Different from the incumbent online content aggregators who produce a large portion of their content in-house and depend on traditional display advertising for revenue generation, a new wave of content aggregation apps in China use an open publishing system, an algorithm-powered recommendation engine, and a programmatic advertising system.
This trend is led by four-year-old startup Toutiao (今日头条) that it has surpassed most of the incumbents, including Sina, Sohu and NetEase, in terms of active users and potentially in ad revenue.
Toutiao’s one-year-younger competitor, Yidian Zixun (一点资讯), though not nearly as successful, has attracted investment from two leading smart device makers, Xiaomi and OPPO, who have pre-installed the app in their smartphones. Pheonix New Media, one of the biggest online media companies in China, is also an investor.
Their approach in product design and monetization has attracted a number of copycats. The big three Chinese Internet companies, Tencent, Alibaba, and Baidu have each developed a similar service. Tencent’s Tiantian Kuaibao (天天快报), by leveraging its parent company’s huge user base, has grown very fast since its launch in mid-2015.
Toutiao was able to generate advertising revenues immediately after monetization kicked off in 2014. It had reached its annual revenue target of RMB6 billion (roughly US$900M) as of October, according to local media outlet iheima (article in Chinese). Sina, still one of the leading online news aggregators in terms of ad revenue, reported a total of 602 million USD in ad revenue (from both desktop and mobile), in the first nine months this year. Toutiao’s annual revenue will very likely be much higher than most of the old content aggregators.
ByteDance, Toutiao’s parent company, was valued at 500 million USD in its latest round of financing in June 2014 and reportedly valued at 8 billion USD earlier this year. Sina, by contrast, is trading on the NASDAQ at a market cap of over 4.6 billion USD as of this writing.
A New Model for Digital Content Distribution
A number of the first-gen Chinese Internet companies, such as Sina and Sohu, relied on the old online content aggregation model to grow. Their model would later be adopted by many other big Chinese tech companies, such as Tencent and NetEase, to complement their core business.
The new model created by Toutiao and its peers is a major update. Apart from indexing content from partnering sources, they allow not only media outlets but businesses, organizations or individuals to set up accounts and self-publish content. Earlier this year, Toutiao even created a news-writing bot.
So long as content creators are active, these apps can easily expand to other content categories. Their recent traffic growth has benefited much from the explosion of short videos in China. Toutiao saw a 160% increase in short video views in the first half of this year, much higher than article reads growth rate which is 43% in the same period of time.
Some 70% of articles consumed daily on Toutiao are from self-operated accounts. Article reads and video-clip views on Toutiao had reached 3 billion and 1 billion daily, respectively, as of November.
Toutiao generates revenue primarily from in-stream and in-article ads. Advertisers are able to place targeted ads through an automated ad-buying system and choose to pay on a CPM, CPC or CPA basis. The existing content aggregators like Tencent’s have also found automated ad-buying more efficient. During their latest earning call, Tencent management said the ad volume served by Tencent’s automated ad-buying system on Tencent News had accounted for around one-third in the third quarter this year, up from less than ten percent a year and a half ago.
Toutiao pays content partners ad revenue shares or a flat license fee, or both. Content providers can join the targeted advertising program or run their own ads including links to online stores or app install ads. Many other content platforms don’t allow including such links.
APIs and SDKs have been available for third-party developers to build related applications. Toutiao shares ad revenues with third parties such as smartphone makers and browser vendors who are allowed to integrate its service. Yidian Zixun, preloaded in Xiaomi and OPPO mobile devices, also let the latter take a revenue cut.
In the past September, Toutiao added a shopping channel by partnering with Chinese online retailer JD.com and announced a jointly developed program which will enable readers to buy items shown in some pictures in the near future.
Toutiao says they will stick with a technology-centric approach that, apart from the absence of a big editorial team, they don’t employ a big screening team as many other Chinese content services do. The app depends on algorithms to filter out misinformation or “low-quality” content.
Both Toutiao and Yidian Zixun believe that their underlying technologies will be able to scale overseas and have launched an English version. Earlier this year Toutiao acquired a stake in DailyHunt, a similar content service based in India.
Currently, the biggest competitor to Toutiao is Tencent. The social networking and gaming giant owns not only the leading old-style news service Tencent News and a fast-growing Toutiao copy but also WeChat, the most used mobile messaging app in China with its own publishing system. Like Toutiao, WeChat also enables third-party organizations or individuals to publish multi-media content. It is reported that Tencent expressed interest in acquiring Toutiao earlier this year, but was turned down.