11/4 Tech Buzz China Insider Digest
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Insider Digest 11/4/21: ByteDance Model Tomorrow! ByteDance & Kuaishou Restructurings, Chinese VC Trends
Housekeeping / Announcements:
11/11 is in full swing and we’re almost at the end of the year! We have more Insider Events every week for the next few weeks! Please sign up via the Calendly links below (where confirmed) so that you get the reminder email and calendar invite:
[TODAY/TOMORROW!!] Fri. 11/4, 8AM PST / 11AM EST / 11PM Asia Time: Michael & Rui, sharing our ByteDance Financial Model, talk about how the business is doing, as far as we can tell, the company and what we learned, followed by our weekly chat
[Insider Sharing] 11/12, 11AM PST / 2PM EST: Zak Dychtwald, TBC Insider & Founder of Young China Group & author on Understanding Chinese Gen Z, and we’ll probably go over 11/11 too!
[External Expert] Thurs. 11/18 5PM PST / 8PM EST / Next day 8AM Asia time: Greg Pilarowski on Chinese gaming industry & regulations
If you are interested in sharing what you’re working on with the community, provided that it’s about China tech / investing, please do reach out!
Here are our articles for the week!
11/1/21 ByteDance Restructures, Sorta
Before we start, just a reminder that Michael Hsieh and myself (but really, it's mostly Michael who's worked on it, I'm mostly deadweight) will be presenting our financial model for ByteDance this Friday (8am PST, 11am EST, all that good stuff) at our Discord voicechat. We'll post the model after the chat, and would love your feedback!
On 11/1, ByteDance announced a reorg, slimming down the organization into 6 units (versus the 20 or so people who were reporting directly to Zhang Yiming when he was CEO), which are as follows:
Douyin: which will absorb Toutiao, Xigua, etc.
Dali Education: will focus on adult, vocational education, smart devices, and working with schools
Ohayoo: which will be all things gaming related
Lark: which will absorb everything enterprise efficiency (EE) related
Volcano Engine: which will be all attempts to turn ByteDance's technology into B2B software, such as the many SaaS offerings it already has
TikTok: which will include the app as well as all e-commerce initiatives
Shou, who was hired as both ByteDance CFO and TikTok CEO, will only keep the second position, further cementing the break between ByteDance and TikTok. Yes, if you didn't already know, I've been told that all (or at least most) TikTok employees have moved out of China, primarily to Singapore, and the code base has been completely separated from Douyin.
11/1/21 Kuaishou Reorg, On The Other Hand ...
Unlike ByteDance's anticlimactic streamlining, Kuaishou's reorg seems and is much more material. Some of you might remember that the company had just reorg'ed literally one month ago at the end of September to focus more on new growth areas e-commerce, gaming and internationalization. Previously, the product development and monetization teams received most of the attention. That apparently wasn't enough. The main problem seemed to be one of poor organizational design. You'll remember from our Tech Buzz China episode 55 on the company that just-resigned CEO Su Hua was actually recruited by the "main" founder Cheng Yixiao a few years into Kuaishou's existence, after their GIF maker product failed to take off. Su's co-founder and CEO title came at the expense of Cheng, who was said to have given up 80% of his shares in order to convince Su to join. Perhaps I'm reading too much into it, but I think what Cheng gave up in shares he retained in power as Chief Product Officer, with real control over the company's products and monetization. Su's CEO authority, on the other hand, was in reality relegated to just company management -- company strategy, fundraising, investment, etc. Ex-employees have even said that if Cheng did not provide resources, Su's plans were completely toothless, even if he was ostensibly the one in charge. Having two power cores added inefficiencies.
[John Dawson] GroupM China Double 11 Report (1/2)
This post is from John, an Insider who is a partner at WPP in Shanghai and shared GroupM’s learnings on 11/11 … so far. We’ll have the full results very soon!
Lots of interesting insights into the operation of Double 11 for brands this festival season. Some of the highlights for me:
Tmall-averse?
There are several limited edition digital collectibles available with purchase of some physical goods. They appear in your Alipay wallet, you can't sell until 180 days - Ali don't want to encourage speculation...
Share-able baskets
I really like this idea. Making shopping baskets public. I heard it hasn't been as successful as Ali hoped for at the start, due to some issues sharing across platforms but still... this is interesting. Also, you can see the KOL/Celebrity baskets (and pay for your brand's product to appear in there ...)
11/1/21 The Definitive Charts for Interpreting Chinese Venture Capital Trends
I'm preparing for a CSIS (Center for Strategic & International Studies, a think tank) debate on whether or not the regulations have snuffed out innovation, and of course you guys all know what I think. Nonsense. Seems like The Information and WSJ have both gotten the memo and written about it recently, but I think I have better charts than they do on what's happened.
First, if we look at all of VC/PE investment into Tech, actually 2020 was already an all time high. We're talking about almost 1.7Trn RMB so over $260Bn USD.
But "total VC/PE" can be more easily skewed by a few mega deals, and plus, it's a lagging indicator of actual entrepreneurship / innovation activity, so the much better method is to only look at seed through Series B, which is the traditional definition of early stage. Sorry the color scheme is different here because the sorting by 2014 dollars deployed is different. And here is where we do see a large dip in activity in 2019 & 20, which has been more than made up in 2021. (What cooldown? I told you there wasn't any!) If we just do a simple pro-rate, then we're looking at almost $75Bn deployed into early stage alone in 2021.
The % chart also shows very clearly that the mix has changed wildly since 2014. Here are the top 5 categories: 1. Healthcare - 26% of total, up 9.3x in absolute dollars 2. Advanced manufacturing - 17%, +18x 3. Enterprise software - 12%, +5x 4. Motor vehicles (a lot of EV!) - 11%, +6x 5. Local services (delivery, etc.) - 8%, +6x Just healthcare and advanced manufacturing account for more than 40% of $ invested and the top 5 altogether account for 75%. The greatest losers are, in order: software tools, social network, travel, gaming and fintech.
James also replied with a different (more intense!) set of graphs based on the same data from a new substack called China Charts. You might want to take a look as well!
Have any comments or questions? See you on the Discord server!
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