Tencent goes to war with Toutiao

We have written quite a bit about Toutiao, a rising star in Chinese tech which has thus far escaped from the Shadows of Alibaba & Tencent.

In fact, Toutiao is the only company among TMD (Toutiao, Meituan, Didi – second tier internet giants in China, after BAT) that grew independently. Both Meituan and Didi took investment from Tencent & Alibaba.

Just like any emerging ecommerce company (the latest being Pinduoduo) will get a whack from Alibaba, Toutiao would, sooner or later, face Tencent.

It had not, until recently. Tencent started banning the sharing of Tik Tok through WeChat, the most popular Social Media platform in China with almost 900 million active users.

Zhang Yiming, Founder of Toutiao (now called ByteDance, as the company’s offerings have expanded beyond the original namesake news aggregator), complained about this on his WeChat.

Seeing the post, Pony Ma, Founder of Tencent, commented saying “this amounts to blasphemy”.

The dispute escalated with both taking legal actions against each other. Many industry observers call the episode the most vigorous conflict that Tencent has ever had with any company, besides the one with Qihoo 360 in 2011.

That year, owing to several Tencent softwares were accidentally or intentionally blocked by Qihoo 360 Security Checking System, Tencent fought back by announcing laptops which has Qihoo 360 software will not be able to access Tencent QQ. After a while, the case was closed by Beijing court with a compensation of 400K RMB from Qihoo and other related companies.

Tencent won.

Well, maybe the current skirmish has not reached the same level yet.

How do this all happen?

Tencent was bound to stop Toutiao’s ascent because Tencent’s main bread and butter is gaming + content – precisely the area Toutiao is strong in.  

The conflict can be traced back to September in 2016 when Toutiao launched Tik Tok, a creative music social app which went wild after celebrity promotion and endorsement. Acknowledging the trend of gradually shorter attention-span plus the crave for freshness and social interactions, Tik Tok successfully established its brand name while DAU/MAU kept on increasing exponentially.

That’s when Tencent made up its mind to commit in developing short video app, which they focused their investment in Kuai Shou (快手app) initially. In the first half year of 2017, things went smoothly for Tencent and Kuai Shou, as they swim carefreely in the boundless blue ocean.

Yet in the second half year of 2017, the emergence and drastic rise of Tik Tok got Tencent on its nerves, and to stop its competitor from engulfing the market, Tencent took actions to block all linkage of short videos to its system, which in turn cut down the entrance, relationship chain and user sharing resources for both Tik Tok and Kuai Shou.

The situation brewed into what we saw at the beginning of this article.

What will this lead to?

Tencent announced that it is claiming 1 RMB compensation from Bytedance and another company, Beijing WeiBo Vision for the compensation of “inducing, encouraging and indulging actions” that slandered Tencent. Additionally, Tencent demands an outspread of apology letter on their respective social media platforms and has simultaneously proclaimed a cancellation of collaborations with both companies.

Besides investing in Kuai Shou to strategically maintain its position in the niche market, Tencent is simultaneously investing and perfecting its own short video app, Weishi, and has been launching new functionalities along with pulling outstanding team members onboard to enlarge the connections with youth nowadays.

Until now, the niche market in short video app becomes a battlefield for Tencent and ByteDance’s confrontation, with the former one owning/incubating Kuai Shou, Weishi and Xia Fan (下飯視頻) and the latter one possessing/hatching Tik Tok, Volcano(火山視頻 ) and Watermelon (西瓜視頻).

What can we learn from this?

The ongoing progress and an overlap in customer segments induces a high possibility to provoke larger conflicts of interest, therefore acting fast to satisfy customer needs in creativity, freshness and social interactions is definitely necessary for survival and penetration.

Furthermore, both Tencent and ByteDance should embrace themselves for more to squeeze in this side of market. Since the promising trend of developing short video app has been revealed, many enterprises are probably eager to join for a share of the big pie.

 

And to ensure a grip on the niche market, incumbent companies should have done everything necessary to limit and inhibit competitors from growing or hatching.

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Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed on our blog, please drop us an email at [email protected] and let us know how we can help.