watched and shared short videos of wishing “Happy New Year,” hongbao, and short videos from Spring Festival Gala. Popular short video apps saw user numbers peaking up around New Year’s Eve. Kuaishou (快手) users opened the app 161,929 times on February 16th, and Douyin (抖音) users opened the app 134,253 times on February 14th.

Another trend in was watching anime or reading manga on mobile phone. In the New Year ‘s Eve, both the total number and the app usage duration of mobile anime apps increased. After the New Year’s Eve, users of mobile anime app users dropped over a long period of time and then picked up rapidly to reach new highs.

Photo apps

During the Spring Festival, all the photo apps had their own photo contests, giving a small boost to the platforms on New Year’s Eve and Day. On February 19th,  Toutiao announced the acquisition of Faceu (Chinese). Faceu recorded the most DAU with 2,892 DAU at its peak, followed by Meitu Xiuxiu’s DAU of 2,622.

Watching movies

When not looking at a mobile phone screen, Chinese people filled the movie theaters during Spring Festival with movie ticket booking apps saw a significant increase. Six high-quality movies were released on this year’s Spring Festival, including “Red Sea Campaign (红海行动, our translation)” and popular children’s cartoon “Monster Hunt 2 (捉妖记 2)”. During the Spring Festival, the daily active users of Alibaba’s ticket-buying Taopiaopiao (淘票票)  and Meituan’s movie ticket unicorn Maoyan (猫眼) almost doubled.

China’s leading short social video and photo sharing app Kuaishou is rumored to launch a new round of funding with the estimated valuation at $15 billion, according to the self-media “Kaiqi.” Kuaishou told other local media that it has nothing yet to release.

In March, Kuaishou raised $350 million in its Series D financing led by the Chinese internet conglomerate Tencent, and was valued at around $3 billion. In the previous financing rounds, Kuaishou has pocketed fundings from Sequoia, DCM, and Baidu.

There has been talks in the industry saying that Kuaishou plans to apply for IPO either in the US or Hong Kong this year. TechCrunch in February reported that the popular video-sharing app plans to go public in the US.

Kuaishou has done exceptionally well in China with its easy-to-share video features, especially among users in lower-tier cities. The number of its monthly active users surged from 93.40 million in September 2016 to 183 million in September 2017 with 87 million daily active users, according to a report from Jiguang, a mobile data research firm. The latest figures show that now Kuaishou has 700 million registered users and sees over 100 million daily active users.

As a front-runner in China’s mobile video sharing sector, Kuaishou allows users to share short video clips or live stream their daily lives, most of which often include eating, shopping or other bizarre performances.

A recent post on Zhihu, the Quora-like Chinese platform known for its elitist user base, asks: “Why is Kwai so annoying?” Kwai, or Kuaishou (快手) in Chinese, is a short-video social platform dubbed “the app for small-town Chinese” with 150 million monthly active users (MAU), making it one of the top apps of its breed.

“It’s probably the most popular live streaming platform in China at the moment, but also the most vulgar,” writes the user who started the provocative thread with screenshots showing Kwai users eating rats, dancing in skimpy clothes, and other behavior that might be straight-up obscene for the cultivated urbanites. As of now, the question has more than 3.8 million views and over 1,000 replies.

Vulgar or not, Kwai has brought the focal point of city elites to the rarely discussed but colossal population living in China’s lower-tier cities and rural areas.

China’s tech giants have long seen the opportunities in lower-tier cities as the urban markets saturate and the geographic center of China’s middle class begins to shift. In March, Tencent made a $350 million strategic investment in Kwai—the app “for ordinary people” as described (in Chinese) by Tencent’s CEO Pony Ma. According to a study by McKinsey & Company, the share of China’s middle class in megacities will fall to 16 percent by 2020, down from 40 percent in 2002.

Over half of Kwai’s users live in Tier 3 and 4 cities, says a report by Questmobile in March. Some respondents to the Zhihu thread express concerns over the decadent, lewd minds of small-town Chinese. Others, however, point out that not everyone on Kwai, or in China’s small cities, entertain obscene tastes. If you keep liking obscene content then certainly, Kwai’s smart algorithm will show you more obscene content, one respondent taunts.

“Of course, the more inciting the content, the more popular it will get,” says Beizai, a 28-year-old Kwai user who works as a sushi chef in Zhongshan, a small city south of Guangzhou.”But I don’t look at those content. I just want to make my own better.” Beizai’s sushi-making clips have won him more than 100k followers, a number he thinks is insignificantly small.

