Lifestyle of Zhang Yiming the founder of Tiktok

 

The numbers are grim: Among China’s Internet big three, messaging and gaming giant Tencent’s stock is down 41 percent from a year ago, e-commerce titan Alibaba’s has fallen 59 percent, and search king Baidu’s has sunk 37 percent.

Prominent entrepreneurs who were once practically rock stars are also keeping their heads down. Tech executives who have stopped making social media posts and hidden their previous comments include Zhang, founder of Byte, which owns TikTok; Jean Liu, president of China’s ride-hailing giant Didi; and Wang Xing, founder of popular meal delivery app.

Alibaba founder Jack Ma has kept such a low profile that false rumors circulated that he might have been detained.

China’s tech industry is suffering the compounded challenges of a regulatory crackdown, coronavirus lockdowns at home and trade sanctions from abroad. These woes have investors fearing the ceiling for growth might be closer to their heads than they previously thought.

“The optimism that I hear now is about Vietnam, Indonesia, Singapore,” said Duncan Clark, founder of Beijing-based consultancy BDA who has worked with China’s tech industry since the 1990s. “The dynamism has shifted from China.”

Around a decade ago, China’s Internet sector was flush with cash as starry-eyed overseas investors jostled to get a piece of China’s mobile boom. Start-ups burned through billions of dollars, as Chinese consumers enjoyed convenient and cheap ride-hailing, food delivery and other apps heavily subsidized by venture capital.

In recent weeks, murmurings of layoffs at major Chinese Internet companies have trended on social media and been the focus of local media reports. The discussions were so widespread that the China Cyberspace Administration took the unusual step of publicly commenting on the companies’ hiring trends last month, saying it had met with Tencent, Alibaba, Baidu and others and determined that the companies had still hired more people overall than they had let go since last summer.

“The recent online reports that many major Internet companies are undergoing large-scale layoffs have prompted heated public discussion,” the administration said in an online statement.

 President Martin Lau, however, told analysts in March the company would “streamline” its no core businesses, saying the industry’s growth had become “frothy and unhealthy.”

“For several years, industry participants have overemphasized zero-sum competition, aggressive marketing, reckless expansion, short-term growth and corporate benefits, overlooking the most important elements of sustainable growth,” he said.

In Shenzhen, Tencent’s hometown, the local government is paying 10 percent of companies’ electricity bills this month as it seeks to mitigate some of their pain. In a survey of 97 companies conducted by the Shenzhen Venture Capital Association in March, 93 percent of respondents said they were suffering economic effects of the pandemic, with some factories reporting hundreds of thousands of dollars in losses due to production suspensions.

Some investors trace the moment they started to worry to November 2020, when Alibaba’s mobile payment affiliate Ant Group saw its public listing abruptly canceled by regulators. Its IPO had been poised to be the world’s largest in history.

Ma appears to have angered Beijing’s finance regulators in a freewheeling speech. Some officials had long felt the online finance sector had been allowed to expand too far without regulation. Still, industry executives were stunned Beijing would choose to forgo a blockbuster IPO that would have presented China as the global front-runner in a cutting-edge industry.

There were other signs in the following months that regulation now takes precedence over growth. Didi Global, China’s equivalent of Uber, announced plans to delist from the New York Stock Exchange after a Beijing cybersecurity probe into its operations. Tighter rules were rolled out for Internet companies, including limits for children playing video games to three hours per week.

One investor, speaking on the condition of anonymity because of the topic’s sensitivity, said the most startling measure was the ban last year on for-profit online tutoring, a popular service among parents eager to give their kids a leg up in school. The sudden wipeout of an entire, lucrative sector alarmed investors and reinforced the perception that regulations in China were fickle.

“It sort of went to zero,” the person said about a previously successful online education start-up that the person invested in.

Fraught relations with the West have also weighed on the industry. U.S. sanctions continue to hamper research and development for the likes of Huawei, while the tense political environment hampers sales for many Chinese companies in Western markets.

