I recently visited a friend who runs engineering at ByteDance, the Chinese digital media company that operates a variety of content services, most notably the Toutiao news app. While still largely unknown in the US, Toutiao is a bonafide mobile juggernaut with over 200 million daily active users and more than $4 billion in annual revenue. Those lofty numbers helped ByteDance earn the distinction of world’s most valuable startup in October with a whopping $75 billion valuation.
As we talked, my friend asked an interesting question:
“Why isn’t there a Toutiao of the US?”
Before answering, it’s important to first understand what Toutiao is, and also what it isn’t.
Toutiao is a news portal, that presents users a variety of content (mostly news articles) inside a highly personalized feed. The company has built a sophisticated AI-powered recommendation engine that analyzes a hundred signals from a user’s demographic info to their location to all their app interactions (taps, swipes, dwells, etc.) and is continuously selecting relevant content to show. The more you use Toutiao, the more personalized the content gets.
Toutiao’s recommendation system architecture
But Toutiao is not a news aggregator like Google News or Apple News. It does not pull in content from third party publishers. Instead, all of Toutiao’s content is directly published to them, and 90% of it from individual bloggers. Over a million writers, bloggers, influencers, news outlets, and even government agencies create content for their Toutiao profile pages, and then Toutiao’s recommendation magic distributes that content to an interested audience. Content that’s unique and exclusive to Toutiao. Toutiao is not a relative of Google News or Apple News, but rather a cousin of Tumblr or Medium — a publishing platform with a feed that distributes its own, native content.
Example of a blogger’s profile page, and an article that was recommended in the feed
Now that we understand what Toutiao is and isn’t, let’s revisit the original question of why isn’t there a Toutiao of the US? Where is the media startup that combines a proprietary publishing network, along with an advanced tech-powered distribution platform, to create a multi billion dollar media business in this country?
When media is state-owned
“You can’t write what you want. You can’t interview who you want. And even if you do, you can’t publish it. Working in the Chinese media feels like you are wasting your life.”
Lin Tianhong, former China Youth Daily reporter
ByteDance has built truly remarkable recommendation technology, and their overall product execution has been spectacular. But even more important to their success has been the market opportunity they identified, which is that China’s state-owned media industry is lacking, because entertaining and engaging viewers is not its primary objective.
There are approximately 1,900 newspapers, 2,600 radio stations, and 9,000 magazines in China. And they are all controlled by the Chinese government. In fact, the government is required by law to own a majority stake in all traditional media outlets.
At the same time, the Chinese government employs more than 2 million censors to actively monitor and restrict both its domestic media outlets as well as access to foreign media sources. And these censors take their job seriously. Earlier this year they temporarily banned the letter “N” for fear it might be referenced in an Internet meme poking fun at the President. A single letter. Seriously. And that comes after censors banned Winnie the Pooh in 2017 and also shut down numerous celebrity news and entertainment outlets that year.
This harmless Internet meme comparing China President Xi Jinping with Winnie the Pooh got the bear banned from the country
Entertaining, engaging, and informing audiences is what most owners of media companies focus on. But the Chinese government instead prioritizes protecting socialist values, no matter how trivial the threat is (like a single letter or a cartoon bear).
The result of these conditions is a country unsatisfied with their media options and hungry for alternatives, which created the perfect market conditions for Toutiao to be so successful. It’s no surprise that Toutiao’s most prevalent content is soft news (entertainment, celebrity, lifestyle, pop culture), which matches the hole in the media industry that the Chinese government created.
And that’s why there hasn’t been a Toutiao of the US — a $75 billion dollar news empire that combines publishing with technology — because there isn’t a similar hole in US media. The private US media industry is solely in the business of informing and entertaining. And they are very good at what they do, employing the best creative talent to create compelling content. Content so compelling in fact that media is one of America’s top exports.
While there are new companies like Medium, Buzzfeed, and Vice who have built successful media businesses in the US, there is no one on the scale of Toutiao because our media industry doesn’t require a solution that large for a problem it doesn’t have. Instead of state owned media wondering what letter might be banned this week, we have the New York Times, Wall Street Journal, ABC, NBC, Time, People, and other world class media outlets informing and entertaining us every day. And as long as that’s the case, there just won’t exist the market conditions for a Toutiao like startup to upend the US media industry, no matter how good the technology might be.
But then again, the US media industry is already being upended by technology.
Media’s product utilization stages
“Social and digital media is a bullet train, and that bullet train is not coming home.”
Howard Schultz, founder of Starbucks
Consumption of digital media has been rapidly increasing over the past decade but an important milestone will be achieved this year: 2018 will mark the first time that daily consumption of digital media overtakes traditional media with 52% of overall time spent. Digital is no longer the side show for the media industry; it’s now the main act. And that’s because media is uniquely positioned to bear the full disruptive powers of the Internet.