“I like to use Kuaishou because everyone is equal here. Anyone can attract fans, as long as their work is good,” says Wang Xiaodou, another Kwai user. Turning 31, she’s working as a farmer in Zoucheng, a small town near Confucius’s birthplace in Eastern China. Wang, who stopped attending school beyond the fourth grade, started using Kwai a year ago because the app adds spice to the idle country life.

Her husband uses Oppo—a popular smartphone brand in China’s lower-tier cities, to film Wang, from toiling in the potato field to stoking a fire and making hand-made dumplings. Many of her 500k followers ended up adding her on WeChat, the ubiquitous Chinese social app, thanking her for documenting moments of the countryside.

“It reminds them of their own childhood,” says Wang, who came back to the village to take care of her husband who can’t leave home after surgery.

Wang is not alone in this kind of reverse migration. According to data from the National Bureau of Statistics (NBS), China’s migrant population in big cities has been in decline since 2015. Between 2015 and 2016, China’s megacities lost 1.71 million migrant workers to smaller towns. Over the past seven years, the number of rural migrant workers employed near their home area has risen by 26%. This in part is due to an increasingly obscure future in the more prosperous east: Between 2011 and 2016, annual growth rate of monthly income for rural migrant workers in urban cities slipped to 6.6% from 21.2%.

“No, why would I go to the big cities?” Beizai says. His hometown Hezhou is a 3.5-hour bus ride away, so he can visit his family easily. He is moving back there in a few days, for even housing prices in Zhongshan has grown unaffordable with the expected opening of the Shenzhen-Zhongshan Bridge that will make idyllic Zhongshan a second home for the affluent Shenzhen residents.

Other tech giants have also followed the Chinese migrants home. Weibo, once touted as the Twitter of China with a similarly elitist, urban crowd, switched to a lower-tier city strategy following its fall from past glory. In 2014, CEO Wang Gaofei proclaimed his vision (in Chinese) for a comeback plan: “If we want to reach 300 million monthly active users and 100 million daily active users, where would these users come from?” The answer lies in second, third, and even fourth-tier cities, he assured his employees in an internal meeting.

While first-tier cities have largely reached smartphone penetration maturity, lower-tier cities were still seeing double digit growth in 2014, according to Nielsen’s research. Weibo has seized this population by pre-loading its app into low-end smartphone partners and deploying video features similar to Kwai’s.

The NASDAQ-listed company’s rural pivot has proven successful. From 2015 to 2016, Weibo’s MAU grew 66.2% to 312 million (in Chinese), mainly driven by an expanding Tier 3 and 4 user base. On August 9, the company’s valuation hit $20 billion (in Chinese) for the first time, with revenues growing at 79% year-on-year to RMB 1.73 billion ($260 million). Alibaba-backed Momo, once widely considered the “Chinese Tinder”, has also successfully ramped up its Tier 3 and 4-city user base.

Like Beizai, Wang has no regrets over leaving China’s megacities where many have struck it rich. “Everyone has their own desires. For me, being with my family is the biggest source of happiness,” she says, then excuses herself from as it’s time to take off for farm work.

Editor’s note: This originally appeared on China Tech Insights, an English research unit affiliated to Tencent’s Online Media Group.

In March 2017, internet conglomerate Tencent announced a USD 350 million investment in Kwai (or Kuaishou in Chinese pinyin), a picture and video sharing social app that the WSJ describes as capturing “what life is like outside [of] China’s biggest cities”. With 400 million users in total and as many as 40 million daily active users, Kwai is believed by many to be the fourth largest social app after WeChat, Weibo and QQ. Tencent’s March investment has placed this rising app’s valuation at about USD 3 billion.

China Tech Insights takes a deep look at the app and summarizes several lessons from an app considered to be unique in the social space in China.

1.    First-tier cities are only a very small portion of the Chinese market. Kwai targets a wide audience group including those from untapped lower-tier cities; (This is equally applicable for countries with a similar developmental pattern ie. India and Indonesia.)
2.    Kwai does not use celebrities or KOL’s to attract traffic; it aims to build a place where everyone’s voice has a chance to be heard;
3.   It uses algorithms, and algorithms only, to recommend videos, which means it is the users who determine what is good content;
4.    Less is more – Kwai aims to build a super easy-to-use app by limiting new features.

