TIKTOK TI­TAN’S PATH TO $13BN FOR­TUNE

Zhang Yim­ing is tread­ing a tightrope be­tween the ri­val su­per­pow­ers,

The Daily Telegraph - Business - - Front Page - write Lau­rence Dodds in San Fran­cisco and James Cook

It was a grov­el­ling apol­ogy. Post­ing at 4am on the Chi­nese so­cial net­work WeChat, Zhang Yim­ing con­fessed that he was “filled with re­morse and guilt, en­tirely un­able to sleep”. His com­pany ByteDance, he ex­plained, had failed to re­spect the “guid­ance” of China’s pow­er­ful state cen­sors and be­trayed a “weak” un­der­stand­ing of the the­o­ries of Xi Jin­ping, the Chi­nese leader.

“All along, we have placed ex­ces­sive em­pha­sis on the role of tech­nol­ogy, and we have not ac­knowl­edged that tech­nol­ogy must be led by the so­cial­ist core value sys­tem,” he wrote.

Thirty-eight year-old Zhang, the founder of vi­ral video app TikTok’s $100bn (£79bn) par­ent com­pany ByteDance, is China’s 10th rich­est man with a wealth of $16.2bn, af­ter TikTok was down­loaded more than two bil­lion times. His com­pany is the most valu­able start-up in the world.

Zhang an­nounced in his 2018 apol­ogy that he would shut down ByteDance’s first app, a so­cial net­work for jokes called Nei­han Duanzi, af­ter the Chi­nese govern­ment ac­cused him of host­ing “vul­gar” con­tent.

Now, run­ning TikTok, the first Chi­nese app to se­ri­ously con­quer the west, is a curse as well as a bless­ing.

It has forced Zhang to flat­ter two mu­tu­ally hos­tile gov­ern­ments and to try to hold to­gether an em­pire that spans two worlds.

“Any Chi­nese en­tre­pre­neur with a grow­ing prod­uct faces the dual pres­sures of con­form­ing to Chi­nese law and stay­ing in the good graces of the Chi­nese Com­mu­nist Party, while at the same time con­vinc­ing those out­side China that the com­pany is in­de­pen­dent of the Chi­nese govern­ment,” says Stan­ley Rosen, a pro­fes­sor of pol­i­tics at the Univer­sity of South­ern Cal­i­for­nia.

Zhang’s life story could eas­ily be that of any US founder. He grad­u­ated in 2005 with a de­gree in soft­ware en­gi­neer­ing from Nankai Univer­sity.

Like Mark Zucker­berg, Face­book’s founder, he met his wife dur­ing his stud­ies. He felt sti­fled dur­ing a stint work­ing at Mi­crosoft and had one failed start-up be­fore found­ing ByteDance in his Bei­jing apart­ment in 2012. His core idea, re­port­edly gleaned from watch­ing strangers walk about ab­sorbed by their smart­phones, was pre­scient: users were mov­ing en masse from desk­top to mo­bile

‘In 2007, Ap­ple re­leased the iPhone. I was shocked when I bought it. I could build a web­site or pro­gram on it’

‘Google is a com­pany with­out bor­ders. I hope that Toutiao will be as bor­der­less as Google’

com­put­ers, but con­tem­po­rary mo­bile apps made it hard for them to find what they wanted. “I saw that the wave of mo­bile in­ter­net was go­ing to be very, very large,” Zhang said in 2018. “In 2007, Ap­ple re­leased the first iPhone. I was shocked when I bought it. I could build a web­site or write a pro­gram on it.”

Baidu, China’s equiv­a­lent of Google, was burn­ing users’ trust by mak­ing ad­verts look like real search re­sults.

The so­lu­tion, Zhang fig­ured, was ar­ti­fi­cial in­tel­li­gence (AI) that learned users’ pref­er­ences as they browsed.

An Amer­i­can ven­ture cap­i­tal firm, Susque­hanna In­ter­na­tional, gave him a $5m fund­ing round, al­low­ing him to launch the app for which ByteDance is still most fa­mous in China.

Toutiao, mean­ing “head­lines”, shows its users news sto­ries and learns their in­ter­ests through its AI. That strat­egy of pick­ing users’ con­tent for them was what su­per­charged TikTok’s growth in the west. Called Douyin in China, the app’s first ver­sion was built in 200 days and had 100 mil­lion users within a year. Zhang him­self didn’t know what teenagers wanted to see, but he didn’t need to: AI could do that job for him.

TikTok re­quires no in­put be­fore show­ing mu­sic videos and skits. In­stead of pick­ing from a menu of op­tions, users make tiny and of­ten un­con­scious choices: lik­ing this video, skip­ping that one, let­ting an­other play for a few sec­onds longer than nor­mal.

TikTok only achieved ma­jor in­ter­na­tional growth af­ter Zhang ac­quired Mu­si­cal.ly, a Shang­hai start-up which had at­tracted more than 200 mil­lion users and had opened an of­fice in Cal­i­for­nia.

Zhang’s ac­qui­si­tion of Mu­si­cal.ly was a clear sig­nal that his am­bi­tions weren’t lim­ited to China. “Google is a com­pany with­out bor­ders,” Zhang said in 2019. “I hope Toutiao will be as bor­der­less as Google.”

But bor­ders would have their re­venge. ByteDance has gone global at the pre­cise his­tor­i­cal mo­ment that three decades of tight­en­ing ties be­tween the Chi­nese and US economies have be­gun to un­ravel.

Mike Pom­peo, the US sec­re­tary of state, hinted ear­lier this week that Wash­ing­ton may ban TikTok. The com­pany is fight­ing to con­vince US politi­cians that it’s not a threat. In May, Zhang poached high-pro­file Dis­ney ex­ec­u­tive Kevin Mayer to be­come his sec­ond in com­mand at ByteDance and the new chief ex­ec­u­tive of TikTok.

ByteDance has also sep­a­rated TikTok’s tech­nol­ogy from its par­ent com­pany and is seek­ing a global base for the app out­side of China.

But these steps have not eased the con­cerns of US reg­u­la­tors, who this week launched an in­ves­ti­ga­tion into how TikTok han­dles the data of users aged 13 and un­der. TikTok’s own trans­parency report found al­most a quar­ter of the videos it took down in 2019’s sec­ond half in­volved in­ap­pro­pri­ate be­hav­iour by mi­nors, from il­le­gal drug use to sex­ual ac­tiv­ity.

“The only per­ma­nent so­lu­tion would be to spin off the over­seas en­tity as a com­pletely sep­a­rate en­tity, with an over­seas ma­jor­ity share­holder,” says Rich Bishop of Ap­pInChina.

Se­nior ex­ec­u­tives at ByteDance are dis­cussing op­tions such as cre­at­ing a new head­quar­ters out­side of Bei­jing and a new man­age­ment board at TikTok to dis­tance the com­pany from China, ac­cord­ing to a report in the Wall Street Journal.

But for now, at least, Zhang has a dif­fer­ent route in mind for his com­pany: go­ing pub­lic. “Cur­rently, the IPO is not press­ing and we don’t have any im­mi­nent plans,” Zhang said ear­lier this year. “But in­ter­nally, we are mak­ing prepa­ra­tions as if we’re work­ing on an IPO.”

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