ByteDance attacks, Tencent defends, and the "new king" of China's Internet shoul

tech

In the internet era, the big fish does not necessarily eat the small fish, but the fast fish will eat the slow fish.

Whenever the turnover between internet giants is discussed, the "fast fish eat slow fish" theory by Cisco CEO Chambers is always mentioned repeatedly.

How should we understand this statement?

Unlike the industrial age, in the internet age, what matters is not only scale but also growth rate. Scale determines the present, while growth rate determines the future, and both together support the company's valuation.

Looking at China's internet giants, from the latest second-quarter financial report, Alibaba's revenue was 243.236 billion yuan, a year-on-year increase of 4%; Tencent's revenue was 161.117 billion yuan, a year-on-year increase of 8%. Objectively speaking, such a scale of revenue and growth rate is indeed a good performance in the current situation.

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However, according to Bloomberg, also an internet giant, as early as the second quarter of 2023, ByteDance's revenue had reached 29 billion US dollars, equivalent to 207.8 billion yuan, and maintained a year-on-year growth rate of 40%.

That is to say, whether from the perspective of scale or from the perspective of growth rate, Byte has long surpassed Tencent. As the "new king" and "old king" of internet companies, how big is the gap between them now? Why can Byte still maintain rapid growth at the same level of hundreds of billions of scale? Represented by Tencent and Byte, what will the future development pattern of China's internet be?

The distance between Tencent and Byte is the distance between "China's first" and "the world's first".

On August 14, Tencent announced the financial report for the second quarter of 2024. In the second quarter, Tencent's revenue was 161.117 billion yuan, a year-on-year increase of 8%, and the operating profit was 58.443 billion yuan, a year-on-year increase of 27%. While the revenue grew steadily, the profit growth rate was impressive.Looking at the first half of 2024, Tencent's net profit has reached 91.017 billion yuan, with a year-on-year increase of over 70%. At least, in terms of profitability alone, Tencent remains the strongest among Chinese internet companies.

However, when it comes to revenue growth, Tencent's revenue growth rate has been gradually declining. It has dropped from around 50% during 2016-2017 to less than 10% now.

The reason lies in the two main pillars: gaming and social networking.

In terms of gaming, before 2018, "Honor of Kings" was the main driver of Tencent's revenue growth. In 2019, Tencent created another hit game, "Peacekeeper Elite." However, with the launch of miHoYo's "Genshin Impact" in 2020, Tencent failed to produce a comparable second-element game.

Subsequently, the contraction of domestic game licenses led to a slump in the gaming market. In 2022, Tencent's gaming revenue in the domestic market experienced a decline. It was not until Q1 of 2023 that Tencent's gaming revenue in the domestic market recovered from the decline, achieving a year-on-year increase of 6%.

Now, eight years have passed since the release of "Honor of Kings," and more than four years have passed since the release of "Peacekeeper Elite," yet Tencent has still not been able to create another hit game of the same caliber.

At the same time, in the field of social networking, Tencent is facing a growth bottleneck.

According to the "2024 China Internet Mid-Year Report" released by QuestMobile, as of June 2024, the scale of active users across the entire network reached 1.235 billion, while WeChat's platform monthly active coverage scale has reached 1.053 billion, making it difficult to find additional users. The advertising revenue and mobile payment revenue related to the WeChat ecosystem have been affected by the user ceiling.

Therefore, in search of a market for growth, Tencent has also tried to explore the overseas market.

Previously, Tencent focused on developing the overseas version of WeChat, but in competition with products like WhatsApp and Facebook, WeChat did not gain an advantage. As of now, WhatsApp's monthly active user count is around 2 billion, far exceeding the overseas version of WeChat.In comparison, TikTok has grown at a much faster pace. According to Data.ai, as of October 1, 2023, TikTok has the highest number of downloads globally, surpassing Meta (Facebook). Moreover, analysis from research institutions estimates that by 2027, the number of TikTok users may exceed 2.25 billion.

Like Douyin, TikTok relies on monetization through rewards, advertising, and e-commerce. Currently, TikTok is still in the early stages of commercialization in terms of advertising. Public research data shows that 49% of mainstream brands have not yet advertised on TikTok. Once these brands start advertising on TikTok, it implies that TikTok's revenue will see further growth.

Therefore, ByteDance's competitors are no longer Tencent, but Meta. According to overseas media The Information, ByteDance's revenue for the whole year of 2023 was $120 billion. Meanwhile, Meta's revenue was $134.9 billion. Barring any unexpected events, ByteDance is expected to fully surpass Meta in 2024.

From this perspective, ByteDance has moved into a larger battlefield, with its goal no longer being the top of the Chinese internet, but rather competing with global internet giants like Meta.

Pursuing efficiency internally and integrating across industries externally, how does ByteDance maintain high-speed growth?

To achieve such rapid growth, it is inseparable from ByteDance's development strategy of "boldly hypothesizing and carefully verifying."

