TikTok, ByteDance, Temu and Shein risk big in the US?
Chinese apps like TikTok are the favorites of young Americans, and the merit is not only of the algorithms. The Wall Street Journal article
Four of the five most popular apps in the US in March were created in China. Algorithms are often cited as their secret sauce. One often overlooked aspect is how cutthroat competition for users at home has given Chinese companies an edge over Western rivals, writes the WSJ .
As during China's rise to manufacturing dominance a few decades ago, Chinese tech companies have tapped into an affordable labor pool of talent to constantly refine product features.
The relentless pursuit of improvement even has a term in China's technology industry: "embroidery."
“Everyone works to improve their craft, point by point,” said Fan Lu, a venture investor who invested in TikTok's predecessor, Musical.ly.
WHAT TEMU AND SHEIN DO
According to market analyst firm Sensor Tower, Temu, which is seven months old, was the most downloaded app in US app stores during the first three weeks of March. This is followed by the app CapCut, TikTok's partner for video editing, and TikTok itself. Fast-fashion retailer Shein placed fourth. Then there's Facebook, the only non-Chinese app in the top five.
A demonstration of how immersed American consumers are in an ecosystem of apps created by Chinese companies: With the hashtags #temuhaul or #sheinhaul, shoppers of the generation Z have begun to show the result of their purchases in video on TikTok with captions like “ $50 in completely random articles on TEMU.”
The apps were born out of companies founded by a young generation of tech entrepreneurs looking to grow globally, while the Chinese market, which has been locked down, is becoming saturated. They're backed by China's vast pool of tech talent: Temu is a shopping site, but more than half of its workforce are swiping and buying engineers.
According to investors, engineers and analysts, the organizational efficiency of Chinese Internet companies is overlooked by their American competitors. Chinese companies spend big to promote their applications in the United States and leverage China's billion internet users to test user preferences and optimize their AI models at home, then export the technology abroad.
“They are thriving in markets where they need to constantly iterate products to meet user demands,” said Guo Yu, a former senior principal engineer at TikTok parent company ByteDance Ltd., who worked at the company between 2014 and 2020.
TikTok, ByteDance, Temu, its parent company PDD Holdings Inc. and Shein did not respond to requests for comment.
THE TENSIONS ON TIKTOK
The popularity of the apps has brought them into the crosshairs of geopolitical tensions between the US and China, especially TikTok. The Biden administration has threatened to ban the app if ByteDance doesn't sell its stake in TikTok, citing national security concerns. On Thursday, US lawmakers slammed TikTok CEO Shou Zi Chew over Beijing's potential influence over the application.
Beijing has opposed the sale of TikTok and said it will never require companies to illegally harvest data from abroad. Meanwhile, a bill gaining traction in Washington, if passed, would lead to a blanket ban on broad categories of Chinese technology, including apps favored by American teenagers.
SHEIN AND TEMU GET OUT OF CHINA?
Both Shein and Temu have tried to avoid the kind of scrutiny TikTok has come under by trying to distance themselves from their Chinese roots. In 2021, Shein changed its parent company from a Hong Kong-registered company to a Singapore-registered entity. Temu is headquartered in Boston and operates its US operations through a Delaware-based company.
Shein, with a supply chain rooted in the southern Chinese province of Guangdong, was until recently the top-rated shopping app in the United States, according to Sensor Tower. Arriving in the US just in time for last year's holiday season, Temu racked up 13 million downloads in the fourth quarter, more than double Shein's. Like Shein, Temu connects bargain hunters in the United States with Chinese manufacturers, offering lower prices by cutting out the middleman.
Companies use data to guide every decision.
BYTEDANCE HORSE RACING
Former ByteDance engineers say ByteDance is one of the most aggressive companies in executing a strategy known in the industry as “horse racing,” where multiple teams are contracted to build the same product or feature with slight variations . Once it is clear which version is the best performing, the winning team is awarded more resources, while the other versions are discarded.
“Sometimes people say the company is heartless because no one has complete control over a product's design from start to finish,” Guo said.
ByteDance product managers and engineers also say the company has standardized protocols, systems and detailed metrics for evaluating user tastes, which help it roll out new updates within days. TikTok's signature single-column scrolling, for example, was chosen after creating several user interfaces, including a two-column version similar to Instagram's Explore tab, current and former ByteDance employees say.
Behind the ruthless testing, iterations and surveys to get user feedback are the long working hours of the technicians, who can receive several months of extra bonus salary based on their performance and achievements. Temu's parent company, PDD, in particular, is known in the industry for its very busy work schedules.
PDD said its 2022 R&D investments were up 15% from a year earlier, largely to attract talent.
PDD's quarterly sales and marketing expenses often exceeded revenue between 2017 and 2020, when active buyers on Temu's Pinduoduo Chinese platform more than tripled, from 244.8 million buyers to 788.4 million. The company, which mainly earns from advertising, reported a profit for the first time after going public in the second quarter of 2021.
TEMU'S STRATEGY
Temu, like Pinduoduo and Shein, freely distributes coupons and other incentives for downloading its apps, hoping that users will talk about them on their social networks. Temu's marketing campaigns try to reach potential buyers in almost every channel, from Facebook banners to targeted emails. In February, Temu aired his first Super Bowl commercial.
Industry insiders say the drive to dominate advertising is standard practice in China to win customers. “When Chinese companies see an opportunity, they are more willing to buy traffic at a much earlier stage and on a much larger scale than their US counterparts,” said Ivy Yang, a Chinese technology analyst who previously worked for e-commerce giant Alibaba Group Holding Ltd.
Attempts by Chinese companies to expand internationally have not always been very successful. Alibaba's international online marketplace, AliExpress, has been around for 13 years, but it's hardly a household name in the United States. The first product ByteDance tried to bring overseas, TopBuzz, a news aggregator, flopped. The company then went out of business.
For Temu, the current meteoric growth has not only been met with acclaim; has drawn consumer complaints about shipping delays and poor quality products.
For the time being, Temu's wired earphones or dog leashes, which sell for less than $2, are experiencing a moment of great interest to inflation-weary Americans.
“The 2008 financial crisis drove Chinese manufacturers to sell on Amazon,” said Fan, the venture investor. "Now is Temu's time to shine."
(Excerpt from the press release of eprcommunication)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/innovazione/tiktok-bytedance-temu-shein-stati-uniti/ on Sun, 02 Apr 2023 05:12:14 +0000.