China’s most controversial social platform

A short-video was sent to one of my WeChat group chats. In the video, a bunch of young men are holding onto a rigid tree branch tightly, flexing the branch once, twice and then a final third time. The third time, they suddenly let go of the branch simultaneously except for one man, who gets slingshotted into the air like a stone. The crowd bursts into laughter.

This short-video, and many other short-videos like it, making the rounds in group chats on WeChat and trending on Weibo, originally appeared on Kwai. Videos like these are apparently carefully planned by creators to attract eyeballs and raise attention through silly stunts. They get a whole lot worse.

Last year, a user with the ID “Gourmet Sister Feng”- who claims to be retired, single and childless – uploaded videos of herself gulping down unusual things like light bulbs, goldfish and cacti, explaining to audiences that this was one of her hobbies. The videos quickly brought her a surge of followers expanding her audience to more than 100,000. It was later reported by state media that these videos were deliberately filmed by the woman and her son for attention’s sake, and what she was eating was in fact synthetic substitutes.

Crude and silly content like this has generated controversy, with media outlets commonly depicting Kwai as “vulgar”and “unrefined”. It is regarded as pandering to less educated small town dwellers and villagers, closing the door on the cosmopolitan Chinese. However, after spending several days and nights on Kwai, browsing all kinds of video on the “explore” page, I have found most media reports are not telling the whole story.

A large user base and an effective algorithm-only recommending strategy allow hundreds of thousands of viewers to intuitively view a single video. Lured by an unparalleled opportunity to acquire instant fame, people like Sister Feng emerge, some of whom only use Kwai solely as a means to profit from their huge fanbase. But like I said, this is not all about Kwai.

The other side of the story

What kind of videos are most users on Kwai posting? What distinguishes it from the other video apps apart from the hype? I will illustrate with some examples.

There is a user on Kwai that I have been following since I came across one of her recommended videos in the “explore” channel. She is a thirty-something-year-old mother that makes a living working the land in a mountain village in the Southeastern Chinese province of Yunnan. During the day, she works the farm with her husband. At noon, they have a quick and simple lunch on-site. Sometimes they even dig up fresh veggies grown in the field, light up a fire and cook their meal outdoors. In the afternoon, after returning home from the farm, she prepares dinner and shows audiences what she’s made for dinner through short-videos. At round 9 p.m. after tucking her son in bed, the couple chat with their friends live streaming through Kwai.

This is the daily life of a villager living in China’s countryside, and that’s all her videos are about. Somehow seemingly dull rural everydayness has attracted more than 250,000 users to follow her account, and her videos receive clicks varying from tens of thousands, to hundreds of thousands. Apparently several viewers have become friends of the couple. The couple chats like old friends with their viewers over live streams, no performance necessary. “You are wearing a down jacket in May, is your place cold?” A viewer asks. “Yes, it is a bit cold in the mountains, especially at night,” answers the wife. “Can you film a video to show us how you cook Sichuan spicy fish like you did the other day?” “Sis, you are so industrious. These days, there are hardly any women so capable of doing farm work.” “Get yourself WIFI. Its costly live streaming over phone data!” These are just some examples of the kinds of conversations that are had during a typical live stream.

For the couple, posting videos on Kwai is not a means to attract traffic, instant fame or even monetize. It has just become a daily routine to say hello to their 250,000 fans. “Thanks Kwai! Thanks for providing such a great platform for us to make so many friends from different places!” The short bio of their account ID reads.

She is just one of many sharing her daily life on Kwai. There is a girl who goes by the alias “the story of a fat girl” who exclusively posts her morning diet-breakfast creations every day and has been doing this for more than 200 days; there are rural migrant workers filming their day-to-day work and life; there are men doing outdoor angling and troll fishing and there are full-time moms showcasing how to cook home-style dishes, the list goes on and on.

Different from many other short-video and live streaming platforms, Kwai is not primarily dominated by celebrity accounts, KOLs or internet influencers. As far as I have observed, in terms of variety of content, Kwai is largely unembellished, making it an authentic place for the vast amount of average Chinese who want to express and share.

Lessons to be learnt from Kwai’s success

Before Kwai pivoted to a social video app, it had accumulated around 500,000 users, first, as a popular GIF maker. However, when Kwai decided to replace its GIF transforming function with a video uploading tab, the app saw an instant dive in active users. The pivot did not work well at the beginning; 2013 was too early for video sharing, with the market largely immature. Kwai did not see a stable climbing trend of active users until early 2014, when the short-video industry saw its first boom in China.

