Neither Microsoft nor Oracle gets to buy TikTok US: Chinese state media

What a whirlwind of a Monday morning. Shortly after news broke that Microsoft is out of the picture in bidding for TikTok’s U.S. operations, and rumors began circulating that Oracle is the winner, China’s state broadcaster CGTN reported that ByteDance will not sell TikTok’s U.S. operations to Microsoft or Oracle, citing sources.

ByteDance, the world’s most valuable startup credited with pioneering algorithmic content recommendation, won’t give its source code to any U.S. buyers, sources told CGTN. A source told the South China Morning Post earlier that the tech upstart decided not to sell or transfer the source code behind its popular video app.

ByteDance said it won’t comment on market rumors.

Beijing was ostensibly absent from ByteDance’s negotiations with Washington in the early days, but that seems to have changed as the deal’s deadline inches closer. First, the Chinese government revised its export rules that could block the transfer or sale of ByteDance’s artificial intelligence technologies, and now there’s the state report refuting rumors that Oracle has secured the deal.

This is an updating story.

Huawei phones will start running on HarmonyOS in 2021

Huawei is planning to launch its proprietary Harmony operating system on smartphones in 2021, the firm announced at its annual developer conference in Dongguan on Thursday.

The readiness of HarmonyOS handsets will largely be contingent on the number of apps Huawei can attract within a short window. HMS Core, Huawei’s counterpart to Google Play Services and the toolkit helping developers build and manage apps, now includes 96,000 apps, the company said today. That’s up from 81,000 in July and 60,000 in March.

In comparison, both Google Play and Apple App Store have accumulated apps numbered in the millions.

To lure more apps into its ecosystem, Huawei announced that a beta version of its second-generation operating system — HarmonyOS 2.0 — for mobile developers will launch by the end of this year. Meanwhile, the beta version of HarmonyOS will go open-source for tablets, smartwatches, and in-car systems starting this week.

Huawei’s operating system has a current reach of 490 million users through the company’s family of hardware products.

The telecoms giant shipped 105 million handsets in the first half of 2020, down from 118 million in the same period of 2019 as consumers respond to Huawei phones’ loss of key Android features and a global economic downturn. Huawei’s consumer business, consisting mainly of smartphone sales, pulled in 255.8 billion yuan ($37.4 billion) in H1, up from 220.8 billion yuan the year before.

More updates to follow…

Viral article puts the brakes on China’s food delivery frenzy

For China’s food delivery workers, life can feel like a constant battle with algorithms, traffic police, and disgruntled customers.

An essay detailing the hazardous work conditions of China’s food delivery drivers went viral on the internet on Tuesday, causing a moment of national reckonings on algorithmic harms to people.

In China’s populated urban hubs, one won’t miss the army of express couriers speeding and honking on their scooters. Their reckless driving, according to the investigative report from China’s People magazine, is largely a result of stringent algorithms that penalize late delivery; what’s more, the machines fail to fully factor in real-life variables like weather and traffic and often put drivers’ lives at risk. Within hours, the story had gained over 100,000 views and was shared widely and discussed on the WeChat messenger.

While food delivery platforms boast increasingly fast delivery thanks to state-of-the-art machine learning, the lofty goals the algorithms set for drivers are often attainable only by breaking traffic rules and working extended hours. Sitting indoors, customers tap on streamlined apps, detached from the dangerous delivery journey. To avoid bad reviews and wage cuts, drivers dash and honk pedestrians out of their way to be on time.

Within the first six months of 2019, Shanghai recorded 325 injuries and deaths involving food and parcel delivery drivers alone, with Alibaba’s Ele.me and Tencent-backed Meituan, the food delivery leaders, accounting for nearly 70% of the accidents.

“Most people won’t care if their order arrives two minutes sooner or 10 minutes late. Platforms can actually be more forgiving of delivery drivers. We are more patient than expected,” said a reader comment with 33,000 likes.

On the flip side is an enormous market opportunity. The food ordering industry in China is estimated to reach 665 billion yuan ($97 billion) by 2020. A total of 398 million or nearly 45% of China’s internet users ordered food online as of March. In contrast, online delivery penetration in the U.S. will reach about 9% by 2020.

Millions of drivers are powering China’s food delivery economy, with nearly 4 million on Meituan by 2019 and 3 million on Ele.me at last count.

This isn’t the first time that China has come to grips with safety for food delivery drivers. Following a series of road accidents in 2017, Chinese police ordered on-demand platforms to improve safety standards for drivers. A commentary from China’s state newspaper at the time called for “more humane” management for take-out couriers.

Alibaba has taken notice of the latest critique. About 12 hours after the article published, Ele.me announced it will add a feature that allows customers to voluntarily extend wait time by five or 10 minutes. It also promised that the platform won’t penalize couriers with good credit and service history even when they are occasionally late. Meituan, Ele.me’s main rival, has yet to respond to the issues brought up by the widely circulated article.