Previously, ByteDance had six business segments: Douyin, DaLi Education, Lark, Volcano Engine, ChaoXi GuangNian, and TikTok.

Among them, ChaoXi GuangNian and Lark, as ByteDance's layout in the gaming and SaaS sectors, have both been heavily invested in by ByteDance.

However, on one hand, due to revenue growth not meeting expectations, and on the other hand, due to the withdrawal of game stocks following the introduction of the "Online Game Management Regulations" at the end of 2023, ByteDance sensed a crisis in the gaming track. Ultimately, ByteDance chose to withdraw and cut its losses in a timely manner, selling its gaming business to Tencent.

At the same time, due to the overall cooling of the SaaS (enterprise software services) market in 2023, ByteDance streamlined the Lark team. On March 26, 2024, Lark CEO Xie Xin issued a letter to all employees, stating that the company's organization had become "bloated" and inefficient. An adjustment was announced to streamline the team size.It can be seen that when it comes to internal inefficiencies, ByteDance is not at all merciful in "wielding the knife" against itself.

However, just as the Rothschild family in "Currency Wars" laid out their strategies across various European markets, ByteDance's investments, though not always invincible, always have an arrow that flies in the expected direction.

TikTok is one of them.

According to a report from mobile data research firm data.ai, TikTok's global market user spending in 2023 exceeded $3.8 billion, with cumulative annual user spending surpassing $10 billion, making it the only non-gaming app to achieve this feat. This clearly demonstrates TikTok's strong money-making capability in overseas markets.

At the same time, in the domestic market, e-commerce has become the next growth point for Douyin after advertising and live streaming. According to reports from Electric Power Station, in 2021, Douyin e-commerce's GMV was 880 billion yuan, with an overall user penetration rate of 26%. By 2022, Douyin e-commerce's GMV reached 1.38 trillion yuan, with an overall user penetration rate of 45%. Furthermore, according to reports from LatePost, in just the first ten months of 2023, Douyin e-commerce's GMV reached 2 trillion yuan, with a year-on-year growth rate approaching 60%.

In addition, Douyin has also ventured into various business segments such as local life, healthcare, social networking, and search, challenging companies like Meituan, Tencent, and Baidu.

In summary, Douyin is responsible for domestic information and service operations, while TikTok is in charge of overseas platform operations, also supporting the development of extended businesses such as overseas e-commerce. One is domestic and the other is international, and they can be seen as the two wings of ByteDance's traffic ecosystem. A strong algorithmic distribution model, extremely high traffic conversion efficiency, and on this basis, the exploration and attempts at "cross-industry collaboration" have supported rapid growth through operation and iteration.

 

As the contention between the "old and new kings" fades, where is the future of China's internet?

However, even ByteDance, with its rapid growth, also felt the crisis in 2024."Strengthen the sense of crisis, always be entrepreneurial, and escape the gravity of mediocrity."

This was the speech by ByteDance CEO Leung Rubo at the 2024 annual meeting, where entrepreneurship was listed as the top priority, and the previously proud OKR system was adjusted.

Meanwhile, on January 29th, at Tencent's annual meeting, Ma Huateng emphasized the need to "make old trees sprout new buds," finding new growth points from existing evergreen businesses.

It is not difficult to see that as the "old king" and "new king" of China's Internet, although they have had disputes and confrontations in the past, the smoke is now dissipating at a visible speed. The positions of the two sides in attack and defense are gradually shifting, and the number one opponent is no longer each other. Finding their own new opportunities in the cycle has become a common topic for both sides in the next stage.

For ByteDance, on February 7th, Zhang Nan announced his resignation as CEO of Douyin Group, focusing on "Jianying" and exploring AI-assisted creation. At the same time, according to Bai Jing Chu Hai's compilation, ByteDance has launched 11 independent products for C-end users, involving 5 categories such as platform, chat, education, interactive drama, and photo editing, aiming to create the next "killer application" at the level of Douyin in the AI era.

For Tencent, around the "old tree" of WeChat, video numbers, financial management + credit, mini-games + search have sprouted "new buds." Further exploring the consumption capacity of existing users, implementing the concept of "high-profit platform-type products," and protecting the existing platform ecosystem are what Tencent needs to do next.

From this perspective, Tencent and ByteDance may become two models of Chinese Internet companies: one type focuses more on steady and solid progress, emphasizing the ecosystem and long-termism, focusing on the integration of new technologies and old businesses, and seeking progress in stability. The other type cares more about speed and passion, hoping to seek incremental growth on a global platform through innovation and an international perspective.

Although the growth rate of the former has slowed down, it is mature and stable, and the happiness it gains is stable. The latter, although it can maintain faster growth in a short period, also needs to face risks and sanctions from the global market.

Between the two, there is no distinction of high or low, nor right or wrong. The future of China's Internet needs companies like ByteDance that dare to attack companies like Meta in the United States, as well as companies like Tencent that focus on product development to defend. Only by being both "offensive and defensive" can we stand invincible in the global competition.