With Facebook the primary source of daily news for an increasing number of people, news aggregation apps like Flipboard are losing their appeal.

But in China, where Facebook is banned, one such app is enjoying a meteoric rise in popularity. Jinri Toutiao, operated by Beijing ByteDance Technology, is outpacing traditional news portals in the race to grab the attention of hundreds of millions of news-hungry Chinese users. But the app, which has a name that translates as “today’s headlines,” doesn’t have its own staff writers and editors. Instead it uses artificial intelligence to filter and distribute news content.

A screenshot of the Toutiao app. screenshot by Yue Wang

A screenshot of the Toutiao app.

Taking a user’s location, smartphone model and click history, Toutiao’s algorithm sorts through the latest news, commentaries and video from more than 4,000 partner sites to find what it believes is the most appropriate content.  It doesn’t stop there. In a bid to attract younger users, a good portion of what it provides is bite-sized, Buzzfeed-style stories, along with cartoons, GIFs, live streaming shows and interactive Q&A channels to keep people entertained.

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By the end of 2016,Toutiao had 80 million daily active users, who spent an average of 76 minutes reading news and watching videos through the app, according to the company. It is the number one news offering in China’s iOS App Store, according to market intelligence firm App Annie. And more than 70% of its users are aged below 30, according to a company slide share published last year. That level of engagement beats Facebook’s global average of 50 minutes a day, according to 86 Research analyst Zhang Xueru in Shanghai.

Zhang estimates that the company’s revenue, which comes mostly from online advertising, grew fivefold to more than 6 billion yuan ($869 million) last year. But it is unlikely to turn a profit this year, as it invests more in original content such as video, according to Zhang.

Key Facts About Chinese News App Jinri Toutiao
 Number of content partners  Daily active users  Level of engagement  Revenue  Profit  Valuation
 4,000  80 million  76 minutes/day  $869 million  loss making  $11 billion
Source: Toutiao, 86 Research

Stable traffic, sticky user base

But investors like what they see. Beijing ByteDance was valued at a whopping $11 billion in a recent fundraising round that featured the likes of Sequoia Capital China and CCB International, the investment arm of China Construction Bank. The valuation is a huge leap from a 2014 round that put it at $500 million. The 34-year-old founder, Zhang Yiming, is said to hold 30% of stock.

“Investors in China like platform-based companies,” said Ken Xu, a partner at Shanghai venture capital Gobi Partners. “Toutiao has stable traffic and a sticky user base. People are willing to put a lot of money in a startup like that.”

Founder Zhang wasn’t available when contacted by FORBES. According to local media reports, the idea of news aggregation came to him in 2008 when he was helping to run social site Hainei.com. At that time, Zhang thought China’s market was dominated by state media and other news sites that only offered lengthy, often stilted-text.

When Hainei struggled and partner Wang Xing went on to found what has now become China’s largest local services provider Meituan, Zhang meandered a little — he was the chief technology officer of online travel site Kuxun and then chief executive of real estate portal 99Fang. But eventually the pull of the news business focused his attention on the idea Toutiao, which he launched in 2012.

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“When Toutiao started to offer alternative and personalized content, other Chinese media companies were still focusing on very serious writing,” Gobi’s Xu said. “But the younger generation wanted more light-hearted stuff — and Toutiao very much catered to that.”

Competitors

But now there’s competition. China’s technology trinity — Alibaba, Baidu and Tencent — are each developing personalized news services. Traditional news portals such as Sina and 163.com are catching up by adding feeds in their apps based on a user’s browsing history.

What’s more, rivals are using the legal system to snag Toutiao. In April, Tencent and Sohu alleged that they used their content without permission. And they’re seeking “millions of yuan” in damages, reported Tencent’s QQ News site. But a Toutiao spokeswoman said its intellectual-protection system, which uses software to identify and remove copycat stories, is “far superior” than its competitors, adding that the company recently sued Tencent for IP infringement as well.  

“Competition is a major risk for them,” 86 Research’s Zhang said. “The company’s momentum remains strong this year but pressure will definitely add up.”

To find fresh growth, Toutiao is now expanding overseas. ByteDance has invested in media platforms in India and Indonesia. In February, the company acquired U.S. video app Flipagram for an undisclosed amount. The deal was overseen by Liu Zhen, who previously led Uber’s China unit.

But China still requires most of the company’s attention. Regulators are tightening their grip on online media, and ByteDance has been repeatedly summoned over pornographic and illegal content that pops up across its live streaming and Q&A platforms — even inside the China’s so-called “Great firewall.”

“We provide stringent screening measures to ensure [content from providers] is compliant and meets our rigorous standards,” the company says. It uses a combination of manpower and machines to police its platform. But since Toutiao has so many outside partners that it has no control over, the company always has to play whack-a-mole with problematic content.

By Paul Armstrong and Yue Wang
Forbes

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