From the book “Attention Factory: The Story of TikTok and China’s ByteDance” written by Matthew Brennan and edited by Rita Liao
Overview
Today, ByteDance is a sprawling corporate leviathan. Much like other large internet conglomerates, it has expanded into a myriad of online services consisting of gaming, education, enterprise productivity, payments, and much more. This is made possible by three flagship businesses: Toutiao, Douyin, and TikTok.
These are the core drivers of the company’s valuation and fast growth. The rise of these businesses reveals three distinct growth stages that enabled the company to reach hundreds of millions of new users.
Each stage featured a family of supporting applications, both self-developed and acquired, which extensively diversified the company’s offerings and product categories.
I. Structure
ByteDance is not divided into divisions by business lines. There are only three core functional departments: user growth, technology and commercialization.
ByteDance’s Technical Infrastructure
User growth is responsible for user acquisition and retention. The technology department handles product development while the commercialization department is focused exclusively on monetization
Each app has its own team of product managers, engineers and operations staff, but will rely heavily on the services and support provided by the company’s “middle platform,” about which much has been much discussed and written about in Chinese.
This structure allows every app to easily access the company’s best in class technologies such as recommendation engines, video classification, or augmented reality capabilities.
Most of the “heavy lifting” is done centrally with resources shared across the entire company’s product suite, avoiding waste and duplication of efforts.
Corporate Identity
THE NAME “ByteDance,” is allegedly inspired by a famous Steve Jobs quote:
“Technology alone is not enough. That it’s technology married with liberal arts, married with the humanities that yields us the result that makes our hearts sing.”
The logic being that “byte,” the unit of information in a computer, was technological sounding, and “dance” represented the liberal arts. From this, they devised the Chinese name, Zì jié tiàodòng (字节跳动), which literally translates as Byte Bounce, a slight change that was made in part due to concerns the company might be mistaken for an agency to hire dancers.
If you think the name sounds a little strange in English, it arguably sounds stranger in Chinese. Other names allegedly considered were Byte Jump (zì jié tiàoyuè 字节跳跃.)
The TikTok logo is a musical note in the shape of the letter ‘d’ which stands for, Douyin (抖音), the name of its original sister app. The Chinese name Douyin translates as “shaky beat”.
Given music played a vital role in the app’s experience, the idea was that both the creators and their audience would unwittingly move their bodies to the music.
The young designer tasked with the creating the logo had his epiphany when attending a rock concert lit up by beams of swirling colorful lights with a surrounding dark stage.
Inspired by the psychedelic visuals at the live event, he set about creating an image that would capture the show’s euphoric feel and decided to toy around with the musical note ♪ sign. He ran the icon through various filters and settled on using something known as a glitch effect.
The app’s signature black color scheme was inspired by other popular Chinese video app Meipai.
Corporate Legal Structure
ByteDance is registered offshore under a Cayman Islands entity. This approach is similar to other large Chinese internet companies such as Alibaba Group Holding Limited and Tencent Holdings Ltd.
The lion’s share of revenues are generated by the Mainland China operating entities which are driven primarily by the advertising businesses of Douyin and Toutiao.
Investment History
ByteDance is a privately held company which despite constant rumors for several years has yet to go public. Notable early investors are SIG Asia, Yuri Milner and Sequoia Capital China.
The company famously met with difficulty in its early years, finding it hard to secure venture capital funding. Many of China’s best-known VCs turned down the opportunity to get involved in ByteDance’s rounds missing what could have been a career defining opportunity.
In the end, it was an outsider, Russian Physicist Yuri Milner, who stepped in to lead the company’s Series B.
II. People
The roles, responsibilities and titles of ByteDance’s higher management team change frequently.
There has been a merry-go-round of executives responsible for TikTok over the past 2 years including Alex Zhu, Kelly Zhang, Kevin Mayer and currently Vanessa Pappas with TikTok now in the midst of separating itself from the rest of ByteDance.
Other key executives include early employee and former CEO of Toutiao, Chen Lin, Xie Xin heads up the company’s drive into enterprise productivity with Lark.
ZHANG YIMING (张一鸣), the 37-year-old mastermind behind ByteDance, is a battle-hardened serial entrepreneur, determined, focused and willing to make bold bets. A computer science graduate, Zhang is known as a voracious reader and consumer of information who personally led research and development of the first version of ByteDance’s now famous recommendation engine. Increasingly his focus has shifted towards optimizing company structure and organizational information flows.
