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Analysis

The Next Battleground for “Toutiaos”: Third-Tier and Fourth-Tier Cities

May 14, 2018 by Yun Nie
The Next Battleground for “Toutiaos”: Third-Tier and Fourth-Tier Cities

Negotiation is underway for a Chinese enterprise called qutoutiao.net and, thanks to BAT’s evaluation and investment, market share of the company has soared from USD 1 billion to USD 1.2 billion and finally to USD 1.6 billion. In fact, the company’s cherished investor is Tencent, in favour of which qutoutiao.net withdrew its collaboration with Baidu and Alibaba.

It is similar to Jinri Toutiao that focused on information flow as core business. Within one year, Daily Active Users (DAU) of qutoutiao.net surpassed 10 million and its partnership with Tencent triumphed when Tencent, beating Shunwei Capital and Advantech Capital, invested USD 1.6 billion to become the lead investor.

There is a valid reason for Jinri Toutiao to stay alert. Last December, Zhang Yiming sent out reports about qutoutiao.net’s superlative performance to his team. Jinri Toutiao also managed to invest in qutoutiao.net but the company kept silent.

Yet, the reality is that qutoutiao.net has been in the center of a competetive vortex. As Jinri Toutiao dominated first-tier and second-tier cities, other “Toutiaos” have realized the potential value of markets in third-tier and fourth-tier cities. It is still worth noting that in these regions, there is an enormous Tiaotiao chain, not referring to Tik Tok, Ixigua, and huoshan.com, but including qutoutiao.net, cashtoutiao.com, and dftoutiao.com that provided products and services associated with information flow.

According to the founder of qutoutiao.net, Tan Siliang, the “big brother” in this business field has only penetrated 20% of third-tier and fourth-tier markets. The rest 80% was for qutoutiao.net to develop. The majority of users had no information-centric applications in their smartphones except for qutoutiao.net.

As opposed to other businesses, core earnings of information flow services were generated from content - relying on offering massive information, users of qutoutiao.net could stick to their screens and combined with a “golden coin” service, its Daily Average Online Time (DAOT) exceeded 60 minutes.

“This population (in third-tier and fourth-tier cities) seldom considered relative price but were sensitive to absolute price”, Tangdou’s CEO, Zhang Yuan said. The company is ranked #1 in providing public square dancing service whose target groups were also those living in third-tier and fourth-tier cities. In other words, users in these areas emphasized on net earnings rather than time-cost-to-income ratio, which contributed to the over-60-minutes DAOT with large slots for advertising.

“Users in third-tier and fourth-tier cities may not be wealthier than those in first-tier and second-tier cities. However, their available time and assets are huge”, Zhang Yuan said. “What is more important is that they have not been influenced by data-to-cash transformation via live streaming, advertising, gaming and online retailers since conventional TV shopping channels still remain the mainstream in their lives.”

Thanks to unlimited potential hidden in the third-tier and fourth-tier markets, “Toutiaos” boasted extraordinary growth based on those prerequisites.

In Mingu Kang’s strategic plan, the goal of cashtoutiao.com in 2018 was raised to DAU 20 million. Similarly, Tan Siliang set up a DAU 50 million goal for qutoutiao.net in the next 3 to 6 months. For more information-centric companies, Jinri Toutiao has become unparalleled, but it seems that qutoutiao.net still needs to catch up. According to the company’s official statistics, its registered users increased to 70 million besides a large population in third-tier and fourth-tier cities that have not yet been tapped.

Stimulated by “golden coin” system, those Toutiaos branched into e-money services - inviting friends to give digital golden coins to each other and allowing them to withdraw cash when exceeding CNY 1. Even Jinri Toutiao began to copy qutoutiao.net's e-money business model.

“It is the mixed result of obtaining data flow, designing information content, and setting up competition rules. Content is only one angle for their business”, said the co-operator of Shunwei Capital, Chen Tian. Shunwei has invested separately in Jinri Toutiao, qutoutiao.net, as well as yidianzixun.com with small-cap investing. “Those three applications shared the same pie but with different perspectives. However, there will be a business war among them when they compete for the same information flow”, he said.

After winning Tencent’s investment, qutoutiao.net has been satisfied for a while. Tan Siliang revealed that their next focus will be establishing content system. According to one investor, the company paid a large amount of money to a technology team in Silicon Valley to improve algorithm as the first step towards that.

qutoutiao.net has grown to be one of the three giants that targeted third-tier and fourth-tier cities. It was obvious that the company was ready to refresh itself by tapping these potential markets.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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