It is true that favorable circumstances beginning with 2014, including the popularization of WIFI and mobile phones and a cost reduction in mobile data, have helped Kwai to get ahead. But there are other reasons found within the company itself, particularly product and operation strategies, that explain its success today. Here are five lessons drawn from Kwai that explain its phenomenal and unique rising pattern.

1.First-tier cities are only a very small portion of the Chinese market

Kwai differs itself from the other social video and live streaming platforms in that Kwai is more dominated by users from less-developed areas and rural China.

According to data from QuestMobile, Kwai registered Daily Active Users of 36.82 million in March 2017(data from other third-parties claim more than 40 million). Four first tier cities saw a total DAU count of around 10 million, according to Su. This means at least 73% of users on Kwai were from outside first-tier cities. “This is largely thanks to the demographic structure of today’s China. Only around 7% of China lives in its first-tier mega cities. Thus it is reasonable that most users should come from lower-tier cities.”Su Hua, CEO of Kwai explained in a speech delivered in April.

Users from China’s vast lower-tier cities and rural places are a group that have been long untapped by many internet services. However, with the betterment of infrastructure and the widespread adoption of smartphones, this group has become a more viable target for internet companies. The largest social media entity in China, Sina Weibo, saw a revival in the latter half of 2016, pivoting from the ‘elite’-centered community towards the untapped grassroots crowd derived from smaller cities and younger age groups. Toutiao, the news app aggregator that many claim poses a threat to major online news portals, has seen explosive growth of late, another example of the benefits seen serving this group of people.

This lesson can be applied to other developing markets like India and Indonesia. Places with infrastructure similar to that of China’s several years ago and importantly countries with huge, yet underserved user groups from less-developed cities and rural places. Chinese media reports that Kwai has a technology team in Singapore and plans to launch its product in India and Indonesia. The app now also has an English-language version for the international market.

In the beginning Kwai may not have intended to target lower-tier cities. This was to some extent, decided by its early users when it was still a GIF app. However its product and operation strategies, since the pivot to a social app, have been centered around how to serve these users well.

2. Leaving users alone helps build a place where users are willing to express themselves

In 2014, when the first war broke out in the battle for short-video supremacy, Kwai’s rivals, Meipai, owned by photo app maker Meitu, and Miaopai, backed by social network Weibo, all initiated traffic-attracting strategies centered around introducing celebrities, and other people of certain influence to their platforms.

However this is where Kwai differentiates itself. Kwai has not applied any celebrity-centered strategies. It doesn’t tilt resources to users with huge fanbases; it doesn’t design hierarchy icons to tag users; it doesn’t rank users; employees are not allowed to get in touch with users who have huge fanbases; and it doesn’t approach popular live streamers on its platform to sign on as contractors.

All of the above strategies point in one direction: Kwai wants to create a platform with a light and casual atmosphere, a platform where each of us would be willing to dare to express ourselves and share videos of our lives.  “We try not to bother users. We don’t want users to sense our existence. We want them to believe that the content on our platform is real and is not schemed up deliberately. This way, they’re more likely to want to share their own lives and interact,”said Su in an interview.

3. The algorithm decides what is good content

The company claims there is no human team meddling with the content recommendation system on the platform. Instead, they rely only on the algorithm to make personalized recommendations. But how does the algorithm work?

CEO Su Hua is a top algorithm engineer and serial entrepreneur. He began teaching himself how to code at age 12. After dropping out of Tsinghua University while studying for a PhD, he spent a two-year stint at Google. According to Su, the essence of automatic recommendation is the degree to which machines can perceive the rules. Algorithms are designed to understand video content, user characteristics, and user behaviours, including content browsing and interaction histories. Based on an understanding of all these things, a model can be built to match content with users. The more users accumulated, the more data and the more precise the recommendation. The company has been focused on optimizing its intelligent matching.

Through the algorithm recommendation mechanism, every user and video has the chance to be exposed to the “explore”feed, even if a user has only one follower. The more “likes” a video receives, the bigger the chance a video will be chosen by the machine. The algorithm recommends videos by analyzing what users have clicked, watched or liked before, populating a user’s“explore” channel according to their previous preferences.