To appreciate the changes happening to the media industry, let’s take a look at the 4 stages every product goes through on its customer journey, which I’ll call the product utilization stages:
Creation. The product is built.
Monetization. The product is sold to customers.
Distribution. The product is delivered to customers.
Consumption. The product is used by customers.
Consider the sweatpants I’m currently wearing. Before the Internet existed, they were created in a textile plant, I purchased them at a store and took possession of them there, and then put them on one leg at a time. In the Internet era, they were still created in a textile plant, I purchased them online and had them shipped to me in the mail, and I still put them on one leg at a time. So 2 of the stages changed (monetization and distribution) and 2 of the stages remained the same (creation and consumption).
Next, let’s look at the product utilization stages for media products when they were offline before the Internet, and then when media went online with the Internet.
Offline (ex. New York Times article): Media was previously created by a small number of professionals in studios, news desks, sound stages.
Online (ex. Medium article): Media can now be created by end users in distributed environments because of how easy it is to share online.
Offline (ex. buying a CD): Media used to be sold in fixed, inflexible bundles that could not be customized or changed.
Online (ex. buying a single iTunes track): Media can now be purchased on a variable basis, with users buying custom content bundles.
Offline (ex. broadcast television): Media was broadcast linearly, with the user having no control over the broadcast time or playback experience.
Online (ex. Hulu): Media is now available on-demand, with the user in control of when they want to watch, read, and listen.
Offline (ex. TV in your living room, radio in your car): Media used to be consumed on devices fixed to a specific environment.
Online (ex. Samsung phone on the subway): Media can now be enjoyed on portable devices while on the go.
Dealing with disruption in any one stage is challenging for an industry, but media has experienced creation, monetization, distribution, and consumption all transformed at the same time by the Internet. That’s created dramatic chaos as well as huge opportunity along the way (hence the companies referenced above).
Now what additional changes lie ahead?
Digitally native media
“Art challenges technology, and technology inspires art.”
John Lasseter, Chief Creative Officer of Pixar
Media can no longer simply accept technology; it must truly embrace technology. That’s because technology has changed user behavior around media. Online distribution is a requirement, not an option, as is on-demand and mobile access. Short form is expected, and measured in seconds not minutes, and characters not words. Media that doesn’t accept these new realities (enabled by technology) look out of touch with consumers. Conversely, media that treats technology as a fundamental, native building block has an advantage with audiences.
Returning to the product utilization stages for media, let’s see how they can continue to change as media embraces technology, and becomes digitally native.
Creation that’s digitally native
Technology previously assisted human content creators. But next, technology will actually become the content creator. Earlier this month, China’s Xinhua News agency recently announced the world’s first news anchor created entirely by computers through artificial intelligence. There’s even a term, deep fake, to describe the act of fabricating media not just with manual, human forgery, but with computers doing the work automatically. These types of systems may be just experiments now, but they won’t be in the near future.
A research system from
that can make anyone dance like a professional
Monetization that’s digitally native
The biggest continuing impact from technology on monetization is that charging for media is no longer one-size-fits-all. Digital media can be easily moved between being free, to ad supported, to metered, to subscription, etc. all using widely available third party platforms like Facebook Audience Network, Zuora, etc. Leveraging technology, media publishers will be able to implement even more monetization optionswith a particularly exciting one being ecommerce. For example, Alibaba launched a short form video app called Lu Ke this year that makes money promoting product listings, and also announced a partnership to help ByteDance monetize their popular TikTok app through ecommerce.
Distribution that’s digitally native
The Internet has made distribution accessible to anyone, including content creators, who can now ship media directly to their audience (like Disney+, HBO Now, and DC Subscriptions). And instead of just repurposing the same media across different distribution channels, media is being custom created to be native for that channel. For example, ESPN has a different version of its popular First Take debate show specifically for Facebook, where it focuses on fan interactivity unique to the Facebook platform. More content will be custom created for its distribution channel, instead of just repurposed.
Consumption that’s digitally native
With the dominant viewing device for digital media being mobile phones, media consumption is no longer the passive, lean back experience of the past. Content is now being consumed in interactive ways from the chat based fiction stories that you tap through at Hooked (and all its copycats), to the live game show that you play along with at HQ Trivia (and all its copycats). Media won’t just be read, watched, and listened to going forward. Technology will allow you to talk to your media, tap on your media, engage with your media, and make media consumption a participatory experience.
The Toutiao of the US
For the month of October, the #1 most downloaded app in the US was not Facebook, or Instagram, or YouTube, or Snapchat. Instead it was TikTok, a short form video platform where users share videos of themselves set to music, often lip syncing. And the owner of TikTok? None other than ByteDance.
Perhaps the answer to the original question then is that Toutiao will eventually be the Toutiao of the US.