What's wrong with me being a rich man?

Chapter 520 Attack
When Weishi started burning through cash, Douyin had no choice but to follow suit.

Otherwise, no matter how advanced the technology platform is, it will be overwhelmed by funding and traffic.

However, investors can accept burning money, but only if they can see that burning money can lead to a core competitive advantage.

“Mr. Yu, I think Douyin’s daily active users and content are indeed very good, and it has indeed taken the lead over Alibaba and Tencent. Otherwise, those two companies wouldn’t have been able to learn from Douyin so quickly.” Zeng Jia of Temasek affirmed.

Short videos are a new field in the mobile internet, and even the top investment institutions may not be able to identify the best direction.

However, there is a relatively simple piece of evidence that can help in making this judgment.

Even competitors like Alibaba and Tencent have followed suit, which at least proves that Douyin's initial decisions were better.

Yu Xing nodded slightly, raised his cup to drink tea, and gestured for President Zeng to continue.

“However, I have two questions I’d like to hear Mr. Yu’s thoughts on,” Zeng Jia said thoughtfully. “First, Alibaba and Tencent are bound to learn quickly, so how will Douyin respond to their ‘using their own methods’? Second, Douyin hasn’t been in a long time since it received $300 million from IDG, Today Capital, and those five institutions, so why is it in such a hurry to conduct a second round of financing now?”

"Douyin needs a second round of financing because it needs to reserve funds for burning cash in advance. In addition, it's also because a lot of the money raised in the first round has already been spent," Yu Xing calmly answered the second question first.

Du Yuchen of Matrix Partners China repeatedly heard the question: "Did you spend a lot?"

That's 3 million US dollars, not 3 million Chinese yuan, and certainly not 3 yuan.

“Yes, we have been in talks, and the day before yesterday we reached an acquisition agreement with PayEase. We will buy 70% of its shares for 490 million RMB and become the controlling shareholder,” Yu Xing explained briefly. “PayEase obtained the Payment Business License from the People’s Bank of China in August 2011. Although it is a regional license, it is sufficient for what Carbon Silicon Data is using now.”

PayEasy possesses a payment license, which is a regional license. Its bank card acquiring business is limited to Inner Mongolia, but it allows internet and mobile phone payments nationwide, which already meets the current needs of silicon carbon data.

The agreed price was 7 million for the entire company, but now they are only buying 70%.

Yu Xing looked at the different expressions and reactions of the investors and said with a smile: "You should know the market price, right? The authorities are obviously tightening the issuance of payment licenses. We have also inquired about nationwide licenses, but they are too expensive. Wanda is talking to Kuaiqian. I heard that the offer has exceeded 20 billion RMB, and that is only for a majority stake."

Silicon Carbon Data Company needed its own payment channel, an acquisition that was being pursued before competitors started burning cash, and which became even more significant after the cash-burning competition began.

If payments are made through Alipay or WeChat, a significant portion of Douyin's data will be exposed to its competitors.

He added, "After Lingang takes over the payment system, it will also need to invest funds to optimize the interface. The transaction success rate of Jiepay is about 98.5%, and this fund is estimated to be around 1 million RMB. In addition, with the traffic from Douyin and normal operation, especially when it comes to burning money, this round of speed must be very fast."

“I see.” Zeng Jia nodded in agreement. “Lingang does indeed need to acquire payment channels, and this money should be spent.”

Yu Xing had one more important question left unanswered. Just as he was about to speak, he noticed Yang Zhenyuan's rather bored expression and smiled, "Mr. Yang, thank you for explaining the technology to us. I'll talk to everyone later. You can go ahead and do your work."

Yang Zhenyuan immediately smiled, stood up, briefly greeted the investors, and left the meeting room.

Looking at the man's back, Du Yuchen praised, "President Yang's technical skills are top-notch. No wonder he was poached from Baidu with a hefty investment."

Regarding the technical platform that Yang Zhenyuan previously explained, the Baidu-affiliated talent within Carbon Silicon Data played a significant role.

He had barely finished speaking when Yang Zhenyuan returned with a grave expression.

Yang Zhenyuan quickly walked to Yu Xing's side, bent down and whispered in the boss's ear.

The investors from the five institutions noticed the signal conveyed by this unusual action and closely watched the changes in Mr. Yu's expression.

Yu Xing's expression remained unchanged, which initially led investors to believe it wasn't any important news.

However, after a brief pause, he gestured for Yang Zhenyuan to go about his business and then proactively announced the latest developments.