4. Less is more – keep it simple and focused

Compared with mainstream social apps, Kwai is super simple and clean. First, there are only three channels on the homepage, “Follow”, “Explore” and “Nearby”. In the upper corner of both sides is a navigation drawer and a little camera icon that enables users to start recording or uploading videos. The camera icon won’t appear on the page until a user has signed in.

With a simple design, it makes it easy for those who are not smartphone savvy to use the app. The app hasn’t changed the three main tabs over the past few years, while minor changes and app optimizations have been continuously implemented in every update. The reasoning behind it is to keep the things that users have become used to.

Kwai also cuts or weakens certain functions which are deemed indispensable by mainstream social apps. For instance, Kwai doesn’t have a repost function, which it says encourages users to focus on creating original content. The app also hides its private messaging function, firstly to encourage users to share more and record more, rather than spend a lot of time chatting on the platform; but also because the company knows users can transfer to other mature social networks (QQ and WeChat), which makes private messaging an unnecessary function.

The company interestingly has not made an independent column for live streaming. The team finds this is not a good way to record and share daily life, but rather serves as a good supplement to user interactions. Kwai has made live streaming an auxiliary function by authorizing only around 10% of users to live stream. Another rule that demonstrates the company’s restrained approach has it that a user can at most follow 20 people within a 24 hour time frame.

To summarize, Kwai is the best representative that rises by attending to the need of the small- and medium-sized cities and rural places in China. Not only Kwai, many other internet companies value more and more this market and are benefiting from tapping this market. For one, this is a market where users’ adoption of online services is growing alongside the development of smartphone market. Besides, lower tier cities in China are also experiencing a consumption upgrading trend that online entertainment and culture consumption becomes more and more urgent a need.

Mobile video is second only to social media in terms of monthly active users (MAU) in China, and with its growth rate more than double that of social, the fast-diversifying sector of mobile video looks set to soon pass the 1 billion mark and challenge social for the top spot, according to a report by data collators QuestMobile (in Chinese).

While the recent Penguin Intelligence report focused on the continued growth of WeChat’s reach into every aspect of life, QuestMobile’s “Mobile Internet Spring 2017 Report: Let’s Talk About a Country of Apps with 1 Billion+ Users” proves there is plenty more happening on mobile, with video a standout success.

Adding together online video content, live streaming, and short videos, the category grew 35.6% year on year in March to almost 920 million MAU. There was an increase of over 12 million users just from February to March, more than the entire population of Belgium.

While the categories are still handled separately, social media is dominated by giants such as WeChat and Weibo, whereas mobile video is more fragmented. This does not necessarily mean that mobile video is an open playing field, as the core of the market is starting to show signs of maturity with big money now needed to make headway.

Alibaba Digital Media and Entertainment Group is to completely overhaul Tudou, which is struggling on mobile, making it a short video site with a new app and heavily discounted or free traffic on China’s big three mobile carriers, according to local media (in Chinese). The group will also merge several of its channels, including Taobao, to form the “Big Fish” platform (大鱼号), investing RMB2 billion in its “Big Fish Plan” (大鱼计划) to source content worldwide.

The QuestMobile report breaks down figures to show Tencent Video was slightly ahead of iQiyi with 435 million versus 433.7 million MAU, though iQiyi’s year-on-year growth of 58% compared to Tencent’s 48% suggests future reports will see iQiyi take the lead. Hunan-based Mango TV, makers of hit shows such as In the Name of the People, saw its mobile audience almost doubled with 93% growth to 78.7 million MAU, ranking it 7th. Only Xiaomi TV in the top 10 saw falling figures, dropping 4% to 95.3 million MAU.

Perhaps more noteworthy than shifts in the more standard video platform rankings is the impact of short video apps and live streaming. Kuaishou, the much-derided short video editing, and sharing app, now ranks fourth with 109.4 million MAU – ahead of LeShi TV and growing at 65%.

If Miaopai, the video sharing, and live streaming app, is counted then it ranks above Kuaishou with 276.5 million MAU, pushing Tudou out of the Top 10. Mobile video is growing in other ways. News aggregator app Jinritoutiao (今日头条) now sees over half its daily active users watching video, peaking at 9 pm, the same time Meipai peaks for live streaming.

Further blurring of categories is probably to be expected across mobile with the increasing push towards user generated content and social aspects of mobile video apps (and of many other apps, such as Alipay’s infamous attempt) and increasing use of video by social media apps.

