First, the news.
On August 08, 2018, Bloomberg reported that the ByteDance, creator of famous news app in China (the name is Toutiao, in case you’re looking for the app) and video sharing app “TikTok” is planning to raise a mega-round of $3 billion. Such a deal could make the company the most valuable startup. Well, the funding was secured and the headlines have been made as expected at the end of October.
I always trailed Uber to see where are they heading. I never thought a content discovery platform could leapfrog a company with a vision of transforming the way we move from one location to another.
Uber wants to own a piece of every trip that happens in cities, from e-bikes to public transit — even if it’s not an Uber-operated service.-Recode.
Flying cars and self-driving vehicles Vs News discovery and video sharing platforms. That’s what I see when I compare Uber Vs ByteDance. But when I dug deep, I found some of the most possible reasons which justifies why ByteDance has more valuation than the uber.
Note: I intentionally left out the Travis Kalanick departure and the leadership shake-ups at Uber. Because we are going to decrypt ByteDance and see why it’s a contender. After all, we don’t need yet another piece on Uber.
Subsidiaries (What makes, Uber… Uber and ByteDance… ByteDance)
When you know how the company has been trying to structure itself, you can predict where it’s headed. So, let’s splinter the companies.
As mentioned above, I would be quickly skimming over the Uber subsidiaries as we already discussed a lot about them.
- Uber Eats
Uber Eats, which started in 2014 has expanded to 250 cities in just 4 years. It has a $6 billion bookings run rate, according to Uber CEO Dara Khosrowshahi, and is growing over 200 percent. In fact, he wants Uber Eats to be the world’s largest meal-delivery business.
Otto intended to produce self-driving kits for semi-trucks and then, it got acquired by Uber in Aug 2016. As predicted, Uber shuttered the project to focus on self-driving cars. Yeah, the goal of replacing more than a million drivers with robot drivers (self-driving kit) has started back in 2016 and right after a month of acquisition, Uber announced that Pittsburgh passengers can experience the autonomous rides (sort of). There will be autonomous vehicle operators sitting in the driver seat until the company is 100% sure about the mapping and self-driving technology.
Well, Uber closed the project last year following the fatal crash in Arizona. So, it’s off the road.
Travis Kalanick, former CEO of Uber believes autonomous ride-hailing service is “existential” for the company. And, considering the fact that so many are jumping into the autonomous ride-hailing and delivery (Google, Ford, GM’s Cruise, etc.), you can say Uber has a growing problem and still tries to run the solution.
GM’s Cruise recently partnered with DoorDash to deliver food and groceries. That’s what Uber intendeds to do with Uber Eats too.
- Complex Polygon
It’s an app studio that develops social apps “to bring people closer together”. It has experimented with a couple of apps and Swipe, which allows users to share photos with their friends and comment on them, is the most successful. The studio raised a fund of $1.7 m and the Swipe app has a million downloads.
Why would Uber acqui-hire an app studio? It was time to invest in the user experience of uber’s driver app. As per the announcement from the Complex Polygon, they’re joined to improve the drivers’ experience.
We can correlate it to Otto. Uber has the history of getting the best team under its hood and build the products, rather than outsourcing it.
deCarta has been acquired by Uber to power its mapping and navigation abilities. “With the acquisition of deCarta, we will continue to fine-tune our products and services that rely on maps –- for example UberPOOL, the way we compute ETAs, and others – and make the Uber experience even better for our users”, a Uber spokesperson told Mashable.
- Geometric Intelligence
Uber acquired Geometric Intelligence to form its very own “Uber AI Labs”. The goal of the team is broad and it envisions improving transportation like route management, in the beginning, using AI technology.
I believe, Uber AI Labs will be the only Uber’s eye-opener in the future.
- Xchange Leasing
Uber started to getting drivers without their own cars and so it ended up forming Xchange Leasing. Drivers can lease the cars from the Uber and drive for the Uber. However, it’s been sold to Fair, a leasing marketplace for cars last year.
Uber is likely to have its leasing subsidiary in other markets like India to remain competitive.
This move pushes the drivers out of the Uber system and further solidifies the future of ride-hailing business in Uber is autonomous.
- Jump Bikes
Last year January, Uber partnered with JUMP, an electric bike and scooter renting app to allow users to rent Jump bikes from the Uber app itself.
The partnership later turned into an acquisition. To be frank, it isn’t surprising to anyone. Lyft, Uber’s competitor followed the suit by acquiring Motivate.