— Tencent's WeChat has blocked Douyin's sharing links.

— Tencent has filed a non-compete lawsuit against Xing Hongyu, the former head of Weishi.

Combined with the money-burning competition launched by Tencent a few days ago, these few days have seen a series of actions targeting Douyin.

While admiring President Yu's composure, Du Yuchen still spoke up, "WeChat has cut off sharing from Douyin? This... this is not good."

“It’s not a good sign,” Yu Xing said with a smile. “But what’s even worse is that Alibaba’s WeChat might follow suit with this kind of competitive tactic.”

The investors who were about to speak swallowed their words upon hearing this, their expressions turning into barely concealed worry.

If Alibaba follows suit, WeChat and WeChat, two apps that already dominate the instant messaging market, will undoubtedly pose a significant challenge to Douyin.

Yu Xing glanced briefly at the changes in everyone's expressions, his mind racing, and said casually, "Alright, now you know why Carbon Silicon Data took 70% of the shares in the Series A round, right? Traffic isn't something you can just buy whenever you want."

The value of carbon silicon data traffic resources is increasing.

Upon hearing this, Zeng Jia, Du Yuchen, and the others felt a little relieved, as the current carbon and silicon data did indeed have some weight to challenge.

"Douyin's traffic comes not only from Silicon Carbon Data, but also from app stores and mobile phone manufacturers. This is actually a big difference between it and MusVid, which operates outside the company, and it is also one of the reasons why we chose to make a full-format product," Yu Xing said seriously. "As for Xing Hongyu's non-compete agreement, his position is under Silicon Carbon Group. Currently, he is doing MusVid's business in the United States as a consultant. Such a lawsuit will proceed according to the process and it will not be a short-term matter."

While Xing Hongyu was indeed a former senior executive at Tencent, the lawsuit against him for non-compete is merely a strong signal from Tencent.

Without a doubt, Tencent's Weishi will have to go all out immediately after transitioning to full-format content.

Yu Xing lit a cigarette, took two puffs, and said without hesitation, "The penguin is faster than I expected. This time..."

He shook his head slightly: "I don't know why it suddenly went crazy. Has Pony gone mad?"

Whether it's the speed at which Weishi changes, the speed at which it decides to burn money in the competition, the blocking of Weicha, or the ruthless non-compete clauses imposed on former employees, all of these are beyond expectations.

Logically speaking, Weishi should have observed Douyin's development further, and Tencent's existing corporate problems also require a series of processes and internal coordination.

Yu Xing couldn't guess the specific reason, nor was there any need to dwell on it.

He quickly finished his cigarette and said with a shrug, "There are new changes in market competition. We can postpone this round of financing and see how our Spring Festival activities go."

Upon hearing this, all five institutions were surprised; Mr. Yu was surprisingly kind! "Of course, if the results are good, the valuation will need to be renegotiated," Yu Xing said reasonably. "With a larger user base, uncertainty decreases, and the valuation should naturally be higher."

TikTok's valuation in its Series A round was $10 billion, and this round is being discussed at $13 billion, a 30% increase. Both rounds of valuation are quite high.

The investors couldn't help but exchange glances; Mr. Yu was indeed not as good as he seemed...

This matter does indeed require careful consideration.

There are less than three months until the Spring Festival. If the results are good, the decision to miss this opportunity will have to be paid for with money.

Zeng Jia thought of Yang Zhenyuan's eloquent technical talk, and how he only compared Alibaba and silicon carbide, completely disregarding Tencent's technology. He was somewhat inclined to agree, but still said, "President Yu, I still want to hear your thoughts. Lingang has its own traffic. If Alibaba and Tencent merge, how much impact do you think it will have?"

"Speaking of which, I'd say I was one of the people who started the mobile internet competition," Yu Xing laughed. "Back then, I used instant messaging to launch an attack on Tencent, and now Tencent is using instant messaging to block me in new businesses. It's quite ironic."

“In recent years, there have been more and more money-burning activities, and Tencent Video’s actions are nothing new.”

"From burning money on WeChat and Wechat, to burning money on group buying during the group buying war, to burning money on subsidies for ride-hailing, and now burning money on short videos."

"Ultimately, smartphones have shifted users' usage scenarios from fixed PCs to mobile phones that can be used anytime. According to this year's statistics, the penetration rate of smartphones has increased from 19% in 2010 to 73% now, but this has only been four short years."

