The Biggest Artificial Intelligence Startup in the World
The term unicorn was coined to reference a startup that exceeds a valuation of $1 billion. When we talk about valuation, we’re referring to the value that the firm’s last investment round was raised at. Typically, the value of a firm goes up with each new investment round. If the value goes down, it’s called a “down round.” At any given time we can list the biggest startups in the world by valuation, and the gold standard for this ranking is CB Insights with their unicorn list that presently contains more than 300 unicorns from around the globe. One interesting thing about this list is which startup presently holds the top position as the biggest artificial intelligence startup in the world. It’s a Chinese artificial intelligence startup called Toutiao by some and ByteDance by others.
We last came across this startup in our article on “10 AI Startups Coming for White-Collar Jobs,” and since then they managed to secure $3 billion in funding from Softbank at a valuation of $75 billion making them the biggest artificial intelligence startup in the world today.
Founded in 2012, Chinese startup Toutiao – or ByteDance, as we will refer to henceforth – has disclosed a single funding round of $3 billion, of which $1.8 billion came from Softbank, an article by Bloomberg speculated. On the tin, the company says they’re “building the future of content discovery and creation” and building content platforms that “enable people to enjoy content powered by AI technology.” In 2016, they established the “Bytedance AI Lab” which is a collection of engineering teams that are dedicated to developing applications of machine learning to empower their platforms. A great blog post by Y Combinator talks about how the firm has managed to grow incredibly quickly by engaging their global user base of more than 1 billion active monthly users across eight mobile apps.
The average user spends 74 minutes on the platform every day with half that time spent watching videos with the platform serving up 10 billion video views each day. The company is working across the entire life-cycle of content which they describe as “creation, curation, recommendation, and interaction” says the Y Combinator article, which goes on to say there is a single question the artificial intelligence algorithms are looking to answer. “What are the one hundred articles the platform can recommend to each user that are most likely to result in continued engagement?” The two variables to optimize are “likelihood of user clicking a headline” and “whether or not the user reads the article to completion”. When it comes to making money on their platform, their competitive advantage also lies in a superior understanding of their user base.
How ByteDance Makes Money
When someone spends 74 minutes of every day with you, you’ll learn about their habits and nuances rather quickly. Once Toutiao gets to know you, it will then be able to tell which ads to serve up that you’ll be most likely to click on. If you’re not familiar with how the online ad business works, here it is in a nutshell.
- Media sites like this one have an “available inventory” of ads slots which are a function of how many pages get served up
- These ad slots then get filled with ads that readers are most likely to click
- The buyers of these ad slots pay a broker to find them and fill them. Every time a reader clicks an ad, the broker takes a hefty cut then pays the publisher the rest.
- The likelihood of a reader clicking an ad is called the “Click Through Rate” (CTR) and industry averages are around 2%
- In other words, only 2% of all ads being shown to people are clicked. Improving this number benefits both advertisers and publishers.
It especially benefits the advertiser who always foots the bill. If the likelihood of someone clicking the ad goes up, then that means they’re getting more bang for their advertising buck. In the case of ByteDance, they know their users so well that “third party survey data estimates Toutiao’s CTRs to be 200% better than its peers.”
Once you have someone spending 74 minutes a day reading content, you can also learn a lot about which ads they click, which ads they pause to look at, and which ads they ignore completely. You can then start to weave advertising into articles indirectly, something that’s referred to as “content marketing.” This means creating engaging articles that users want to read and which help create brand awareness for the company’s products that are being written about. (We do content marketing here at Nanalyze so give us a shout if you want to try that out.) Speaking of creating content, that’s something ByteDance has been doing using artificial intelligence as well.
The idea of using AI algorithms to create content is something we’ve looked at before, and it’s pretty easy to see how reporting on things like sports events could easily be automated. That’s the sort of thing ByteDance has been doing. Their content generation tool named Xiaomingbot was generating news pieces back during the 2016 Olympics and by the following year, had generated more than 8,000 news pieces according to the previously mentioned Y Combinator article. In addition to creating and serving up content, the company also has a fair number of other products on offer.
The name “Jinri Toutiao” means “today’s news” in Chinese, and it’s the name of the news aggregation app the company has developed. In addition to that, they have also developed a number of other products that are available in over 40 countries. Some of these are as follows.
- Xigua Video – the biggest short-form video platform in China for professional and individual video creators
- TikTok – an app for creating and sharing short videos which has been downloaded 800 million times by users outside of China
- musical.ly – video social network for creating, sharing, and discovering short videos. Acquired by ByteDance last year for $800 million and rolled into TikTok.
- Vigo Video – short video app for people to share their stories and showcase their talent
- News Republic – global news discovery platform that is available in over 40 countries and offers content from 3,000 media partners
- TopBuzz – an app for getting trending articles, videos, funny GIFs, and headline news all in one place
- BuzzVideo – short video platform for trending videos and GIFs with an international community of creators
All that funding the company raised is expected to be used for further international expansion and there’s even been some talk the company will put together some sort of venture capital fund to invest in promising startups. The below slide from GGV Capital shows how ByteDance has been expanding into the short video market outside China.
In addition to content, the company is also exploring a large number of avenues for revenue growth and new technologies. They’re working on an offering that will rival Slack, a popular tool for team collaboration. In February of last year, they paid $300 million for a company called Faceu which uses augmented reality to create the perfect selfie for the 250 million people who use the app. A month later, they acquired a startup called Vscene which “provides virtual reality technologies that can be applied in live-streaming scenarios with the promise of an immersive experience.” And just a few weeks ago, ByteDance moved into gaming with the purchase of a Shanghai-based game developer called Mokun Technology. KrASIA had the following to say about ByteDance’s most recent acquisition:
ByteDance’s acquisition of Mokun reflects the company’s goal of adding new channels of revenue besides advertising. The company has set its revenue target for this year at an ambitious RMB 100 billion (US$14.8 billion), according to online news site Jiemian, which cited several unnamed corporate sources.
That same article talks about how last year the Chinese government froze the issuance of new video game licenses – for nine months – which shows how important it is for Chinese firms to have geographically diversified revenues streams. ByteDance knows full well how quickly the Chinese government can make life miserable since they had a tangle with the Chinese government in spring of last year for failing to “promote the core values of socialism.” Since the ByteDance platform is not limited by language or culture, their continued international expansion can help offset this domestic political risk. According to the Hong Kong Economic Journal, ByteDance is also getting into hardware with devices that might complement their current online education offering gogokid which was launched in May of last year.
While many AI startups have focused on selling B2B solutions, ByteDance’s focus on consumer-facing AI applications has paid off. Because there is so much content out there for people to read, companies are willing to pay lots of money to get people’s undivided attention. There are over a billion people in China, many of whom are showing ByteDance more attention every day than any of the other big social networks (remember, they don’t have Facebook in China.) The ability to know what certain people are likely to read lets you target them with specific content and ads which help you learn more about them, which increases their engagement and creates a vicious cycle of constant improvement. We may get a chance to look under the hood soon, as many are speculating that this is the year ByteDance will look to IPO.
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