ZHANG LIDONG (张利东), a former journalist and traditional newspaper industry advertising executive is Chairman of ByteDance China. He serves as the legal representative for at least 36 different ByteDance branch companies.
Zhang joined ByteDance at a time when the company had yet to generate any revenue. He fast tracked the company’s monetization drive using many of the tried and tested sales techniques and key-account connections from his years in the newspaper advertising industry. A sizable chunk of ByteDance’s entire workforce consists of salespeople and staff focused on commercialization overseen by Lidong.
KELLY ZHANG (张楠), the CEO of ByteDance China, was hired along with her startup, Picture Bar, in 2013. She was already an internet industry veteran and serial entrepreneur having been a founding employee of two previous internet companies.
ZHANG has built a reputation for deeply understanding how to cultivate online communities, an essential process for user generated content platforms.
She oversaw the key development stages of several of ByteDance’s most important properties including the original version of TikTok, Douyin, short video app Huoshan, and meme aggregator Neihan Duanzi.
Zhang was also nominally head of TikTok during 2019. She is now exclusively focused on China.
ZHU WENJIA (朱文佳) is who made TikTok so addictive. There are many extremely talented algorithm engineers at Bytedance, yet Zhu Wenjia is widely considered to be one of the very best in the entire company.
In 2017 it was Zhu’s team that led a major upgrade of Douyin’s backend infrastructure that led to astounding results. Shortly afterwards user numbers and engagement spiked to previously unseen levels. This same backend system is used by TikTok.
Zhu was hired from search giant Baidu in 2015. He is currently CEO of Toutiao, the company’s original flagship news aggregation app.
Employee #3 LIANG RUBO (梁汝波) is Zhang Yiming’s close friend and trusted advisor. The two were university dorm roommates for several years studying computer science at Nankai university in the Northern coastal Chinese city of Tianjin.
Before joining ByteDance, Liang worked at CEO Zhang Yiming’s previous internet startup, real estate search portal 99Fang.com.
In his time at Bytedance Liang has held various senior technical roles, including Director of Technology. More recently he has shifted to focus to HR.
Liang, known for his infectious smile and positive energy, is often listed as a “founder” of Douyin, the original version of TikTok. Douyin was set up under a subsidiary company, “Beijing Weibo Vision Technology,” which was registered under Liang’s name.
ALEX ZHU (朱骏) & LOUIS YANG (杨陆育) pioneered the 15 second full screen vertical short video app experience that we now know as TikTok.
The two co- founded Musical.ly, an app extremely popular with European and American teenagers. Bytedance first cloned their app and later acquired their company, eventually merging Musical.ly together with TikTok.
After Musical.ly’s acquisition. Louis and Alex continued to work for ByteDance. Louis currently focuses on innovative educational AI products in Shanghai. And Alex went on to lead TikTok before becoming VP of Product and Strategy in May after the hire of Disney executive, Kevin Mayer.
The most important investor in ByteDance’s company history is JOAN WANG (王琼).
Joan works as managing director for SIG China, a venture investment arm of the American financial services firm Susquehanna International Group (SIG).
She came to know Zhang Yiming through backing two of his previous startups, travel search site, Kuxun, and real estate portal, 99Fang.com.
SIG’s investment into ByteDance holds legendary status in China’s venture capital world. Especially given ByteDance had much difficulty securing early investments. Many of China’s most prominent VCs turned them down missing the opportunity to make a career defining deal.
Joan believed in founder Yiming at a time when few fancied their chances. In 2013 SIG owned roughly 12% of ByteDance and are reported to have remained the largest institutional investor.
Few companies, even in tech, are growing as fast as ByteDance. Within China the company has built a fearsome reputation for aggressively poaching talent from other internet companies, offering above market compensation and generous share options to secure top candidates. Offices in Mountain View, California and Shenzhen, China, have been set up within close proximity of wary rivals Facebook and Tencent respectively.
III. Products
It Started From Memes
Even before the company had been officially registered, the embryonic ByteDance team had cobbled together their first app entitled Hilarious Goofy Pics, (搞笑囧图 gǎoxiào jiǒng tú). It served an endless addictive feed of entertaining memes and silly pictures.