The report contains many more insights into mobile use, such as under-24s increasing their time spent on apps by over 12% year on year to March to break the 3-hour/day barrier; take-away service app use surging 75% (103% in February – remember the cold and pollution?); mobile email use is falling 4.8% to 93.4 million MAU and the plateauing of mobile VR viewers at 5.4million MAU after falling from 6million in November 2016.

China’s live video streaming market was estimated to be RMB 20.8 billion (around US$ 3 billion), an 180% growth from the previous year, according to the latest report by internet market research firm iResearch (report in Chinese). At an event in January, Chen Zhou, CEO of YY, told the audience that their net profit for 2016 was RMB 1.5 billion (in Chinese).

The vast majority of the live streaming revenues was still from sales of virtual items, virtual gifts received by broadcasters and other items for premium features, with the rest from online games, advertising, and other related offerings.

Big money in live streaming

The related four public companies, YY, Tian Ge Interactive, Song Cheng (the parent company of 6.cn) and Momo recorded a combined more than RMB 11 billion in live video streaming revenue.

YY alone posted over RMB 7 billion in annual revenue, a 55% year-over-year growth, from its YY Live platform and Huya Broadcasting, a gameplay broadcasting focused platform.

Momo, the leading location-based social app, was the most successful newcomer in terms of revenue in 2016. Available to all Momo users in December 2015, the live video streaming service took only one quarter to become the company’s largest revenue source and its 2016 annual sales, US$376.94 million (more than RMB25 billion), was way higher than veteran players such as Tian Ge and 6.cn. Quarterly paying users on Momo reached 3.5 million in the fourth quarter of 2016, up from 400,000 a year ago.

6.cn’s revenue more than doubled in 2016 to reach RMB1.1 billion. Tian Ge reported 28.5% year-over-year revenue growth in its online interactive business, with the majority generated through the live streaming business and the rest from games offered to the viewers.

A few other mobile services also saw big revenue boosts thanks to the addition of the virtual item offerings. Meitu, the software and hardware developer with a focus on photo and video effects, sold RMB 45.6 million worth of virtual items in the rest seven months of the year after virtual item giving became available on its video streaming app Meipai in June. Kuaishou, one of the most popular short video and sharing app, didn’t start monetization until it added a virtual gift-enabled live streaming capability in 2016.

A banner year

2016 was especially a good year for streamers. Since a new wave of mobile video streaming apps emerged in the last couple of years, the competition intensified in 2016. Many platforms, especially latecomers, were paying higher revenue shares than the established platforms.

YY paid more than RMB 3 billion, over 40% of the total sales, to content contributors, according to YY CEO. Meipai, for instance, paid more than 60% of the total to contributors. It is reported that some platforms shared as high as over 90% of their sales to broadcasters.

A significant number of new broadcasters joined the market. On Momo, revenue-generating streamers grew in just over a year from zero to 540,000 by the fourth quarter of 2016. More than 50% of them received more than RMB 30,000 monthly in the fourth quarter of 2016.

E-commerce businesses emerged as an interesting new category of streamers that demo or sell products through live streams. While for businesses it’s a way to market and sell goods, some fashion influencers or other celebrated streamers hired by these companies are also able to make handsome money from virtual gifts received.

But it is believed a majority of the total virtual gift sales went to a small number of popular broadcasters. MC Tianyou, one of the most popular broadcasters on YY, made more than RMB10 million annually, according to YY CEO. Two years ago he established his own talent agency which made more than RMB100 million in 2016. It’s not surprisingly that major platforms like YY began signing exclusive deals with top streamers on their platforms.

Gameplay and sports have more users

While the biggest money was still from the virtual gift-based user-generated streaming content, gameplay and live sports streaming surpassed it in total usage as of the end of 2016 and live concert streaming also grew fast, according to China Internet Network Information Center (CNNIC).

Sports streams and concerts so far generate revenues from subscriptions, online accesses, or advertising. Revenue streams of gameplay streaming platforms are more varied, including virtual gifts, advertising, game publishing, among others.

Gameplay streaming saw the biggest growth in usage in 2016.

The revenue of Huya Broadcasting, the gameplay broadcasting platform of YY, increased 120% year-over-year in 2016 and had broken even as of the end of 2016, the company’s management said during the recent earnings conference. YY expects to see triple-digital revenue growth this year.

