In 2010, the year China entered the mobile Internet, BAT just became a code name. Just like a fork in the road, a group of startup companies have a premonition that China will be a red ocean in the future, so they choose to go beyond the border to find the next blue ocean.
They got their wish out of the shadow of BAT, but fell into the world dominated by Google and Facebook. Few of those who went to sea back then survived to the present, and few survived and grew stronger. Until a group of younger entrepreneurs came to power, TikTok, SHEIN, Mihayou and other companies appeared, giving China a real global Internet giant. The essence of this is that China’s domestic Internet capabilities have spilled over overseas, and their style of play no longer adheres to Chinese characteristics.
But just between the new and the old, between the big and the small, there is the only remaining team going to sea.
Zhou Yahui and Kunlun Wanwei, which he founded, are the survivors. They are the first batch of overseas game publishers. After more than ten years of overseas journeys, they went to Southeast Asia, the Middle East, Europe, North America, South America, and Africa to explore, and tried games, tools, browsers, content, social networking, payment, O2O— – All the fields you can think of that can give birth to big companies. They work tirelessly to distribute Chinese models and Chinese products to almost the whole world.
Zhou Yahui once said that he believes that the best business is to find a non-competitive area. It was his fear, and it was his motivation.
Compared with the previous generation of seafarers, they have a sense of awe and know how to abandon short-term interests and look at the distant future. Therefore, they can survive and gain an absolute dominant position in the local market. Past experience has proved that they know how to play small cards well.
However, a new generation of global companies has emerged from the most competitive Chinese market and directly entered another big battlefield. They know how to make big names win. From going overseas to internationalization to globalization, behind the change of concept is the change of cognition.
Between the new and the old, Kunlun Wanwei is still looking for a fertile territory where it can gain a dominant position. The fate of Kunlun Wanwei is a microcosm, which reflects how the previous generation of Chinese companies explored unfamiliar countries, and how a person, a team and a company recognized the limitations of themselves and the times and constantly looked for breakthroughs.
From China to Southeast Asia to Africa
Within one year of graduating from the Department of Precision Instruments at Tsinghua University, Zhou Yahui had an experienced partner, Wang Liwei. A team of 20 people has built the world’s third largest software download station, earning 10 to 20 million US dollars a year. Zhou Yahui began to think about “what can make it bigger”.
In 2007, the team transformed into overseas game publishing. Zhou Yahui did not play games, but he was very familiar with traffic. The two industries with the greatest value of traffic realization were games and e-commerce. The following year, Kunlun Wanwei was established, originally called Kinnet, transliterated from “Global Net” (global network). They were once the largest mobile game publishers in Southeast Asia, Japan and South Korea, but this advantage only lasted a year or two. After that, the heroes came together.
Zhou Yahui has a strong sense of crisis. He cooperated with 360 on mobile phone guards and once ranked second in the world with an annual income of several hundred million US dollars. However, he felt that this product was too thin and could not hold it, so he gave up decisively. 2010 was the first year for China Mobile Internet Company to go overseas. In the early stage, hundreds of flowers bloomed. The first success was the tool products, but most teams only looked at short-term interests and thought about how to fight against Google’s rules every day. Kunlun Wanwei CEO Fang Han concluded that the main reason for Kunlun’s survival is that the overall culture does not deceive itself, and it is very concerned about the profit model and cost control.
In 2015, Kunlun Wanwei was listed on the Shenzhen Stock Exchange as a game company. On the night of its listing, Zhou Yahui told executives that in the next game industry, Tencent and NetEase would squeeze everyone to death. “We want to live.”
Not long after the listing, Zhou Yahui went to Silicon Valley alone and rented a house near Facebook’s headquarters. Crazy meet people, dig people. “The whole person’s vision exploded.” Fang Han recalled.
Zhou Yahui believes in the importance of the main track and dares to “think big picture”. In terms of scale, finance, e-commerce, social networking, and entertainment games are big tracks with big opportunities. But if they do it themselves, it is too slow, so they choose to invest in overseas products to incubate, and then inject Chinese technology and traffic model after acquisition, so as to enter different big tracks.
