Ben Gilbert: evaluation

Transcript context

…Virtual goods, gifting, tipping, payments being a huge part of that, and a revenue generator for the platforms. But the gifting and tipping is really, really interesting. Now I’m back to what we are talking about a minute ago with the management of the economy of the network effect between creators and consumers on a platform like Musical.ly and TikTok. The China business model is actually really elegant way to do that. If you allow for virtual goods, gifting and tipping that the consumers can show their appreciation to the creators for any given piece of content or a series of pieces of content, and then those creators are able to exchange those gifts, convert it in part or whole into actual cash, now you can start to make a living and build a middle class on a platform. This is happening in China and Kuaishou is the pioneer of this. Remember, Kuaishou’s user base is primarily rural, so advertising, ecommerce companies and the like, don’t really have all that much interest. This is pre-Pinduoduo days (which we should definitely cover on another episode), but don’t have all that much interest in reaching these audiences. Instead, they’re able to monetize through this direct monetization. That’s one big thing. Musical.ly has to figure out how to navigate this new business model or different business model in China. Two, though (and this is going to become much more important as we get towards the end of the story) any time you talk about a media business in China, whether social or otherwise, you are operating in a very, very different political environment than you are in the West. We touched on this a little bit in the Tencent episode. Tencent and ByteDance is going to come in here in a minute. Basically, any content company—platform or non-platform—in China employs thousands and thousands of censors that are going through all the content, working with the Chinese Communist Party, making sure that the content on the platform is upholding the laws of the party but even the wishes of the party that is super different from a Western social network, be it Facebook, Instagram, or Musical.ly at the time where anything goes. In late 2017, after working on this for most of the year having this be the major priority in the company, Louis gives the talk at a GGV even where he—imagine he must be a pretty funny guy—says, “I regret not having entered into China’s market earlier. Now I can hear vibrating sounds everywhere making me uncomfortable.” Most Western listeners aren’t going to get what he means there, but by “vibrating sounds everywhere making me uncomfortable” he’s referring to Douyin, which is at this point has been launched by the number one content company in China, most valuable startup in the world, ByteDance. And Douyin means literally vibrating sound or shaking music. It’s important to know, too, ByteDance before Douyin was doing very well with Toutiao. I mean, hundreds and millions of users. This is the best news and information technology company in China. When they see this Musical.ly thing is taking off in the US, they’re not effective at entering China, and the world is starting to shift where this short-form video thing that maybe didn’t make sense a couple of years ago in China does makes sense now, it’s effectively a fast follow where ByteDance is like, “Cool, we’ll leverage all have from Toutiao to go and build Douyin, which is going to look a lot like Musical.ly does in the US. We’re going to launch that here in China and beat them to their own country.” Yeah. This is basically ByteDance’s version of Instagram stories here. A word about ByteDance, which we’ve referred to a bunch in this episode. Toutiao, which Ben just alluded to, up until this point was the core app of the company and the biggest and most important product. So what is Toutiao and why does this make ByteDance such a formidable competitor to Musical.ly? Basically, you could think of Toutiao like Apple News on steroids. Toutiao literally means headlines. It is a news and content aggregation app. Maybe more like Flipboard back in the day. But unlike Apple News or Flipboard or whatever, people spend an insane amount of time on it and like you mentioned, an incredible portion of China, something like half of the internet users of China are daily active users of Toutiao. More importantly, really early on, ByteDance realized with Toutiao that they couldn’t be limited by formats. They have text and news on there, but they also have photos. They also have long-form video and they also have short-form video. Short-form video within Toutiao is a big driver of engagement and content with the app. The other really key thing about ByteDance and the reason why they have succeeded above so many of their competitors in China is that their algorithmic recommendations, just like we we're talking about with Musical.ly that made Musical.ly so interesting and different, are the best in the world. They have the best AI technology to quickly suss out personalization for any given user about what they’re going to like and then go scour this immense vast corpus of content that they’re bringing in to Toutiao every single day to find the very best stuff that you’re going to love across all different types of formats.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.