Bytedance Thumbs Nose at History With Moves Into Search, Smartphones
As the U.S.-China trade war slowly spirals out of control, I’m turning my attention this week to the slower moving world of smartphones and online search. Of course I’m being slightly facetious here, since just about anything on the Chinese internet is always subject to rapid, sudden change, and the same is true for smartphones that are the main access point for many web surfers these days.
The sudden spike in trade war tensions over the past week makes everything else feel almost glacial by comparison, including the internet. But that’s a subject for another column another day.
For now let’s return our attention to smartphones and the internet, or more specifically the lucrative online search business for the latter. Those two elements have a common denominator over the last week in high-tech superstar Bytedance, the world’s most valuable unicorn, better known in China for its popular Toutiao and Douyin news and video apps, and globally for its TikTok video app.
Bytedance made headlines twice last week on reports that it was preparing to enter the online search business now dominated in China by Baidu, as well as the incredibly competitive smartphone business. I won’t go into the details here, as anyone who’s interested can click on links to our related stories. Instead, I’ll spend the rest of this column looking at what exactly Bytedance may be up against, and its chances for success in these highly competitive new areas.
As someone who has followed China tech for quite some time, both of these moves have an element of deja vu to me. It’s quite Chinese for high-tech companies that are successful in one area to dive into lucrative new areas like search and smartphones, even though such new areas are often quite competitive. Bytedance certainly falls into the “incredibly successful” category, having attained a market value of $75 billion during its most recent fundraising effort last fall.
But history has also shown that companies that take that kind of plunge have pretty much a 0% track record of success. That’s probably not too surprising for anyone familiar with these industries, for the simple reason that being good at one high-tech thing doesn’t necessarily translate to excelling at another. It does seem that Western giants like Facebook and Amazon tend to take such steps very carefully and often through big acquisitions. But the attitude in China more often tends to be: Why should I buy someone else when I can do it myself?
All that said, let’s start this stroll down China high-tech memory lane with search, where Bytedance is hoping to take on a stalwart that does seem somewhat vulnerable right now. That stalwart, of course, is Baidu, whose stock is now trading at six-year lows on sputtering revenues for its core online advertising business. Baidu has also faced a growing confidence crisis from internet users these past years after a series of scandals cast repeated doubt on the impartiality of its search results.
Ripe for a Byte?
In the search arena, Baidu has been challenged on several occasions over the last 15 years and always emerged the victor. The first of those came from U.S. giant Google, which was actually a stronger force in the market before Baidu’s remarkable rise after its 2005 New York IPO. Observers attributed this David versus Goliath victory to Baidu’s better understanding of the China market, and its algorithms better suited to the country’s character-writing system.
But a similar unlikely victory didn’t come for two later challenges to Baidu, one from Sogou, a website backed by online stalwart Sohu and internet behemoth Tencent; and another from Haosou, a site backed by security software specialist Qihoo 360. I was always a little dubious about Sogou, which to this day remains a solid No. 2 with nearly 20% of the market, well behind Baidu’s dominant 65%.
I did hold out more hope for Qihoo, mostly based on a previous search success by its founder Zhou Hongyi, and also due to its general reputation for developing cutting-edge, industry-leading products. But despite an early promising start, Qihoo’s Haosou ultimately failed to catch on and today has a paltry 3% of the market, according to data I found online from StatCounter Global Stats.
I consulted a few analysts on why the others repeatedly failed, and their views were pretty similar. Put simply, they said, the search sector is mature, and thus it’s hard for newcomers to distinguish themselves from incumbents. Put another way, it’s hard to teach an old dog new tricks. In this case the old dog is China’s hundreds of millions of internet users who like to complain about Baidu, but find it hard to change their habits.
Qihoo provides a nice segue into smartphones, as it also tried its hand at the product and failed miserably. But the biggest case of smartphone failure by a company that was very successful in another area came from the now-nearly-defunct LeEco, known at the time as LeTV. China high-tech historians will recall that LeEco bought a controlling stake in smartphone-maker Coolpad at the height of its meteoric rise, and planned to someday topple the likes of Apple and Samsung with its own smartphones.
Obviously that never happened, and LeEco later imploded due to an overly aggressive expansion that included the smartphone foray, among many other things.
One of my analyst contacts who is a smartphone veteran said we’ll have to wait and see what exactly Bytedance offers before putting odds on its chances for success. But he predicted we could see some models optimized for Bytedance’s various popular apps, most notably Toutiao, Douyin and TikTok, the last two of which recently collectively passed the milestone of 500 million users globally.
At the end of the day, I’m not particularly convinced that Bytedance can succeed in either search or smartphones. And if history is any indicator, this kind of bold move into a new business behind one’s core competency could even be a warning sign. In the past, such moves have often been more a sign of hubris than anything else, coming from overconfident companies that later lost their luster.
Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com
Aug 19 19:23
Aug 19 17:59
Aug 19 16:18
Aug 19 16:20
- 1Praise for JD and Huya, Less Excitement for Tencent Music and DouYu as ‘Team Tencent’ Reports
- 2Casino Giant Galaxy Entertainment’s H1 Profit Drops 7% as High-Rollers Stay Away
- 3TCL to Unveil Own Smart Screen This Week, Sources Say
- 4CX Daily: Hong Kong Cuts GDP Growth Forecast, Announces Stimulus Amid Unrest
- 5Does China Care About Climate Change?
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas