ByteDance’s story is unique and unprecedented, but the name might not sound familiar yet. The Beijing-based tech company has only recently made its way into the spotlight, largely thanks to its revolutionary short video app, TikTok — known in China as Douyin. TikTok’s wild success overseas has brought its parent company increased scrutiny and fueled major controversy over security issues, while back home, the company has felt emboldened to take on Chinese tech powerhouses such as Alibaba and Tencent, in particular taking aim at the latter’s dominance of the gaming industry.
So how did ByteDance seemingly come out of nowhere to establish itself as one of the most important tech companies in the world? And what does the future hold as it looks to expand into new sectors and new territories?
The Beginnings of ByteDance
ByteDance is the brainchild of Founder and Chairman Zhang Yiming. The 36-year-old software engineer hails from humble beginnings — born to two civil servants in southeast China’s Fujian province, Zhang is now the 10th richest person in the country according to Forbes, with a net worth of over 16 billion USD. After graduating from Nankai University in Tianjin, Zhang worked for several years as a backend engineer at a travel start-up called Kuxun. In 2012, he decided it was time to forge his own way and founded ByteDance.
Zhang saw traditional social media applications like Facebook and Chinese microblogging site Weibo struggle to keep users engaged, missing opportunities to push ad content and drive revenue. Fundamentally, these apps were founded to emulate in-person connection networks, so users were generally confined to posts shared by their friends and followers, running the risk of repeating or running out of content. But Zhang envisioned a platform powered by artificial intelligence that showed users an endless stream of fresh content designed entirely for them.
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Jinri Toutiao (今日头条) was the company’s first product, an easy to use news platform that operates more like a social media app. The algorithm on Toutiao records how individual users respond to different types of content — if they like or share it, or how quickly they swipe away — learning more with each scroll. The longer a user stays on the app, the more tailored to them the content will be, luring them to stay engaged longer.
Toutiao quickly became a flagship product for ByteDance, and today has more than 200 million monthly active users, but Zhang saw potential for his algorithm in other forms of content.
In 2017, ByteDance acquired US lip-syncing platform Musical.ly for 1 billion USD, integrated an adaptation of Jinri Toutiao’s algorithm, and launched a new app that would come to conquer the world: TikTok.
TikTok Takeover
Seemingly overnight, short-video sharing platform TikTok has become one of the most prolific and disruptive social media applications ever, a haven for young people to express themselves through makeup tutorials, dance challenges, and ten-second pranks. And a major source of concern for parents and politicians.
The app boasts an ever-growing user base of over 1 billion worldwide, and is now the most downloaded non-gaming app on the iOS app store according to Sensor Tower.
As of January 2020, Douyin, TikTok’s Chinese sister app, also supported over 400 million users in China (almost twice as many as the 250 million it supported in January 2019).
In just two years, TikTok’s success has propelled ByteDance into the inner circle of Chinese tech giants. In the first half of 2019, ByteDance took 23% (7 billion USD) of all digital advertising revenue in China, edging out Baidu to become the second largest digital ad player behind only Alibaba. Globally, their user base more than doubles that of both Sina Weibo and Tencent’s messaging-and-more super app WeChat. The company is also backed by several major hedge funds, including KKR, Sequoia Capital and SoftBank Japan, and is currently valued at 78 billion USD.
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TikTok Becomes a Controversy Magnet
Zhang has repeatedly expressed his vision of ByteDance as a fully global company, taking its place alongside the likes of Google and Facebook. However, TikTok’s success worldwide has drawn attention to the Beijing-based company over data privacy concerns and content moderation practices. Since ByteDance’s acquisition of Musical.ly, regulators in several countries including the United States and the UK have expressed concern that user data may be transferred to China, mishandled, or sold illegally. It’s also been suggested that ByteDance is moderating the platform’s content to suit the sensibilities of the Chinese Communist Party.
Tensions flared in Sep 2019, when The Guardian released internal documents from ByteDance detailing guidelines for content moderators. According to the report, TikTok instructed its moderators to censor videos that mention Tiananmen Square, Tibetan independence, groups like Falun Gong, and a specific list of 20 foreign figures, among other things. TikTok claimed that the censorship guidelines The Guardian obtained were no longer in use at the time of the report.