Instead of buying big, successful products, they choose to buy small brands and make small things big.
According to this logic, from 2016 to 2019, Kunlun Wanwei invested in the overseas short video platform Musical.ly, acquired the same-sex social platform Grindr, the old Norwegian browser companies Opera and StarGroup. The main product of StarGroup is StarMaker – you can understand For the overseas national K song.
They can see the opportunities brought by the times, so they react quickly and turn around quickly, but it turns out that in the past, they lacked imagination of the size of the opportunities.
The team once reflected that when they were making games before, they thought too much of the overseas game market space, and did not expect that the entire European and American mobile games would blow out. If they come back, they will spend a lot of money to push this market. In 2016, a key judgment of the entire team was that there were not many opportunities in China to become a US$10 billion company, so it was necessary to go overseas. But the rise of Pinduoduo and Douyin proves otherwise.
From 2015 to 2017, a large number of content products with good profit models such as live video broadcasts began to go overseas. From 2017 to 2019, short video products went overseas and achieved rapid growth. After the outbreak of the global product TikTok, overseas startups in the e-commerce and game fields emerged.
Short video and live broadcast, Kunlun Wanwei gave up after trying it. 2017 coincided with the sale of Musical.ly, and Zhou Yahui had the right of first refusal, but he thought, “The project in hand is still tossing, and acquiring Musical.ly will exhaust me.” Later, ByteDance acquired the company and incubated TikTok.
Xia Fan, the current StarMaker CEO who joined Kunlun Wanwei in 2016, said that he proposed internally in 2018 that if he gave him 100 million yuan, he had a half probability of making short videos 10 million DAUs in one year. But management did the math, and it would cost at least $1 billion. At that time, all the giants were staring at the short video track. They gave up.
Many entrepreneurs saw this big opportunity at the same time, such as Fu Sheng from Cheetah Mobile and Li Xueling from YY, they all tried to rush in and compete with TikTok, including Kuaishou who went overseas in the later period. But they all failed.
Long videos, movies, music, etc. are all PGC models, which cannot be scaled, so the final market pattern of these industries is the coexistence of multiple oligarchs. But the short video is UGC plus PUGC, which is likely to form a single oligarch. Because in a two-sided market with strong network effects, latecomers are completely hopeless. Fang Han said that, observing all short video companies going overseas, only Byte can insist on investing regardless of cost.
One overseas entrepreneur said he believes that among Chinese companies going overseas, TikTok is the uncrowned king, and only policies can correct him.
A new generation of overseas startups is betting big and winning big. When ByteDance went out to sea, most people did not expect ByteDance to be so determined. Both Tencent and Alibaba chose to go overseas after making too much money in China. As a result, people who go overseas feel that domestic money is more profitable. “Why should I come here?”
Mihayou is more successful in globalization than the game startups of the year. The essence is that the decision makers are crazy game lovers. They have a love for games and want to make a game they like, not commercially wise. decision making. The R&D investment of 700 million yuan for a product of Yuanshen is completely irrational, even in the eyes of a big game company like Tencent.
“We know the destiny and ourselves better,” Fang Han said. Because not everyone has the ability to play a big card well.
“This competition is too fierce, it’s not our dish.” Xia Fan said.
Kunlun Wanwei continued to look for directions. After acquiring the old Norwegian browser company Opera in 2016, they found that Opera has many users in Africa, and they feel that Africa is a blue ocean and has great opportunities. So they decided to just step back to Africa. Zhou Yahui is currently focusing most of his energy on the payment platform OPay. He wants to create an Alipay in Africa, where the penetration rate of smartphones is less than 50%. Opay is a big name in Zhou Yahui’s hands.
Fang Han said that their experience is that a country’s per capita GDP of US$1,000 to US$2,000 is a threshold, and if the per capita GDP exceeds US$2,000, China’s Internet e-commerce, entertainment, and game products are suitable for entry. The best markets in Southeast Asia are the Philippines, Thailand, Vietnam and Indonesia, and other countries can be ignored. Only finance can go overseas, even if the per capita GDP is low, because even poor people still need the most basic payment services, so they go to Africa to do finance. Poor countries can also make news clients and short videos, but they cannot make money. Just like doing live broadcasts in India, the main paying users are overseas Indians rather than native Indians.