Gameplay-focused platform Douyu announced in 2016 two massive rounds of financing, US$ 100 million in March and RMB 1.5 billion in August. Both rounds were led by Tencent, the largest gaming and social company in China, according to Tencent’s own online media site. 6.cn’s parent company announced recently the acquisition of mobile game developer Smart Space for RMB380 million.

Users of online live video streaming in China reached 344 million as of the end of 2016, accounting for 47% of the total internet users in mainland China, according to CNNIC.

Total monthly active users of live streaming apps increased 103% year-over-year to 108.6 million in September 2016, according to mobile market research firm QuestMobile. The top five live video streaming apps in terms of daily active users and monthly active users were Inke, YY, Douyu, Huya and Shiba (the mobile version of 6.cn) as of September.

But the total time spent on PC was still higher than that on mobile, according to iResearch.

Buzz surrounding China’s video and live streaming craze continues this week as Kuaishou, a video editing and sharing app, announcing the completion of a US$ 350 million USD investment led by Tencent, before a potential IPO reportedly slated for the second half of this year.

The new funding is earmarked for improving product experience and R&D,  the company said in a statement, adding that they will invest more in cutting-edge technologies like AI and video analytics technologies to keep the company ahead.

In addition to Tencent, Kuaishou’s previous investors include bigwigs like Sequoia, DCM, and Baidu. But it is still not clear whether the current investors will join this round.

Aside from capital cooperation, Kuaishou disclosed that they would partner with both Tencent and Baidu in product, technology, and services to promote user experience, a move which would further boost the company’s growth thanks to the support from the two Chinese tech giants.

“Kuaishou has brings people closer with their focus on the recording and sharing everyday lives. It’s a product that close to users for its warmth and vigor,” said Pony Ma, CEO of Tencent.

“We believe by pooling together the two companies’ unique user insights, technological capabilities, and operational expertise, we will work closely with Kuaishou to capture the exciting business opportunities as demand for video content continue to grow rapidly,” Tencent told TechNode.

As a pioneer in China mobile photo- and video-centric craze, Kuaishou, born out of a GIF Kuaishou, has gathered over 400 million users globally. Its app allows users to share video clips or live stream on a variety of topics from mundane activities, from eating food, shopping, and hair tutorials to funny or bizarre performances.

Data from the company shows that the daily active users on the app surpassed 50 million and over 5 million videos were updated every day. The company has launched an overseas version, Kwai,  but the new app is still gaining momentum.

Despite its huge popularity in China, the company is maintaining a relatively a low profile and is very cautious in getting public exposure, partially because the negative press they have gotten regarding vulgar content.  A large proportion of the users are believed to come from lower-tier cities or rural areas, and filmed vulgarity led to the unfair profiling of rural and regional Chinese.

However, the company is definitely trying to become a platform for a wider demographic.

CEO Su Hua told TechNode in a previous interview: “We view Kuaishou as a kaleidoscope. The types of videos shared on Kuaishou are varied and diverse. In most cases, the videos are simple depictions of joyful moments in everyday situations.”

After a dry spell for tech IPOs in 2016, we are recording a good beginning for a new year with brightening IPO market globally. Snapchat is expected to set a new record for tech IPOs at a 25 billion USD valuation, while a raft of anticipated listings from uprising startups are in the pipeline.

As market prospects soar, Chinese tech companies are also poised to win back investors hearts. Here’s a list of IPO candidates from China in this year.

Ant Financial

Ant Financial, the operator of China’s most popular mobile payment tool Alipay and other financial services, was founded in December 2014 when it was spun out of Alibaba before the latter’s record IPO in September 2014.

As the most valuable spin-off of the e-commerce giant, Ant Financial has completed a 4.5 billion USD round at a valuation of 60 USD billion.

The company has been on the rumored IPO list for years and it seems that the company is in no hurry for the IPO as it’s putting its focus on business growth and user acquisition. But 2017 is definitely on the radar, especially for late 2017.

In preparation to the IPO, Ant Financial reshuffled its top leaders last year. The company is likely to get listed in mainland China and Hong Kong.

Kuaishou

Kuaishou might be a lesser-known name for users outside of China, but the 3 billion USD video clip and photo editing and sharing app, is hugely popular in the Middle Kingdom, especially in low-tier cities and towns, in the wake of China’s video and photo sharing boom.

The app has recorded its first surge since the beginning of last year, with traffic consumption topping that of Weibo and WeChat, the two biggest mobile apps in the Chinese market.