During ByteDance’s early years the company held a notorious reputation for serving its users trashy mindless click-bait content.
“We must face the fact that for 96% of people, their needs are so vulgar.”
Gao Han, a senior UI designer, and ByteDance employee #22.
However, the company completely transformed its image with the arrival of Douyin and later TikTok.
ByteDance’s App Ecosystem Today
IV. Recommendation
People use smartphones in radically different ways from desktops and laptops. Mobile internet usage can be typically split over 30-40 short sessions per day. Sometimes less than 60 seconds.
Information Overload in The Recommendation Era
Methods of informational distribution have evolved over the internet’s 30-year history. From the curated web portals (AOL, Yahoo!) of the 90s through to search engines, RSS, and email subscription lists, social networks and most recently recommendation engines.
The amount of information online has exploded. Today we are bombarded with online articles, videos and more products than we can possibly choose from. Recommendation is an efficient and accessible solution to the deluge of information.
The difference between search engines and recommendation engines is encapsuled by the concept of “people looking for information”, vs. “information looking for people.”
Search requires an explicit declaration of intent from the user, a “search term.” Recommendation infers our preferences based our past behavior.
This model is more suitable for the small screens, fragmented time and information overload issues which characterize the mobile era.
Accurate MATCHING of content with users was the biggest difference between Musical.ly and TikTok.
Superior classification and recommendation was the key to content diversification beyond the popular categories of teen lip-sync and dance.
Without accurate video classification and recommendation niche content cannot find appropriate users.
User generated videos often have poor or inaccurate metadata. Under these conditions, search is an inefficient method to match users with content.
Saturated Market of Short Online Video Sharing
The original Chinese version of TikTok, was launched in late 2016 under the name A.me. It was a late mover in an already heavily saturated market. Yet another uninspired clone destined to enjoy a fleeting moment of fame before withering away unceremoniously into internet obscurity. Not even ByteDance’s own staff were optimistic, seeing the app as somewhat of a side bet.
The Turning Point was in the fourth quarter of 2017 when everything came together for the fortunes ByteDance.
Over October, Douyin’s daily users doubled, 30-day retention rates jumped from eight to over 20%, the average time spent in the app soared from 20 to 40 mins.
It was as if some magic rocket fuel had suddenly been added, boosting every key metric.
What had changed?
One of ByteDance’s most capable engineering teams led by Zhu Wenjia, was assigned to work on Douyin, harnessing the full power of company’s content recommendation backend.
Early pioneer Musical.ly, had failed to break into the Western mainstream, remaining an app used exclusively by teens.
In China, Douyin was able to reach a much broader audience in part by cleverly altering its positioning. The app originally mimicked Musical.ly, targeting female pre-teens, later shifting to become a place for young trendsetting art students and hip-hop idols.
By early 2018 the app saw another significant shift in its positioning to the simpler, more neutral “Record beautiful life.”
V. Monetization
ByteDance’s share of China’s online digital media market grew from just 2% in 2015 to become the second-largest player with 18% by the first half of 2019.
During the same period, search giant Baidu’s market share roughly halved from 29% to 15%.
The rise of TikTok represents a potential challenge to the Western market online advertising duopoly of Google and Facebook.
ByteDance’s commercialization teams had brainstormed a multitude of ways to capture value, converting eyeballs into dollars and squeezing every last cent out of Douyin.
The lion’s share, roughly 80%, was attributed to advertising but there were many other sources. “Extended businesses,” included revenues generated through games, paid knowledge, and e-commerce. “Others,” includes blue tick account verification fees and “DOU+,” a system through which any user or creator can pay the platform to boost a video’s visibility.
Douyin offers a window into the future of TikTok given that the China short video market is 12-18 months ahead of the rest of the world. Successful Douyin features pioneered in China have a high chance of also appearing in TikTok.
The rise of short video represents a broad shift in internet consumption habits. It is a compelling format for viewers and advertisers alike.
Written by China internet specialist and internationally recognized speaker Matthew Brennan and edited by TechCrunch journalist Rita Liao, “Attention Factory: The Story of TikTok and China’s ByteDance” is packed with over 300 pages of original analysis and exclusive reporting that you cannot find elsewhere.
To purchase the book on Amazon, click here.