China’s Internet competition is too fierce, and entrepreneurs look at the blue ocean outside. Fang Han used to think that as long as you take a flight from China, Chinese people don’t like to go to places where you need to transfer once. This is also a blue ocean. Brazil, Mexico, Argentina, each market is no smaller than Indonesia, but it is too far. Later, he saw that because of the epidemic, some large foreign markets have also become markets without competition, because the Chinese have returned. At the same time, changes in policies will also make blue oceans appear, such as Egypt’s release of mobile payments in August 2021.
Zhou Yahui wrote in his investment notes released in 2015 that if entrepreneurs choose the right battlefield, they are half successful. His method of choosing the battlefield is to “find the best ‘girl’ and chase after her ‘girlfriend'”. Because the direct pursuit of the best girls, the probability of success is very low. But the best girl’s best friend is not bad, and the probability of catching up can be much higher.
Going to Africa, “I retreated to a land that needs to be cultivated for ten years. Everyone has no patience, but we have patience,” Fang Han said. This was their thinking logic at that time.
Faced with our question, “How determined are you to be in Africa?” Zhou Yahui replied: “I can always plant the land for ten years.”
“It shows you have patience.”
“Patience is the best kind of determination. People generally don’t have determination without patience.”
Play the small cards first, then the good ones
Before joining Kunlun Wanwei, Xia Fan was the product manager of the core product cleaning master of 360 Company. Zhou Yahui approached him and said, “You work in a listed company, and what you do is the icing on the cake. You work with me to make a product until The feeling of being a listed company is very different.” Xia Fan was moved.
At that time, Zhou Yahui personally invested in the live broadcast platform Inke. Xia Fan’s first idea was to do live broadcast overseas, but after research, he felt that although the commercialization efficiency of live broadcast was high, the scale was not large. The DAU of YY and Inke did not exceed 10 million.
With a certain category + live broadcast, the business imagination is even greater. Momo is a stranger social + live broadcast, and the national K song is a K song + live broadcast. Xia Fan believes that the latter is easier to do than the former. At that time, the national K song was 40 million DAU and contributed more than half of the revenue to TME (Tencent Music Group). So they decided to make K-song products overseas. When the project was launched, the first thing Zhou Yahui did was to find a copyrighted target to acquire overseas. In 2016, he spent less than 10 million US dollars to acquire Starmaker and began to incubate.
Xia Fan used to be able to easily achieve over 100 million DAU as a tool product. He is very confident, and his initial strategy was simple, that is, to fully imitate domestic K-song products and iterate on a weekly basis, “very hard work”. But the retained data could not go up, and after three months, “started to be anxious.” He reflected on his copying of the national K song just for a function, and he didn’t understand the logic behind it.
Making content is different from making tools. The former depends more on the ability of the entire system rather than the ability of individual product managers to break through at a single point. For example, the accuracy of user search matching, whether the recording timeline and lyrics can be aligned, and the quality of accompaniment sound effects and recording effects. “These are all things to consider, but they’re all things I haven’t experienced before.” Xia Fan then made two decisions, one is to start making algorithms for audio, video and recording, and the other is to solve the content supply and build a large-scale music library.
They have done a lot of hard work in order to improve the user experience. For example, in order to improve the quality of users’ recorded songs, the team has made bottom-level adaptations for each model. This is a huge workload, and there are tens of thousands of models in Indonesia alone. They only completed the adaptation of hundreds of mobile phones in the first year, and now they have made more than 20,000 models. StarMaker’s CTO Wu Weihao said that their vocal cancellation technology is currently the best in the world.
Retention has risen from 20% to 30%, and DAU has stagnated at hundreds of thousands, and has not risen again. After 5 months, Xia Fan became even more anxious, and he began to think about a question – Singing is earlier than the national K song, but it is only a few million DAU, while the national K song has tens of millions of DAU. ,why? He previously believed that Tencent’s traffic support for the national K-song plus the social relationship chain help, and the two factors each accounted for 50%. However, after the research, it was found that the traffic is not the key, the social chain is, and the ratio of the two factors to the result is at least 2:8.
