Tencent invested in Toutiao? Here are three questions

Reliable we-media outlet Kaiba broke the news that Tencent is about to invest in Toutiao, with a valuation of $8 billion. This surprised many industry insiders and we-media outlets. You should know that many we-media outlets only focus on operating two platforms: WeChat public accounts and Toutiao. In addition to Tencent's news client and Tiantian Kuaibao client, Tencent and Toutiao are simply at loggerheads. Tencent regards Toutiao as an important competitor and launched the Grain in Ear Plan this year, providing 1 billion yuan in subsidies to support content entrepreneurship; Toutiao is also very wary of we-media outlets directing readers to WeChat public accounts. The two companies, the industry leader and the second largest, have long been strong rivals.

If the rumors are true, it is undoubtedly great news for Toutiao: Tencent has allowed Toutiao to develop independently without controlling the company, and Toutiao has lost a strong rival. After cooperating with Tencent, it will take the top spot in the news client market at a faster speed, and the possibility of an independent listing is still very high. More importantly, the valuation of $8 billion is also good news for Toutiao: two years ago, Toutiao completed a $100 million Series C financing with a valuation of $500 million. From $500 million to $8 billion, it has increased 16 times in two years, which is faster than the unicorn legend Uber: Uber took two years to increase from $330 million to $3.5 billion, less than 16 times.

Theoretically, is it possible for Tencent to invest in Toutiao?

It is easy for former enemies to become brothers under the impetus of capital: 58.com, Didi Kuaidi, Meituan Dianping, Ctrip Qunar... There are too many similar cases, and Tencent and Toutiao are respectively the number one and number two, which is in line with the overall rule of "the number one merges with the number two" in the Chinese Internet market. Therefore, the fact that the two companies were once strong rivals is not a reason not to merge. As long as there are common interests and both parties have greater interests (short-term and long-term) after the merger, they may come together.

Do the two sides have common interests? Yes.

Content is the top priority of Tencent's current investment. Just last year, Tencent also invested in Zhihu. Toutiao is one of the largest PGC content platforms. It started out as a news and information platform, and now it has transformed into multimedia content such as pictures and videos. This year, it is also promoting Q&A. As I said in a previous article, Toutiao, Weibo, Tieba, WeChat and other platforms are all doing the same thing: content consumption platforms. Toutiao is a new generation of news client, but it is more than a news client. For Tencent, Toutiao has huge value.

If Tencent invests in Toutiao, Toutiao will lose a strong rival. Kaiba's revelation is that it will merge the news client and Tiantian Kuaibao into Toutiao, similar to the treatment of e-commerce and search businesses. In this way, even if Toutiao is listed independently, its size will be much larger, forming a 1+1>2 effect.

In addition, the core logic of Toutiao is to make personalized content recommendations based on social network data mining. When it comes to social resources, no giant in China is more attractive than Tencent. With the support of Tencent's social resources, Toutiao can do a better job of content recommendation and have more things to do. I think this is what the technology geek Zhang Yiming is interested in.

However, there are still some confusing points about the rumors that Tencent invested in Toutiao.

One is valuation.

Two years ago, Toutiao was valued at $500 million, with 120 million active users and 40 million monthly active users. Today, Toutiao announced that it has 450 million users, 45 million daily active users, and about 100 million monthly active users. These are the official data released by Toutiao, but iResearch should have a different view on this. Even if Toutiao's user base is close to the actual level, its user growth in the past two years is about 4 times, but its valuation has reached $8 billion, a 16-fold increase? Why?

Moreover, Toutiao's valuation is 8 billion US dollars, which will exceed the valuation of Sohu + Sina today. The valuation of the mobile news client is greater than the two portals. Incredible! Exceeding Weibo's current market value of 6.5 billion US dollars, incredible! Becoming an Internet company second only to BAT, JD.com, NetEase and Xiaomi, incredible! If you say that the US dollars are converted into RMB, I believe it. Otherwise, it will be another Internet myth.

The second is motivation.

Why did Tencent package its e-commerce and search businesses and throw them out? It's simple: they can't do it, they don't do it well, and the disadvantages outweigh the advantages. But are Tencent.com and Tencent News Client not doing well? Of course not, Tencent is No. 1 in the industry. Tencent's Q1 financial report shows that advertising revenue increased by 73% year-on-year to RMB 4.701 billion. This business is the cash cow business second only to games, and it is still growing. After spending a huge amount of money to acquire the NBA last year, Tencent.com is still increasing its investment in sports and other sectors. If you count WeChat public accounts, Tencent is not just the boss in the field of mobile new media, but the absolute boss. Toutiao can get a share of the pie, but it is almost impossible to challenge Tencent.

Tencent has just started to focus on personalized reading this year. The Grain in Ear Plan, Daily Express, and 1 billion yuan support fund are all big moves, showing that they are confident in their business. Investing in Toutiao to seize time? There is no motivation. I remember that at the beginning of this year, there were rumors that Tencent was going to package its videos to Sohu, but then nothing happened. The reason is the same. Tencent Video is doing well and is making its own efforts.

Also, even if the business is to be packaged out, how can Tencent.com and Tencent News Client be separated? These two businesses are like the head and feet of a person, and it is too difficult to separate them.

As mentioned before, content is Tencent's core strategy, and based on this, it will only do it itself. There are only two things in Tencent's strategy: one is the connector, dreaming of connecting everything to form a dynamic and open ecosystem. The other is the content strategy. Connectors help Tencent build a well-connected infrastructure network. What Tencent needs to do is to output its own content through these networks, or become the entrance to content distribution, attract user attention, and form business models such as value-added (game entertainment) and advertising (media, social and e-commerce advertising). OMG, which owns Tencent Video, Tencent.com and other businesses, is the key to the implementation of the content strategy.

The third is Sohu.

After Tencent invested in Sogou, it included Sohu in the Penguin map. Later, it invested in Zhihu together with Sogou to lay out content. Sohu News Client ranks in the top three, but it is the earliest open media content platform. If Tencent invests in Toutiao, why not give priority to Sohu News Client? Now Sohu's overall market value is only 1.459 billion US dollars, including Sohu News and Sohu Video. After privatization, it will be bought (just like what Alibaba did with AutoNavi and Youku), so that there will be an additional news client, and the rumors at the beginning of the year about Tencent's investment in Sohu Video have also been realized. If Tencent really invested in Toutiao, Sohu will definitely be very depressed.

Tencent has reasons to invest in Toutiao, but it also has many reasons not to invest in Toutiao. Even if it invests, entering at a high valuation of US$8 billion is too incredible. Either Tencent really needs Toutiao, just like Baidu needed 91 Wireless, and is willing to accept a high premium; or Tencent has too much money and has no place to spend it, and wants to satisfy its shopping addiction.

A few days ago, I saw a senior executive of Toutiao tell Lan Xi that Toutiao will earn 6 billion yuan from advertising this year. This means that Toutiao is not short of money at all. For many entrepreneurs, the current status of Toutiao is what they dream of: making a lot of money on their own, not relying on giants, and it is difficult for giants to kill them. If this is the case, the possibility of Toutiao choosing Tencent for investment is greatly reduced.

However, in the ever-changing Chinese Internet market, everything is possible. This is the interesting part of the Internet, and I am waiting to be slapped in the face.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.