There is also the naturally evolving regulatory system as Internet companies become increasingly powerful. As with scrutiny of Facebook in the United States, Beijing has also been reviewing the role that Internet companies play in public life. In the past year, China has announced new regulations on tech companies’ use of consumers’ personal data and facial recognition scans.

The coronavirus pandemic added to the challenges for the industry, with factory production suspended for weeks across the country and workers locked down in their homes with short notice.

Richard Yu, Huawei’s head of consumer and auto business, warned in a social media post last month that there would be broad fallout along the supply chain if Shanghai production remained suspended through May.

In Shenzhen, daily life has resumed after a coronavirus lockdown in March. But the border with Hong Kong, long the gateway for Shenzhen’s tech companies to global investors, remains closed. Workers have had to add coronavirus tests every two to three days to their routine to maintain access to offices and public spaces.

“The steady economic recovery is facing pressure and challenges,” Shenzhen’s statistics bureau said in late April, in a report on the city’s economy in the first quarter. The bureau reported that retail sales of consumer goods had fallen 1.6 percent in the city, while import and export volume was down 2.8 percent.

Some observers, including , president of the European Union Chamber of Commerce in China, say Beijing appears to be easing the regulatory crackdown on the tech industry for now, in consideration of the country’s economic challenges.

“The economy has digested enough shocks over the last year or so. We had the tech crackdown, and covid in various parts of China,” said. “The opposite is now due.”

Wu reported from Taipei, Taiwan. Lyric in Seoul and Vic Chiang in Taipei contributed to this report.

In a recent interview, Shou Zi Chew, the London-educated, Singapore-resident chief executive of TikTok, was asked what he was most focused on as the head of the world’s hottest social media app. “Trust building,” he said. “We are a young company, and I think trust is something that we have to earn.”

Scan the headlines and it quickly becomes apparent that Chew has his work cut out. “How TikTok Live became ‘A strip club filled with” screamed one recent example. “TikTok is bad for your brain,” intoned another. A third: “ ‘The corpse bride diet’: how TikTok inundates teenagers with eating-disorder videos.”

Five years on from its founding, TikTok is approaching a crossroads. The app last year surpassed 1 billion monthly users, cementing its place among the world’s top social media platforms. Its advertising business is exploding. The company expects to bring in $12 billion this year — three times the sales of Snap, which was founded five years previously, and more than twice that of Twitter. It is a business success story that is almost without peer in recent years.

And if you thought it was just about videos of teenage dance moves, think again. For millions of people across the planet, TikTok is now the prime place for news — be it sourced from the BBC, The Washington Post or amateur bedroom “journalists”. Last week even Boris Johnson signed up, launching the account.

Yet with every teenager that sets up an account, and with every person that switches from another social media app, the target on TikTok’s back grows larger. Facebook has been so alarmed by its growth that it enlisted a Republican consulting firm, Targeted Victory, to plant negative stories in the press about its rival, falsely attributing dangerous behaviour to viral TikTok challenges and seeking to paint the company as “the real threat”, according to The Washington Post. And in March, a bipartisan group of state attorneys general launched an investigation into whether TikTok is “designing, operating, and promoting its social media platform to children, teens and young adults in a manner that causes or exacerbates physical and mental health harms”.

Chris McKenna, founder of Protect Young Eyes, an online child safety group, said the app is “toxic — I don’t know how else to say it”. He added: “There’s nothing on earth like the TikTok algorithm.”

McKenna is certainly correct on the latter: TikTok is fundamentally different from virtually every other social media app. Facebook, Snapchat and Instagram are all built around what is known as the “social graph”, the network of people, brands and interest groups one follows. Since the dawn of the social media age nearly two decades ago, the social graph has been the industry’s organizing principle. Using that data, the companies’ algorithms cull the most engaging posts and serve them up.

TikTok has no interest in your friends. Instead, it has developed an artificial intelligence-based recommendation engine that divines your desires by interpreting the most subtle of clues. They range from how long you watch a video to whether you share it, and what the content contains. And because each video takes up the entire screen, as opposed to other apps that are peppered with thumbnails and ads, the signal it interprets is much cleaner.