I can’t think of a solution, and it’s already the end of 2018. The annual review conference began, and it was Xia Fan’s turn to review the review, which was “embarrassing”. The short video failed, StarMaker lost 6 million a month, and there was no improvement. “The inner frustration is very strong.” After the review was over, Xia Fan went home and lay in bed for 24 hours. He didn’t find the answer, he just wasn’t reconciled. Later, he ran to Zhou Yahui and said, “I will do it for another year. If I can’t do it, I will resign and I will accept it.”
Xia Fan tries to accumulate users through social relationship chain and content. He went to meet Zhu Yiwen, the former CEO of NetEase Cloud Music, and realized that the team’s investment in and appreciation of content was not enough. At that time, on the platform, the content produced by amateurs had no consumption value, and could not even be called content.
There is only one way left. But it is impossible for StarMaker to obtain the Facebook relationship chain overseas, so it can only build the relationship chain by itself.
Xia Fan builds a decentralized community within StarMaker. The community imitates the family relationship in the live broadcast platform, and the role division in the community imitates the game union. Most of the families in the live broadcast ecology are for commercialization, and the relationship is for realization. A family can have tens of thousands or even hundreds of thousands of people. Usually, the upper limit of a single family in StarMaker is 50 people, and a user can only join one family at a time. However, the head of the family can upgrade it to 200 people by satisfying the active behavior to increase the experience value. Each family is mainly composed of three types of people – the rich, the poor and the talented. Here, users do not pay for themed groups such as Jakarta Dating Club and Jay Chou Fan Club. Instead, they prefer non-themed groups, such as “who is competing with each other”, “dominate the world” and other groups that have no specific meaning.
This type of community is different from courtship dating, not limited to age, and the purpose is to allow users to entertain and make friends in the virtual world. The national K-song DAU once dropped for a while, and then rose again, because the “square dance aunts” began to use the national K-song. StarMaker can also serve such groups overseas, and what they need to do is to continuously amplify this demand.
The largest K-song software overseas is Smule in the United States. StarMaker mainly focuses on areas that Smule has not reached, and it is a long-tail market, those poor and diverse people and markets that big companies can’t look down on.
Fang Han said that if you pay attention to long-tail traffic and provide a very precise exit for long-tail traffic, you will have a very good self-growth, and the long-tail traffic of music is particularly obvious.
Mainstream languages have a lot of content, and the user base of minor languages is huge, but there is not enough minor language content (including language, music, long and short videos) to satisfy them. StarMaker makes its own corpus, which costs millions of dollars per language, and currently only makes nine languages.
After the ROI model was released, StarMaker ranked in the top three music and audio download charts in the core countries of Southeast Asia and the Middle East. Then it took the Latin American and Russian markets, with a focus this year on Europe. In the first half of 2021, the average daily online time of StarMaker users was 49 minutes, second only to YouTube (77 minutes), Tiktok (71 minutes) and Facebook (55 minutes).
Songwriting (creation), K song, and listening to songs are three markets, ranging from small to large. StarMaker’s idea is to attract K-song people first, then attract creators, and then find a way to cut into the listening music market ten times larger than the K-song market.
Xia Fan said that he hopes to accumulate an ability – the ability for users to form a relationship chain after being attracted based on a certain traffic category, such as long audio + family + voice room, a certain game + family + voice room, etc. . “The family is all PGC, and I am pure UGC. I monetize based on the relationship chain, and the gross profit is high.” He said that next he hopes to test whether the methodology of traffic control and community can be generalized, and eventually form a particularly large community.
Chinese companies like to translate successful domestic products when going overseas, but the success rate is very low. Fang Han said that their overseas operation idea is from the bottom up, because “what the company wants to do and what the users want are two different things.”
They are also less worried about having competitors, because “the giants in this field simply don’t like it.”
While knowing the destiny, at the same time unwilling
The development strategy of playing small cards well and then playing big ones has shaped the way of doing business and team culture of the entire company, and its organization and capital structure are also built around this goal.