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Outraged, US Senator Marco Rubio (FL) called for a formal investigation of TikTok’s censorship, calling it a threat to US national security. Two other lawmakers also called for a “rigorous assessment” of potential national security risks posed by China’s cybersecurity laws, which require companies to cooperate with government requests for data.
In an effort to gain favor with US officials, ByteDance separated TikTok’s product, business development, marketing and legal teams and released an official statement addressing concerns.
“We store all TikTok US user data in the US, with backup redundancy in Singapore,” the statement read. “Our data centers are located entirely outside of China, and none of our data is subject to Chinese law […] TikTok does not remove content based on sensitivities related to China. We have never been asked by the Chinese government to remove any content and we would not do so if asked.”
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American lawmakers were not satisfied. In November 2019, Reuters reported that the United States Committee on Foreign Investment (CFIUS) opened an investigation of ByteDance’s 2017 acquisition of Musical.ly. The acquisition had occurred over 2 years prior, but a treasury investigation came to be the only available channel for US officials fueled by fear and a tinge of xenophobia to probe ByteDance’s inner workings.
The investigation is currently ongoing, but Zhang has told Reuters that he is “optimistic” about the company’s dealings with the US government. Beginning in December, the company made several strides in an ongoing effort to earn public trust, including updating their community guidelines, publishing its first transparency report, and hiring two new cybersecurity executives.
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In March TikTok announced that it was nearing completion on its plan to move all US content moderation to Los Angeles, and establish a content and data transparency center on the west coast. At the center, “experts will get a chance to evaluate our moderation systems, processes and policies in a holistic manner” says GM of TikTok US Vanessa Pappas, in a blog post. They are also in the process of recruiting a team of independent experts to serve as a “content advisory council” that will be tasked with reconciling TikTok’s moderation practices with US policies in the future.
The Future: Music, Productivity, and Gaming
Despite such difficulties, the future appears bright for Zhang and his company. More people than ever flocked to Douyin and Toutiao in China as government mandated Covid-19 lockdowns kept people desperate for virus news, entertainment, and social interaction. TikTok is now seeing a similar impact as the virus wreaks havoc internationally.
Meanwhile, ByteDance’s productivity tool Lark (Feishu in China) was given a makeover in response to the growing demand for virtual office suites, reaching a peak of 22,000 daily downloads on the iOS App Store in China. Proving that ByteDance’s brushes with controversy are not limited to TikTok however, Feishu has been removed from app stores, reportedly due to Chinese government concerns over the ability to read Facebook and Twitter posts within the app.
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In March, the company rolled out its long-awaited music streaming app Resso. Initially launched only in India, the product was billed as the “world’s first social music streaming app,” and attempts to merge many of the social features familiar to TikTok users with back catalogues from some of the music industry’s biggest players.
And ByteDance is also committed to disrupting the Tencent-dominated gaming industry. Their approach is simple: leverage existing platforms like TikTok and Toutiao to get users to play games published and developed by the company.
In February, ByteDance took a vital step on this journey by appointing its former head of strategy, Yan Shou, to lead over 1,000 employees in the company’s new gaming venture. ByteDance has already found some success publishing games developed by its subsidiaries. Martial arts game Combat of Hero, for instance, even briefly became the most downloaded free iOS game in Japan in early March. ByteDance is currently working on developing its own games and game store, but it remains to be seen if competition from Tencent, Netease and other tech companies will disrupt their plan.
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Showing that the company is open to experimenting with entries into other sectors, the ByteDance name has also been linked with everything from establishing its own virtual pop idol group (“Project V”) to making inroads into the online education sector in recent months.
It seems like Zhang and his team can’t fail, and investors have started to notice. Rumors about whether or not ByteDance will go public have circulated for several years, but the company has not made any official moves toward declaring an IPO. The ongoing security inquiry limits ByteDance’s ability to list in New York, but if, and only if, they can regain trust in the US, we might see a TikTok ticker symbol sooner rather than later.
One thing seems certain: you’re going to be hearing a lot more about this company in the years to come.