Uber Eats acquired orderTalk, an online ordering software provider for restaurants to improve the Uber Eats business. We already said it’s at a $6 billion booking run rate and orderTalk helps to better the POS system.
On all, Uber is intended to do two things in the near future. First, power a fleet of autonomous ride-hailing service and get rid of drivers at least in the developed market. Two, grow the Uber Eats across the world (May acquire Deliverhoo in EU). All the subsidiaries are helping to achieve these two goals.
Other ambitious plans like flying cars and public transportation system will be waiting for a while.
It owns and operates a suite of content discovery and sharing platform.
Toutiao, the largest Chinese news aggregator is already valued over $22 billion and made a revenue of $2.5 billion in 2017. To put this into perspective, that’s 33.33% of Uber’s revenue the same year.
Toutiao aimed to make around $7.5 billion last year and diversified itself from ad revenues by launching a learning app dubbed Haohao Xuexi (好好学习), or “Study Well”.
Paid content in China is expected to reach US$3.5 billion by 2020. Considering almost 3 billion hours were spent on Toutiao in June 2017, paid app strategy might work well.
And, when it comes to location distribution, over 72% of the Toutiao users are located from Tier 2 to Tier 5 cities. But 80% of the users were below 30 years old.
- Tik Tok (Douyin)
Tik Tok, which absorbed Musically for $1 bn last year is boasting over 500 million monthly active users worldwide. As of November 2018, TikTok had the No.2 spot in app downloads, according to SensorTower, beating Messenger, Facebook, and Instagram.
TikTok doesn’t have any advertising models but agencies are in the line waiting for one. The Chinese version of TikTok (called Douyin) has ads and is supposed to bring in $2 billion last year.
Besides advertising, the app allows users to buy emojis and gifts and made around $3.5 million in 2018.
Douyin is predicted to cover the top tier cities and 73% of the users are below 24 years old. Both apps (Toutiao + Douyin) can give you the most desirable audience across China.
This is important, in case Douyin decides to rely on ad revenue for the next few years. You can go out on programmatic exchanges and expect to hit your revenue goals. As the apps have what advertisers need (reach + engagement), ByteDance can run its advertising marketplace in the future.
A self-serve advertising platform (like Adwords) would make sense.
Meanwhile, in the US, TikTok experiences massive growth. According to Apptopia, it acquired 30+ million users in 3 months (From Aug 2018 to Oct 2018). In addition, the user retention rate of TikTok is better than Snapchat and Twitter.
TikTok has surely been winning in the US, not just in its home ground.
- Xigua Video
Xigua, a video platform with over 200 million Chinese users is gaining on its ground -Prefecture-cities. While TikTok has social DNA and revolves around short-form content, Xigua video is aiming to pivot to long-form videos. In just 18 months after launch, Xigua has become the largest professional user-generated video content platform in China.
ByteDance is set to invest $587 million to produce reality shows for Xigua video. Though the app is emerged as short-form, ByteDance bets on the long-term content.
a. China’s three largest video platforms have their own reality shows and around 10% to 15% of first-time users landed on the original content right after the installation.
b. Audience behavior in Xigua video backs up the investment.
Besides, long-form content gives an opportunity for the company to run subscriptions. But it’s too early to predict the future of Xigua Video.
- Vigo Video
Vigo video, known as Huoshan in China, is the third-video venture owned by ByteDance. It has a DAU of 53 million, which is just under Douyin’s 61 million DAUs. It attracts young Chinese users (Gen Z) predominantly.
It acquired Flipagram to reach the US audience and pushed them to Vigo video (Same story: Musically to TikTok).
Flipagram, a photo-,video-mashup app that once grown faster than Facebook and Snapchat. Now, it’s Vigo Video.
If you wonder why ByteDance has many video platforms in China and investing in them further, here you go.
QuestMobile shows short-video platforms enjoyed surging growth in 2017, with the number of users exceeding 410 million, up 116.5 percent from the previous year.
Total time spent on short-form video apps accounted for 5.5 percent of all time spent on mobile apps in 2017.
- News Republic
News Republic is a global news aggregator with over 50 million downloads. ByteDance snatched it from Cheetah Mobile for $86.6 million. Around 25% of app users are from the US, according to SensorTower.
For ByteDance, News Republic is a ticket to get out of the home ground and reach the professional and millennial audience who aren’t going to use TikTok or any its video apps.