Kunlun Wanwei exists as the group headquarters. In the early years, the game industry accounted for more than 90% of the total revenue, but now it has dropped to less than 40%, and it is still declining. Now its main businesses include Opera (social information distribution platform), Star X (voice social platform, StarGroup changed its name to Star X), Ark Games (UGC game platform), Lei Huyu (competitive entertainment platform) and investment sector. When Kunlun Wanwei went public, game revenue accounted for more than 95%. Currently Opera and StarMaker become the main source of its revenue.
This is not all. There are new businesses incubating outside its system. The largest business is OPay, which is held by Opera, and a series of biomedical companies invested by Kunlun Capital, including Primis Bio, Heyuan Bio, Kesai Rui Bio, and Innovation. Sound Bio, Huida Gene, etc. Among them, Heyuan Bio was listed on the Science and Technology Innovation Board last month, with a current market value of 10 billion yuan. Last summer, Opay also reached a valuation of $2 billion after closing a $400 million Series C financing.
Four major businesses correspond to four CEOs, who are responsible for exploring different areas. Applying Zhou Yahui’s theory, these people are like “best girls’ best friends”. A CEO with all-round capabilities in strategy, business, and management is hard to find, but it is much more likely to find someone who can play small cards well. The CEO of each business is a product manager with ideas and abilities first, and then a qualified professional manager.
Subsidiaries are relatively independent, but with Zhou Yahui, Fang Han and other core teams as the link, they provide financial support for the subsidiaries, help the CEO to find senior talents, leave the core strategy to the CEO, and give a full trial and error period. Fang Han’s address book has a group of “people to be poached”, and he sends greetings to these people every morning. The day before the interview, he invited an 18-year-old e-sports player to dinner.
In 2016, Wu Weihao, who “stayed very well” in a large factory, received a call from an executive of StarMaker, who asked him if he could meet and chat, “I’ll be waiting for you downstairs in your company.” Guan has already rushed over by plane ahead of time. Later, the executive’s wife called his wife. Next, Wu Weihao’s biggest opponent on his way to quit became a supporter. He came to Beijing with his family and is now the CTO of StarMaker.
Every business has a goal – tens of billions of dollars. Employees of listed companies do not want to work after earning money, and the success rate of early-stage startups is too low—the above mechanism hopes to take into account these two points.
Fang Han said that only if the interests of these people in this company are greater than the interests of their own business, can people stay.
These businesses are often backed by capital from incubation to maturity. Zhou Yahui invested in the primary market to avoid direct losses after the acquisition of listed companies. After the project has grown from small to large and become a high-quality asset, he will consider selling it to a listed company. After recovering cash, he will continue to invest in new investment projects.
Businesses sold to listed companies may be spun off for listing or secondary listing after their value has been enhanced. For example, Opera returned to the public market in July 2018, with a current market value of $700 million. On the day of the re-listing, Opera CFO said that Opera’s previous old investors could re-understand Opera’s value because they understood Toutiao’s model in China.
But the problem with this mechanism may be, as a listed company, how much return has Kunlun Wanwei contributed to shareholders?
Kunlun Wanwei closed at 29 yuan on the day it went public in 2015. Seven years later, the current share price is 15 yuan. The last time the company reached the daily limit was because ByteDance signed a game product it represented, which shows that the team has been struggling in the overseas market for many years, but investors still recognize that this is a game company.
In the ten years of his overseas career, Kunlun Wanwei has suffered a lot. It acquired Grindr, a gay social networking app, and had planned to spin off Grindr, but was opposed by CFIUS in the United States, requiring Kunlun Wanwei to sell Grindr. In 2020, Kunlun Wanwei had to sell this high-quality asset at a price of 4.2 billion yuan.
It also gained some experience. In each overseas country, it designs the company structure according to local regulations. When Chinese companies go overseas, their awareness of compliance is generally weak. However, if you want to do business overseas for a long time, compliance and isolation are both indispensable.
To do overseas markets, it is necessary to integrate overseas mainstream values. One of Kunlun’s products once wanted to do a separate topic for Catholicism, but it was opposed by European colleagues on the grounds that a religion’s large scale should not increase its weight on the platform.
