How the company behind TikTok became the world’s most valuable startup

How the company behind TikTok became the world’s most valuable startup

TikTok is inescapable right now, and it’s not just teens paying attention — it’s rocked the business world as well. Bytedance, the owner of the wildly popular short-form video app, is now valued at more than $75 billion following a new round of investment. This means Uber has unexpectedly lost its long-held title of the world’s most valuable tech startup to a low-profile challenger from China.

You could be forgiven for not having heard the name Bytedance before the recent news. The founder, 35-year-old Zhang Yiming, rarely gives interviews, and the company’s Western-facing media presence is close to nonexistent. But the company’s global ambitions are real and so are its chances. Bytedance is the first Chinese internet company with a significant, genuinely engaged following around the world, which means it’s worthy of serious attention.

On its website, Bytedance claims to be “one of the first companies to launch mobile-first products powered by machine learning technology,” with Zhang having seen an opportunity “to combine the power of artificial intelligence with the growth of mobile internet to revolutionize the way people consume and receive information.” But what does any of that have to do with teens singing karaoke into their selfie cameras through TikTok?

The world’s most valuable startups as of November 2018

Bytedance, China: $75 billion Uber, US: $72 billion Didi Chuxing, China: $56 billion Airbnb, US: $29.3 billion SpaceX, US: $21.5 billion

Data from CB Insights.

Bytedance’s flagship product in China is actually Jinri Toutiao (“Today’s Headlines”), a massively popular news aggregation service that uses AI to track reader habits and push them stories from various sources. Most of the content is decidedly low-brow and could be called “clickbait” if not for the fact that it keeps people coming back. Since it launched in 2012, Toutiao has accumulated hundreds of millions of daily active users who are hooked on its personalized blend of articles.

Bytedance believes that its algorithmic approach to content could work around the world, and it has developed Toutiao-like apps for other markets. Helo, for example, is a similar product aimed at India with support for 14 local vernaculars, and TopBuzz does a similar thing in English. But so far, its highest-profile efforts in Western markets have focused on creative communities. The company bought short movie-making app Flipagram last year and rebranded it as Vigo Video, then followed up by acquiring to merge with its similar service Douyin. Bytedance reportedly even tried to buy Reddit in 2016, but it was rebuffed.

With TikTok, rebranded from the joining of and Douyin, Bytedance has a global hit. The company says it racked up more downloads in the US than Facebook, Instagram, Snapchat, and YouTube in both September and October, and TikTok now has over half a billion people worldwide using it monthly. The app has been downloaded nearly 80 million times in the US, with even the likes of Jimmy Fallon giving it high-profile endorsements.


In defense of TikTok, the joyful, slightly cringe-inducing spiritual successor to Vine

A Bytedance representative tells The Verge that TikTok makes use of the company’s AI technologies in various ways, from facial recognition for the filters through to the recommendation engine in the For You feed. “Artificial intelligence powers all of Bytedance’s content platforms,” the spokesperson says. “We build intelligent machines that are capable of understanding and analyzing text, images and videos using natural language processing and computer vision technology. This enables us to serve users with the content that they find most interesting, and empower creators to share moments that matter in everyday life to a global audience.”

Of course, TikTok’s devoted and rapidly growing audience wouldn’t say that the appeal of the app has anything to do with AI. But the app’s success does follow a familiar pattern for Bytedance, which has demonstrated a startling ability to launch, grow, and sustain services that have users hooked.

Bytedance’s rise in China has not been without conflict or controversy, however. The company’s most notable achievement is in gaining its level of success without being propped up by any of the country’s internet mega-giants like Tencent, Alibaba, or Baidu. Alibaba was turned down this year after expressing interest in an investment or acquisition, according to Reuters, while Tencent is said to have divested itself of a small stake in Bytedance some time ago.

Bytedance’s rise has not been without conflict

Bytedance is, in fact, locked in a fierce rivalry with Tencent, in particular. Zhang and Tencent founder Pony Ma have jabbed at each other in public, and the companies have filed multiple lawsuits against one another. In the most recent clash this summer, Bytedance accused Tencent of blocking TikTok videos from its platforms, including dominant messaging app WeChat; Tencent retorted by suing Bytedance for libel and anti-competitive practices.

Tencent is the most valuable company of any sort in Asia, but Bytedance has beaten it to the punch with TikTok, allowing it to claim a degree of greater influence on the wider social networks of the world. While it could be argued that Tencent’s ownership of League of Legends developer Riot Games and a 40 percent stake in Fortnite studio Epic does give it a relationship with hundreds of millions of gamers worldwide, TikTok nevertheless represents a breakthrough moment for Chinese internet services.

And that’s put Tencent on the defensive. Just last week, the company rolled out a new meme-focused short video app called Hapi that bears more than a slight resemblance to Bytedance’s Pipixia, which is a derivative of Bytedance’s own Neihan Duanzi, which Chinese authorities shut down earlier this year for hosting so-called vulgar content that “triggered strong resentment from internet users.”

Should Bytedance really be considered the most valuable startup in the world?

The incident prompted Zhang to publicly apologize for “publishing a product that collided with core socialist values,” and it highlights the potential pitfalls of operating online platforms in China. Tencent has had its clashes with the government, too, most recently being hit by restrictions on video game releases and play time. But if Bytedance can make the most of what appears to be a greater agility in operating overseas, that could be a key advantage for the younger company. It’ll need to look out for similar competition abroad, of course. TikTok recently attained the traditional social network rite of passage of having Facebook brazenly rip it off. And Bytedance’s news services inevitably risk running into the same algorithmic pitfalls that have plagued Facebook for years; the company’s apps have been accused of spreading fake news in countries such as India and beyond.

Should it be considered the most valuable startup in the world? With funding from the likes of SoftBank and Sequoia Capital driving the valuation so high, Bytedance won’t have many options other than to eventually file an IPO if it ever wants to raise more cash and return money to investors. But with such a large number of engaged users and a steep upward trajectory, it also shouldn’t have too much trouble finding ways to turn a profit.

The valuation is eye-grabbing, to be sure, and it would be perfectly reasonable to suggest that, say, Uber will ultimately be the bigger deal in the future. At this point, though, it wouldn’t be so reasonable to ignore Bytedance altogether. It’s the first Chinese company to tap into the lucrative social media appetite of Westerners, and that could prove to be very valuable indeed.