By Shai Oster from the Information
Sept. 20, 2021
For years, it seemed China’s mighty consumer app giants couldn’t figure out how to expand overseas. Alibaba, Tencent and many others famously failed. That changed when ByteDance turned TikTok into a global hit.
But it’s not just TikTok. China’s software engineers and product managers are starting to crack the code and are beginning to rival Silicon Valley in developing consumer apps for overseas customers. For example, Asia Innovations Group, a startup backed by Kleiner Perkins and Palantir co-founder Joe Lonsdale, earlier this year sold equity to investors at a pre-investment valuation of $2 billion after tailoring social media apps built in Beijing to emerging markets in the Middle East, Southeast Asia, India and Latin America. The eight-year-old company is likely to roughly double annual revenue to more than $400 million this year from subscriptions and by taking a cut of virtual gifting through its livestreaming and dating apps, according to two people with direct knowledge.
• China-made apps growing globally include Shein, Hibobi, Yalla
• Asia Innovations Group targets 2022 IPO
• Successes have triggered geopolitical backlash from U.S. to India
Asia Innovations is preparing for a possible initial public offering likely in the U.S. next year, with investors hoping its valuation could grow to $8 billion by then, according to three people familiar with the talks. The company says it has 400 million registered users, roughly double from a year ago. Asia Innovations is losing money, but co-founder and CEO Andy Tian said in an interview that its cash burn is a small percentage of revenue.
Asia Innovations underscores how Chinese firms have built big businesses overseas, including in emerging markets that are beginning to reveal more financial potential as smartphone users increasingly adopt online payments. Other examples include direct-to-consumer brands such as fast-fashion app Shein, baby-products startup Hibobi and New York–listed chat app Yalla. China-made videogames, including Mihoyo’s popular Genshin Impact, also are gaining more ground overseas, including in the U.S.
Yet that very success has triggered a backlash from Washington to New Delhi—which banned numerous Chinese-made apps last year—that these companies must now navigate. Asia Innovations’ apps haven’t been banned in India or elsewhere, and the company is careful to distinguish itself from companies that are actually incorporated in mainland China, though it has its own deep connections to the country. Tian said the company’s revenue wasn’t wholly dependent on any single region, creating a hedge against moves by individual governments. “Our multiregion app portfolio reduces risk from any one country, any one app,” he said.
Big Chinese developers of consumer apps have been making splashy pronouncements about their impending global takeover for more than a decade, only to peter out. High-profile failures have included LeEco, dubbed the “Netflix of China,” and Alibaba’s attempt at e-commerce in the U.S., 11 Main.
But the success of TikTok has proven that a Chinese company can compete with Facebook and YouTube in a Western country like the U.S. Other Chinese startups are going after regions, such as the Middle East and Africa, that are still relatively open but have the digital infrastructure and consumer demand to sustain growing businesses.
Asia Innovations Group was co-founded in 2013 by Tian, who previously worked at Google and online gaming company Zynga, and Ouyang Yun, who worked at Groupon’s China joint venture and earlier as an executive at Tencent. CEO Tian was born in China’s Sichuan province and emigrated to the U.S. when he was 10 years old before moving back to the region in 2000. The two men met while working at a Chinese social networking site called Qzone in 2000.
With corporate headquarters in Hong Kong and product and engineering teams in Beijing, Asia Innovations developed a stable of entertainment and social media apps that targeted emerging markets from the beginning, rather than competing in an already crowded domestic field. (Some of its apps are available in China as well.) The company now has offices in ten countries and 1,700 employees globally, about 70% of whom are outside China in roles such as operations and localization, making sure the apps are in line with local languages and norms and recruiting influencers.
Among the company’s top hits are Uplive, which was the fastest-growing livestreaming app globally in the second quarter, according to app download tracker Sensor Tower. Uplive is similar to Chinese app Kuaishou, which enables hosts to broadcast themselves online, singing, demonstrating skills or chatting to earn virtual tips from viewers. The company’s dating apps, CuteU and Lamour, were the No. 1 and No. 4 most downloaded dating apps, respectively, in the second quarter, Sensor Tower shows. The apps primarily generate revenue from subscriptions. More than 85% of the company’s overall revenue comes from outside mainland China.
“Emerging markets are getting more and more ready for these products,” said Jason Zhao, a partner at Kleiner Perkins, the largest outside shareholder in Asia Innovations. “There are more companies willing to devote resources and take risks to go into these markets.”
Tian, the CEO, said the company’s unusual approach of simultaneously opening up offices around the world gave it a better chance of developing apps that had broader appeal. “From my previous experience at Zynga building social products across 10 different languages, we learned that if you go deep into one region first, you are likely to make a regional product that may or may not work for other regions.” He declined to comment on revenue or IPO plans.
Uplive is frequently compared to Bigo Live, a livestreaming app owned by Nasdaq-listed Joyy, a Chinese developer. While Asia Innovations doesn’t disclose financials or the number of monthly active users, Joyy, whose apps operate in some of the same markets, offers some benchmarks. Joyy said in its last quarterly report that it had 307.5 million monthly active users—a different metric to registered users, the only number that Asia Innovations discloses, which reflects people who sign up for an app only. Of Joyy’s monthly active users, only 1.6 million were paying users on its livestreaming apps in the second quarter. More compellingly, those paying users each spent an average of $316 across its three livestreaming apps, up 24% from a year earlier.
Another company with some similarities is Yalla Group, a chat app that’s headquartered in Dubai but whose software developers sit in China. Popular in the Middle East, the company listed shares in New York in September 2020. Its shares have declined nearly 45% this year after failing to meet analysts’ expectations and it’s now worth $1.2 billion. The company says it has more than 6 million paying monthly users.
Tian said his company is tapping into China’s pool of computer programmers, also relied on by companies such as Zoom and Singapore-based Sea Ltd., which distributes videogames and operates e-commerce app Shopee in Southeast Asia and Latin America. In the first quarter of this year, Chinese-developed mobile games accounted for 21 of the 100 top-grossing mobile games in the U.S. up from 19 games in the first quarter of last year.