Content is king once again for China's tech giants

16 May 2019

A new wave of internet content providers has taken centre stage in China and their innovations are already being replicated elsewhere in the world, especially among the tech giants of Silicon Valley.

This reflects a shift in China's internet economy. Growth is no longer being driven by the companies that created China's digital ecosystem but by those doing the best job of exploiting it.

Growth of second tier companies

China's internet and audio industry grew by around 40 per cent in 2018, according to a report by China Netcasting Services Association. Macquarie's Wendy Huang argues this was the result of 'second-tier' companies pushing through with new apps and platforms.

“To date, much of the focus on China's tech sector has been on the BAT companies: Baidu, Alibaba and Tencent, as well as Huawei, and these companies continue to be very active at the moment," Huang explains.

“However, they are taking a long-term view when it comes to revenue growth by investing in digital infrastructure services such as cloud computing and 5G."

“Most of the action right now is in the next tier down, the so-called 'TMD' companies, which consist of Toutiao, Meituan and Didi Chuxing."

Toutiao's full name, Jinri Toutiao, translates as “Today's headlines" and is the main product of Beijing-based ByteDance. The platform uses artificial intelligence to aggregate news and entertainment from 4,000 sources delivering a personal experience to users that is continually refined based on what they engage with.

By 2016, Toutiao claimed to have 80 million daily users who spent an average of 76 minutes on the app each day. By 2017 this had grown to 120 million. By the end of 2018, the app was reportedly installed on 240 million devices.

ByteDance also owns other platforms including, TokTok, which swallowed worldwide phenomenon Music.ly and lets users upload short self-created music videos, as well as Xigua Video and News Republic.

A hunger for content

In a country where the average adult spends an average of 6 hours and 23 minutes on media every day, it is perhaps no surprise that the Chinese are hungry for content. However, Huang says the models for delivering that media have developed differently from the West.

“For instance, in the United States, there is a long history of commercial music which means most of the content being provided even on platforms such as Spotify is being produced by big record labels," she notes. “On China's equivalent, Tencent Music, that figure is closer to only 30 per cent."

“There are also major cultural differences which you need to account for, such as the love Chinese people have for karaoke. This means much more of the music being downloaded is long-tail music produced by independent artists or social influencers."

There are also clear regulatory differences. In China, the hand of government is still very visible in the marketplace.

For instance, in April 2018, Chinese were temporarily banned from downloading Toutiao, along with three other popular news apps, while they “cleaned up" their content.

Toutiao was also ordered to close down an affiliated jokes app, Neihan Duanzi.

Leading global influence

Huang believes there is much global tech companies can take from China's experience. That means, whereas once much of the imitation involved Chinese businesses replicating US ones (some believe WeChat started out looking very similar to ICQ) now, a lot of ideas are flowing the other way.

“Where China is really ahead is on the confluence of content and social media," Huang explains.

“The role of the social media influencer is much more established in China's market and it has become a vital marketing channel."

Huang notes that Facebook has already been watching the Chinese experience closely, incorporating many of WeChat's features into a recent upgrade while also taking on TikTok with its own teen-focused video app, Lasso.

For this reason, as the lines between social media, content and user creation become more blurred, Huang believes it is China that will increasingly lead the way on innovation.

Find out more about Macquarie’s research capabilities

This information is a general description of the Macquarie Group only. Before acting on any information, you should consider the appropriateness of it having regard to your particular objectives, financial situation and needs and seek advice. No information set out above constitutes advice, an advertisement, an invitation, a confirmation, an offer or a solicitation, to buy or sell any security or other financial, credit or lending product or to engage in any investment activity, or an offer of any banking or financial service. Some products and/or services mentioned on this website may not be suitable for you and may not be available in all jurisdictions. All securities and financial products or instrument transactions involve risks. Past performance of any product described on this site is not a reliable indication of future performance.