The result: TikTok’s AI peers into your soul to analyse your actions and understand your interests with a speed and accuracy that rivals cannot match. Eugene Wei, an investor and former Facebook executive, has summed it up thus: “When you gaze into TikTok, TikTok gazes into you.”

The result is extraordinarily powerful. In 2020, TikTok raced past Facebook and Instagram in terms of how much time users spend on the platform. This year it is set to overtake YouTube. Active users spend more than 90 minutes a day on the app, according to Sensor Tower, the market intelligence provider. Young people are particularly susceptible. A 2020 study by child protection charity Thorn found that nearly half of American youngsters between the ages of 9 and 17 use the app at least once a month. The research company Marketer estimates that 400,000 British children aged 11 and under are on the app, plus 7.1 million aged between 12 and 24.

In the last three months of 2021, TikTok removed more than 15 million accounts thought to be controlled by children under the statutory age of 13, but it is a constant battle, not least because it is so easy to lie about your age when setting up an account.

James Currier, a partner at venture capital firm NFX Partners, said TikTok was less a social network, more like “high-dopamine TV”. And its allure has not been lost on rivals.

Mark Zuckerberg this month announced a monumental shift in how the core Facebook and Instagram experiences will function, moving away from the social graph and investing heavily in an AI-powered recommendation engine that will serve up the most viral posts from across its network — just like TikTok.

Ben Thompson of Stratechery, a tech news commentator, wrote: “When Zuckerberg realizes the error of his previous approach, he not only changes course but goes all-in on the new direction. Today it means abandoning the social graph as the core organizing feature of the apps experience.”

And it is not just Facebook — which launched a Reels video feature to compete head-on with TikTok — that is worried. YouTube too has launched a rival format, Shorts; Snap has Snapchat Spotlight.

Despite the competition, TikTok is expected to outpace all rivals this year, with Marketer predicting it will add another 150 million users globally. “TikTok is reshaping the online media landscape,” said Bank of America Merrill Lynch’s analyst Justin Post. “We see its traction as most challenging for Snap, Instagram and YouTube, where the platform competes head-to-head for younger users and ad dollars. Facebook, Pinterest and even streaming companies could [also] see an impact.”

In other words, TikTok is eating everyone’s lunch.

Zhang Yiming, 39, the son of civil servants, founded ByteDance, TikTok’s parent company, in a Beijing flat ten years ago. The software engineer married his college sweetheart and worked at a few start-ups after university, with a brief stop at Microsoft in China, before setting up his company.

The ByteDance founder Zhang Yiming: “I lack some of the skills that make an ideal manager”

SHANNON STAPLETON/REUTERS

Its first product was Toutiao, a news aggregation app powered by algorithms that tracked users’ behaviour across thousands of sites to form an opinion of what might be of most interest to them. This “interest graph” concept would go on to form the basis of TikTok, which began under the name Douyin in China in 2016. Zhang launched TikTok outside China in 2017 and in America in 2018 after ByteDance bought rival Musical.ly, which had built up a following of young people posting lip-syncing videos.

Zhang drove employees hard. He instituted a six-day work week, like many of his domestic rivals, and required executives to make their own TikTok videos. If their creations did not obtain a sufficient number of “likes”, he made them do press-ups.

Beyond its recommendation algorithm, the key differentiator for TikTok was just how much money Zhang was willing to pull from ByteDance’s other businesses — and outside investors — to plough into the platform to establish it as a brand. Currier, at NFX, estimated the company has spent up to $4 billion on ads since it launched in 2017. This flies in the face of the typical strategy in social media, which relies on people organically inviting friends and family until a network reaches critical mass.

“No one had ever tried that before,” Currier said. “They were paying up to $30 or $40 [on ads] per app install at one point, when the lifetime value of a user might be $5. But what they were seeking was the network effect, and they got it.”

Open the app, and its ability to keep people once all those marketing dollars have lured them in is apparent. A video immediately starts playing, followed by another, and another. Before one knows it, a half-hour has passed watching the latest dance craze, or people telling jokes, or singing or cleaning toilets. The #cleantok hashtag has more than 37 billion views; toilet cleaning makes up an alarming proportion of the videos.

Chew, who succeeded Zhang last year, likes to say that “there really is something for everyone”. He’s not wrong. There is #booktok, for reading enthusiasts, #golftok, #transtok, for people transitioning genders, and #nosejob, where people post videos of their surgery and recovery. Even news organisations, from ABC News to the Daily Mail, have set up channels that rack up millions of views of posts summarising news items.

An investigation by The Wall Street Journal revealed just how efficient TikTok is at zeroing in on one’s interests, also known as “rabbit-holing” people. It created more than 100 fake accounts. The profiles contained no overt information beyond an age and a location, but they were endowed with certain interests so that the accounts would pause or rewatch videos related to those interests. Among them were yoga, extreme sports and astrology.

What the investigation showed was that, often in a matter of minutes, the app began funnelling content to feed the accounts’ undeclared desires. In the case of one account, which was geared toward sadness and depression, its feed transformed, the paper said, in less than 40 minutes of total watch time to “a deluge of depressive content”.

The surprising thing about TikTok is that, among the big social media apps, it has done the most to protect its users, especially young people. It is the only one that allows parents to pair their device so they can monitor what their kids are seeing. It does not allow direct messages for users under 16, and prohibits notifications for those aged under 18 after 10pm.

“They make you look the other way,” McKenna said. “But it is death by a thousand cuts,” he added, referring to the steady stream of highly sexualised, suggestive or inappropriate videos that are fed to users. They are not illegal, but they are relentless.

The company claims that it has taken “industry-leading steps” to protect minors. For brands, that appear to be enough. Uefa just named the platform as the official partner of the women’s Euro 2022 tournament. The app has also signed a marquee deal with the Royal Shakespeare Company, and this year is sponsoring both the Cannes film festival and the Eurovision Song Contest.

TikTok now sponsors the Eurovision Song Contest

GIORGIO PEROTTINI/GETTY IMAGES

Stories abound of companies, and individuals, who have been swept up by the algorithm, turning a ho-hum product or a business or a person into an overnight sensation. Kat Horton, a 29-year-old former consultant in New York, left her job last year after her goofy videos on Excel spreadsheet shortcuts went viral. She now brings in seven figures selling courses that she promotes on TikTok.

Ryan Pamplin struggled for months to get traction on TikTok for BlendJet, his portable blender startup. When he finally hit on a solution the algorithm liked — using social media influencers to promote the products rather than more pricey, professionally produced ads that worked well on Facebook and Instagram — his sales tripled in three months.“It’s an entirely different skill set to be successful on this platform,” Pamplin said.

Zhang, whose net worth is estimated at $50 billion, stepped down last May. He said the move would allow him to take a higher-level, strategic role at ByteDance. “The truth is,” he told employees, “I lack some of the skills that make an ideal manager.”

His resignation came after he saw off an attempt by Donald Trump to force the sale of TikTok’s US operation. The president had branded the company a national security risk, claiming that it was gathering data on US citizens, “potentially allowing China to build dossiers of personal information for blackmail, and conduct corporate espionage”. TikTok argued that all data for British, European and American users is held in servers in America and backed up in Singapore. Next year it will move all British and EU data to a new facility in Ireland.

Under threat of a US ban, TikTok agreed to sell its American arm in 2020 to Walmart and Oracle. The shotgun wedding fell apart once Joe Biden took power.

Yet even as that controversy fades into the rearview, TikTok’s trust deficit remains — despite the assurances from Chew, who read economics at Imperial College London. This is in no small part due to the fact that the app’s core algorithm is designed in China. This makes TikTok unique in the media landscape: the first and only company from Communist China to make a dent in the West.