Kunlun Wanwei has more than 4,000 employees, including more than 1,000 foreign employees. Local country managers are mostly local people, and a two-way reporting mechanism is adopted for all business or functional lines that need to coordinate resources, such as technology, operations, and human resources. An HRBP (Human Resources Business Partner) is established locally, reporting to the local country manager and the head of HR at the headquarters respectively. The product line is reported to the independent headquarters. They learned to design different but similar promotion channels for local employees and Chinese employees, and in terms of rank management, all subsidiaries have opened up. Originally, the ranks of employees were from 1 to 13, and now they are reduced to only 5 levels. Going up from the customer service staff, the demand will be directly connected to the business boss. From the front line to the CEO, only three layers are allowed.
These management methods cannot be said to be efficient, but they are practical and flexible.
Kunlun Wanwei’s culture encourages hard-earned money and hard work, “more perseverance,” Fang Han said. When the virus was at its most rampant, the CEO of a subsidiary of the group still decided to go abroad. After that, he contracted the new crown and chose to insist on working outside.
If the water is too shallow, the boat should not go in. Huawei summarizes this theory as a “waterline”, that is, certain businesses whose profit margins are less than a certain level will not enter the market. “Zhongda Factory’s thinking logic is to burn scale first, and we seek profit model first, which is a completely different path.” Fang Han said.
At the beginning of Kunlun Wanwei’s establishment, Zhou Yahui did not take the investors’ money, but sold several houses in Beijing. Because it is more secure to spend your own money, the money you raise will have to be repaid, and your control over the company will become weaker. But save your money to the limit. In the past few years, Zhou Yahui personally ordered servers every quarter. If the revenue of a business dropped by 10%, the server would be cut by 20%. The company will never have an empty server.
Fang Han commented that they got up early, but there was still no area where they felt particularly safe. Opera News has the No. 1 market share in Africa, but it’s not a fertile business. They have made many attempts. For example, Opera is the world’s first browser with a built-in blockchain wallet. At the beginning of 2021, they bought the game development system GameMaker Studio 2, hoping to invest in the game UGC. In September 2021, the game community The platform GXC is launched. In the social and financial fields, we have achieved results in local markets, but we need to expand the basic market and gain a monopoly on a larger track. For example, StarMaker is going to cut into the larger listening music market.
For them in the past, the decisive factor for success was not winning the competition, but being able to make a good enough product without dying. Today, their thinking about the Red Sea has changed. “When the Red Sea has a basic plan, it will not withdraw. The Red Sea fights for organizational skills. And we have a methodology to fight hard battles.”
When Grindr was forced to sell, members of the company’s board of directors were sitting together in a meeting. After the meeting, Zhou Yahui said, “We have to sell.” Fang Han said, “Okay, then hurry up and do something else.”
It is often said that people know the destiny. In Fang Han’s understanding, destiny is that as long as you wait, there is always a chance.
“I think our company will always be hit by a pie once in its destiny, but there is nothing to regret if it fails,” Fang Han said. “Many people work harder than us and have no chance. The world is so cruel.”
Fang Han is one of the founders of Chinese Linux, and one of the first people in China to come into contact with the Internet. He was born in Chizhou, Anhui Province, and was admitted to the University of Science and Technology of China in 1990 with the second place in the province. During the conversation, he called several first-tier Internet company CEOs “big men” and said that Kunlun Wanwei is an ordinary second-tier company that dreams of becoming a big company.
Fang Han likened the people around him to being a hometown writer. The purpose of studying and starting a business was to prove that he was no worse than others. Originally, they thought that tens of billions of dollars would be called big, but later found that if it was really big, it could be even bigger. At the same time, it could change the lives of many people, maybe 10 million people, maybe 100 million people. They have finally found a position for themselves – to improve the mobile Internet experience for people in underdeveloped countries. “Of course, with a vision, it is better to recruit people, especially R&D personnel, who believe in these the most,” Fang Han added.
After more than ten years of overseas careers, they are full of fear of survival and obsession with surviving. They insist on finding the last inch of the blue ocean. This may be because they are afraid of losing, or it may be because they are more eager to win than everyone else.
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