I predict that it aims to make News Republic in the US as big as Toutiao in China, or at least try to capture a significant amount of the news aggregation market. FYI, News Republic is already bigger and better than Flipboard.
TopBuzz is a platform for creators and publishers to share their content, be it articles, videos, photos, GIFs. The platform will use its algorithm to match the content with users and obviously, has a feed.
Creators can monetize as TopBuzz show ads (full page home screen take over, native feed ads) to the user. It has over 36 million users and just over 3% of them are from China, according to SimilarWeb.
- Buzz Video
It’s a website that shared the video content of all types from the Internet. It has grown its traffic to 6 million hits and more than 50% are from the US.
That sums up ByteDance.
ByteDance is penetrating the video market and has been developing programs and paid content apps to diversify itself from the advertising. News aggregators like News Republic are used to capture the professional audience.
Now, it’s time to look at the potential.
Both rely on user acquisition to increase revenues and get rid of the operational losses. The problem is with domestic and international competition.
For Uber, it’s too big to handle. From Lyft eating its share in the US to selling its business in Southeast Asia (to Grab), China (to Didi), and Russia (to Yandex), Uber is still struggling to expand beyond its turf.
On the other hand, ByteDance is on the spree of M&A. It acquired most of the US replicas (which showed the potential to become big) and merged it with the own banner. This, in turn, bolsters the expansion plans of the company. It has worked so far.
Cost of Acquisition
Yet another important factor to consider is the Cost of Acquisition. Uber has to spend a lot to acquire drivers and fight with the regulators and politicians (Users are easier and cheaper to acquire). Some justify that its what makes the uber, the leader in the US market.
It is true that marketplaces like Uber need to invest when it expands into a new city or a different market. A Saas cash flow through model depicts that it’s not possible for Uber to become profitable if it keeps expanding to new markets.
But when the expanding stops, CAC will also drop. Another factor that can decrease the CAC is the brand reach and rival’s position in the market.
An excerpt from Inc:
Inc.‘s source estimated that Lyft was devoting $50 in incentives per new user in October 2016, $20 in the spring of this year, and then $5 “almost nationwide” by early summer. Lyft is likely spending $10 to acquire a new user, down from the previous benchmark of $70.
You can attribute the lower CAC to investor lawsuits, allegations against former CEO Travis Kalanick, and #DeleteUber protest. CAC for Uber is unlikely to decrease in the next two years.
Let’s take a look at how much ByteDance spends to acquire a new customer/user.
In 2012, Toutiao spent only 1 million RMB ($160,000) in promotion and achieved 1 million daily active users by the end of the year.
In fact, its new app Helo, designed to capitalize on the growing Indian market has reached 20 million downloads and 2 million DAUs, just after four months of launching. It used the same technology of Toutiao but designed the UI for the Indian consumers.
When ByteDance keeps absorbing and overhauling the app design completely to suit the market, it might work for other markets too.
Technology and Innovation
ByteDance has created “A virtuous cycle of AI”.
It isn’t relying on users’ demographics, age, or gender to get the best-matched content. It rather analyzes user behavior, consumption, and reading patterns to get the best feed. Thanks to its deep learning and machine learning algorithms.
After all, it’s not developing its technology to run driverless cars and choppers. So, pretty quick to test and execute.
The second thing to notice here is privacy. We are in the era of data scandals where users are becoming concerned about getting manipulated. #DeleteFacebook is just a tip of an iceberg and I expect more to come. ByteDance will dodge the issue as it doesn’t have to get users’ data.
When it comes to revenue, Uber has an upper-hand. Though it burns money to stabilize and establish itself as the go-to transportation service, it can reap the benefits later. And, with the vision of flying cars, you can bet to see some impressive numbers.
That being said, you might need to wait.
ByteDance can grow its revenue quickly with the advertising but it isn’t going to be the best route. That’s why the company has quietly started to diversify itself by paid content app and it might continue with the subscription services (once the reality shows to be produced has become a hit).
Experts say TDM is the next BAT.
*T- Taitao, D – Didi Chuxing, M- Meituan-Dianping.
It’s not wise to say one is better than the other. But we could say Uber will take time to become profitable as long as it keeps investing. ByteDance will face some hiccups from Chinese regulators for content (like this, and this) and keep scaling up its review team which is currently at 10,000.
Both have their own battles to fight and win.