Currently, Kuaishou claims over 400 million registered users. TechCrunch citing sources that the firm has amassed more than 40 million DAU against 100 million MAU. The same source disclosed that Kuaishou is planning to go public in the U.S. in the later half of this year.

The company is venture backed by Sequoia Capital, DST, Baidu, and DCM.

China Reading

Backed by Chinese internet titan Tencent, China Reading, aka Yuewen Group, is China’s biggest online publishing and e-book company. Born out of a merger of Tencent Literature and Shanda Cloudary in 2015, the platform claimed some 600 million registered readers across its nine e-reading platforms like QQ Reader and Qidian.

Reuters reported that the company plans to raise up to $800 million in a Hong Kong IPO in 2017.

Qudian

Founded just two years ago, online microlender Qudian rose to prominence on the back of its student loan service Qufenqi, which allows college students and young white-collar workers to purchase smartphones, laptops and other consumer electronics with monthly installments.

The Ant Financial-backed startup is looking to an offshore IPO in Q1 this year to raise more than 500 million USD, local media Caixin reported.

Kuaishou, a video clip editing and sharing app, is among a raft of video platforms that are tapping China’s ongoing video and live-streaming boom. The five-year-old app has caused a sensation on China’s social media recently because of the viral spread of their Jackass-style videos.

Dangerous and self-injuring pranks like eating strange things, drinking excess liquor, jumping into icy rivers and putting fireworks in one’s own crotch are among the most popular videos on the platform. One popular user on Kuaishou named “Gourmet Sister Feng” attracted lots of followers by feasting on light bulbs, whole cubes of wasabi, live goldfish and burning cigarettes.

However, becoming the Jackass of China is not something Kuaishou aimed to do, and shocking videos is just part of the their video content, the company’s CEO Su Hua said in an interview with TechNode.

“We view Kuaishou as a kaleidoscope. The types of videos shared on Kuaishou are varied and diverse. In most cases the videos are simple depictions of joyful moments in everyday situations.”

Apart from stunts, the videos that pull in the most followers range from mundane activities, such as eating food, shopping, and hair tutorials, to funny or bizarre performances.

“In line with the state’s scrutiny on online content, we have a number of initiatives in place to scrutinize and supervise the content, … including advanced multiple-technology filtering, strict manual reviews, a detailed live broadcast behavior code as well as reminders and guidance rules in eye-catching places within the app to alert users.”

Although Kuaishou’s clips have been criticized for being “vulgar” and “coarse”, they have won popularity among young Chinese seeking online novelty. Su noted that 87 percent of Kuaishou’s users are from the post-90’s generation.

For most of us, Kuaishou might be a lesser-known name. It now boasts a substantial 200 million-strong user base, who have uploaded nearly 900 million videos in total. Data from leading telecoms carrier China Unicom shows that the app topped traffic consumption on their network, eclipsing that of Weibo and WeChat, the two biggest mobile apps of the Chinese market.

However the fame was highly controversial, as Kuaishou’s users are widely believed to be from China’s lower-tier cities or rural areas, and filmed vulgarity led to the unfair profiling of rural and regional Chinese.

The app failed to draw the attention of the public in the past, despite a huge user base. It shows that although rural people account for a great proportion of the Chinese population, their voice is scarcely heard by mainstream society.

“It is commonly thought that Kuaishou is focusing on users living in third to fourth-tier cities and rural areas, but this is not really the case. 85 percent of Kuaishou users are from second-tier cities and below, and 15 percent are from first-tier cities, which is in line with China’s Internet user demographic.”

“Many other social media platforms focus their attention on first-tier city users, which perhaps artificially enlarges their popularity figures.”

“We have not split target users but want to give all people the opportunity to share fun and joy, regardless of whether they live in urban or rural areas.” Kuaishou’s CEO explained.

Like most video and live-streaming services, virtual gifts are a major revenue source for Kuaishou. “We have officially launched this function in Q2. It has generated approximately one hundred million yuan in revenue so far.”

“We plan to launch a short video advertising business in Q3 this year. In the future we also plan to introduce membership-based services as well as other added-value services to build up our revenue sources.” Su said.

Local success has prompted the company to seek overseas markets. A regional head office has been set up in Singapore this year in an attempt to tap the South East Asia markets.

“We have already taken steps to enter Indonesia and India. In Indonesia, we are launching an English-language short video social platform named Wakaka”, said Su.