In just four years, the mobile internet has seen numerous instances of massive spending sprees, a competitive landscape that was undoubtedly rare in the PC era.

The investors present are all quite sensitive to this issue and have witnessed firsthand the repeated cash burn, with some even participating in it. Therefore, they deeply empathize with what Mr. Yu is saying.

Yu Xing took a breath and said, "Although I've been focused on building cars in Lingang these past few years, I've also been very interested in everyone's crazy spending spree. I've been observing and thinking about what the essence of this money-burning competition is."

“Meituan recently completed its Series D financing and is determined not to integrate into Alibaba’s ecosystem. I think this is the right move.”

"Meituan needs its own ecosystem. If it really integrates with Alibaba, it will be ruined."

"Looking back at the past few instances where burning money led to a temporary lead, the key was not the scale of financing, but whether it was possible to build a competitive advantage that was difficult to replicate through burning money."

"Just like TikTok, just like TikTok's recommendation algorithm, just like the technology platform of Silicon Carbon Data."

Yu Xing brought the investors' focus back to the point, which also prompted them to think further.

Can Tencent's massive spending lead to the development of TikTok's algorithm and silicon carbon data technology?

At least, it's not easy to do at this stage.

"Tencent's move with Wechat will certainly have an impact, making it less convenient, but this is only a limited impact. If it thinks it can defeat Douyin with this, it's too naive," Yu Xing said. "It burns money, and so do we. It can achieve scale through burning money, and so can we. However, it can't burn through the algorithmic barriers we've already built. The more money it burns, the more chaotic the battle becomes, and the harder it may be to catch up in this dimension."

From the uncertainty of the latest competition to the observation of repeated cash burn, and then to the core advantages of short video cash burn, this answer was quite satisfactory to investors.

At the very least, President Yu seems quite clear-headed.

We shouldn't waste everyone's money on fools.

Du Yuchen took a couple of sips of tea and asked, "President Yu, what if Alibaba follows suit, what if Alibaba also burns money on a large scale? President Yang also mentioned Alibaba's technology before. Although there is a gap between the two sides, it is still stronger than Tencent."

"I have one very important doubt about Alibaba," Yu Xing said calmly when faced with this question. "I doubt that it can do a good job in social and content products. It has not yet truly proven that it has the ability in this area."

The investors from the five institutions in the conference room were taken aback, but they quickly accepted the skepticism.

This statement sounds arrogant. Alibaba is the world's second-largest internet company and holds WeChat, which rivals Tencent. How can it be questioned for lacking capabilities?
But Yu Xing can question it.

Since WeChat was acquired by Alibaba, its framework has not deviated much from that scope. Subsequent changes have all been imitations of WeChat's own methods. Even this Murong Fu-style approach came from Yu Xing.

"Using their own methods against them is indeed a good approach, but it's not efficient for content products," Yu Xing further explained. "If a user spontaneously produces content A on my end, how can Alibaba's Music use the same methods to produce content A on their end?"

"It can copy and transfer content, but one user, two users, three users keep outputting content ABCDE..."

"Okay, if all the music is transferred over there using their method, since it's always my side that outputs first, and it's the same on both sides, why don't new users come directly to my side instead of coming over there?"

"Moreover, it's impossible to completely switch over. Using their methods in the content field compared to the competition between WeChat and Wechat will be much less effective."

“MusVid从0到1000万用了一年时间，抖音从0到1000万只用了两个月时间，而依托我们的内容建设和算法分发，它从1000万到1500万又只用了半个月时间。”

"Alibaba still needs to prove its capabilities in the short video market, while Douyin only needs you to provide funding to leverage its capabilities."

Yu Xing laughed and said, "So, this should be a perfect match between us."

So... they really hit it off immediately.

On the same day that WeChat blocked Douyin, Douyin completed its Series B financing with five institutions, giving up 20% of its equity and raising $2.6 million, setting a new record for financing speed in China.

Just three days after Douyin completed its Series B financing, Alibaba's WeChat quietly followed suit. Despite its strong confrontation with Tencent and the recent "Meituan-Tencent investment" incident, it still used the same methods to block Douyin's development.

Yu Xing still sent a text message to Cai Chongxin of Alibaba: "Is it necessary?"

Joseph Tsai replied, "I respect that."

He then asked, "Does it sell on Douyin?"

Yu Xing replied, "Not for sale."

Joseph Tsai instructed, "Contact me anytime if you want to sell."

Lingang Silicon Carbon has gained the full respect of both investors and industry peers.

(End of this chapter)