Maria Bridge of the ethical campaign group Center for Humane Technology said: “TikTok is a propagandist’s dream: profile someone’s tastes and opinions, then use an algorithm to subtly nudge them in whatever direction you choose. Point that tech at a generation of teens and it’s terrifying in anyone’s hands.”

One may never look at toilet-cleaning videos quite the same way again.

BEIJING/HONG KONG (Reuters) - The founder of China's ByteDance, owner of the wildly successful TikTok app, has for years aspired to make ByteDance the first Chinese firm to rival U.S. internet giants on the global stage. On Thursday Zhang Yiming made a key move to achieve that.

Creating new leadership positions for ByteDance's China business, Zhang said in a letter to employees he would now focus on global expansion and fresh initiatives such as education.

In a recent, exclusive interview with Reuters, Zhang spoke expansively of his vision of ByteDance as a fully global company in the image of Google and Facebook, even as it faces a national security review by the U.S. government over TikTok's data practices. Some U.S. government agencies have banned employees from using TikTok over data security concerns.

"There are a lot of misunderstandings out there," Zhang said from a hotel room in New York, where he spoke to Reuters via video call using ByteDance's work productivity app Lark. "We are more localized in different markets than people think."

TikTok has taken the social media world by storm, especially in the United States, vaulting ByteDance to a valuation that sources have told Reuters is close to $100 billion in the secondary market.

That was not just down to luck, say those who know him.

As early as 2013, when the company was just a year old and barely made any revenue, Zhang started planning its global expansion, according to Joan Wang, an early investor in ByteDance and managing director of SIG China.

Zhang told Wang over numerous meetings and phone calls he believed his AI-based recommendation algorithms used in its Chinese-language news aggregator Jinri Toutiao, could be expanded to different languages and content formats.

"The resources at the time seemed far from enough for achieving his global goals," Wang said.

CHASING GLOBAL SUCCESS

TikTok is in talks with the Committee on Foreign Investment in the United States about measures to allow it to avoid divesting the Musical.ly assets it acquired and were later integrated into TikTok, sources have said. The CFIUS review came amid rising U.S.-China tensions and U.S. concerns about how user data would be handled.

ByteDance has also been working to separate TikTok from many of its Chinese businesses, seeking to provide CFIUS with assurances, Reuters has reported.

"I am not directly involved in this situation," Zhang said, when asked about how talks with CFIUS were going. He said overall he was "optimistic" about the company's interactions with the U.S. government.

Zhang declined to comment on whether CFIUS was satisfied with TikTok's current handling of data.

Earlier this week, the company announced it had set up a "transparency center" in Los Angeles to show regulators and the public how it manages data and content on the platform.

One major ByteDance investor told Reuters some backers had suggested a spin-off of TikTok last year, but the company didn't consider that option. Sources familiar with the company also told Reuters Zhang retains voting control of the firm, which has raised billions of dollars from prominent investors including SoftBank Group Corp <9984.T>, KKR & Co Inc <KKR.N> and Sequoia Capital China.

ByteDance declined to comment.

His intensified pursuit of global success comes amid rising censorship risks in China after the government in 2018 shut down one of ByteDance's top products, a joke app, for "lowbrow and vulgar" content.

Zhang said he spent two-thirds of his time outside China last year and likes to indulge in London’s West End musicals and museums. He plans to spend even more time abroad this year as part of an effort to "understand more context."

IPO PLANS UNCLEAR

Zhang has consciously borrowed strategies from U.S. internet giants including Alphabet Inc's <GOOGL.O> Google - ByteDance's offices in Beijing are decorated with posters including a cover of former Google CEO Eric Schmidt's book, "How Google Works."

He delivers town hall speeches every two months to talk about his bi-monthly goals, a conscious nod to Google's open work culture. He also eschews Chinese convention and tells employees not to call him "boss" or "CEO".

And Zhang insists the company's product development is already global. A new Indian social media app called Helo is an example of a product ByteDance has designed from the ground up for a local market. "We believe the short-term digital advertising market in India is small, but the growth potential is large," he said.