When Zhang Yiming first shopped the idea of a news aggregation app powered by artificial intelligence six years ago, investors including Sequoia Capital were skeptical.
Back then, the question was how a 29-year-old locally trained software engineer could outsmart the numerous news portals operated by the likes of social media behemoth Tencent Holdings Ltd. and extract profit where even Google had failed.
Zhang, now 35, proved them wrong. Today his company, Bytedance Ltd., is on its way to a more than $75 billion valuation -- a price tag that surpasses Uber Technologies Inc. to top the world, according to CB Insights. The latest in a long line of investors who’ve come around is Softbank Group Corp., which is said to be planning to invest about $1.5 billion. Bytedance now counts KKR & Co., General Atlantic and even Sequoia as backers. Much of its lofty valuation stems from the creation of an internet experience that’s a cross between Google and Facebook.
“The most important thing is that we are not a news business. We are more like a search business or a social media platform,” Zhang said in a 2017 interview, adding that he employs no editors or reporters. “We are doing very innovative work. We are not a copycat of a U.S. company, both in product and technology.”
What’s remarkable is Zhang was able to do it all without taking money from the twin suns of China’s internet: Alibaba Group Holding Ltd. and Tencent. It’s the first startup to emerge from the dwindling cohort of mobile players that hasn’t sought protection or funds from either of the two. In fact, it’s often locked horns with them, in court and elsewhere.
The story of how Bytedance became a goliath begins with news site Jinri Toutiao but is tied more closely to a series of smart acquisitions and strategic expansions that propelled the company into mobile video and even beyond China. By nurturing a raft of successful apps, it’s gathered a force of hundreds of millions of users and now poses a threat to China’s largest internet operators. The company has evolved into a multi-faceted empire spanning video service Tik Tok -- known as Douyin locally -- and a plethora of platforms for everything from jokes to celebrity gossip.
But as with Facebook at the same stage of its life, Bytedance now faces questions over when or even how it will start making a profit.
“The predominant issue in China’s internet is that the growth in users and the time each user spends online has slowed dramatically. It is becoming a zero-sum game, and costs for acquiring users and winning their time are increasing,” said Jerry Liu, an analyst with UBS. “What Bytedance has created is a group of apps that are very good at attracting users and retaining their time, in part, leveraging the traffic from Jinri Toutiao.”
Despite that seeming isolation, it’s become the most successful major Chinese tech company in creating an international base, venturing via apps like Tik Tok into the U.S., Southeast Asia and Japan. Even Tencent’s WeChat had to pump the brakes on its own overseas initiative four years ago.
What Zhang perceived in 2012 was that Chinese mobile users struggled to find information they cared about on many apps. That’s partly because of the country’s draconian screening of information. Zhang thought he could do better than incumbents such as Baidu, which enjoyed a near-monopoly on search. The latter conflated advertising with search results, a botch that would later haunt the company via a series of medical scandals.