China bans Scratch, MIT’s programming language for kids

China’s enthusiasm for teaching children to code is facing a new roadblock as organizations and students lose an essential tool: the Scratch programming language developed by the Lifelong Kindergarten Group at the MIT Media Lab.

China-based internet users can no longer access Scratch’s website. Greatfire.org, an organization that monitors internet censorship in China, shows that the website was 100% blocked as early as August 20, while a Scratch user flagged the ban on August 14.

Nearly 60 million children around the world have used Scratch’s visual programming language to make games, animations, stories and the likes. That includes students in China, which is seeing a gold rush to early coding as the country tries to turn its 200 million kids into world-class tech talents.

At last count, 5.65% or 3 million of Scratch’s registered users are based in China, though its reach is greater than the figure suggests as many Chinese developers have built derivatives based on Scratch, an open-source software.

Projects on Scratch contains “a great deal of humiliating, fake, and libelous content about China,” including placing Hong Kong, Macau and Taiwan in a dropdown list of “countries”, a state-run news outlet reported on August 21.

The article added that “any service distributing information in China” must comply with local regulations, and Scratch’s website and user forum had been shut down in the country.

The Scratch editor, which claims coders in every country in the world and available in more than 50 languages, is downloadable and used offline. That means Chinese users who have installed the software can continue using it for now. It’s unclear whether the restriction will extend to and hamper the software’s future version updates.

The Scratch team cannot be immediately reached for comment. Its ban in China, if proven permanent, will likely drum up support for home-grown replacements.

“Scratch is very widely used in China by student users. Inside schools, it’s used in many official information technology textbooks for primary school students,” said Anqi Zhou, chief executive of Shenzhen-based Dream Codes True, a coding startup targeting primary and secondary school kids. “There are many coding competitions for kids using Scratch.”

Indeed, the infiltration of Scratch into the public school system is what had initially alarmed the Chinese authority. An article published August 11 on a youth-focused state outlet blasted:

“Platforms like Scratch have a large number of young Chinese users. That’s exactly why the platform must exercise self-discipline. Allowing the free flow of anti-China and separatist discourse will cause harm to Chinese people’s feelings, cross China’s red line, and poison China’s future generation.”

The article headline captured Beijing’s attitude towards imported technologies, including those that are open-source and meant to be educational and innocuous: An open China is not “xenophobic” but must “detoxify”.

Regardless of the “problematic” user-generated content on Scratch, China will likely encourage more indigenous tech players to grow, as it has done in a sweeping effort to localize semiconductors and even source code hosting.

Outside textbooks, Scratch had also found its way into pricey afterschool centers across China. Some companies attribute Scratch’s open-source codes as their foundation while others build lookalikes that claim to be in-house made, several Chinese founders working in the industry told TechCrunch.

“Scratch is like the benchmark for kids’ programming software. Most parents learn about Scratch from extracurricular programs, which tend to keep all the web traffic to themselves rather than directing users to Scratch,” said Yi Zhang, founder of Tangiplay, a Shenzhen-based startup teaching children to code through hardware.

Despite Scratch’s popularity in China, competitors of all sizes have cropped up. That includes five-year-old Code Mao, a Shenzhen startup that’s an early and major player in the space — and well-financed by venture capital firms. With its own Kitten language “more robust than Scratch,” the startup boasts a footprint in 21 countries, over 30 million users, and about 11,000 institutional customers. Internet incumbents NetEase and Tencent have also come up with their own products for young coders.

“If it’s something permanent and if mainstream competitions and schools stop using it, we too will consider stopping using it,” said Zhou, whose startup is also based in Shenzhen, which has turned into a hub for early coding thanks to its emerging players like Code Mao and Makeblock.

Qualcomm-powered Chinese XR startup Nreal raises $40 million

Nreal, one of the most-watched mixed reality startups in China, just secured $40 million from a group of high-profile investors in a Series B round that could potentially bring more adoption to its portable augmented headsets.

Kuaishou, the archrival to TikTok’s Chinese version Douyin, led the round, marking yet another video platform to establish links with Nreal following existing investor iQiyi, China’s own Netflix. Like other major video streaming sites around the world, Kuaishou and iQiyi have dabbled in making augmented reality content, and securing a hardware partner will no doubt be instrumental to their early experiments.

Other backers in the round with plentiful industry resources include GP Capital, which counts state-owned financial holding group Shanghai International Group and major Chinese movie studio Hengdian Group as investors; CCEIF Fund, set up by state-owned telecom equipment maker China Electronics Corporation and state-backed investment bank China International Capital Corporation; GL Ventures, the early-stage fund set up by prominent private equity firm Hillhouse Capital; and Sequoia Capital China.

That’s not it. In early 2019, Nreal brought onboard Xiaomi founder’s venture fund Shunwei Capital for its $15 million Series A funding. As I wrote at the time, AR, VR, MR, XR — whichever marketing coinage you prefer — will certainly be a key piece in Xiaomi’s Internet of Things empire. It’s not hard to see the phone titan sourcing smart glasses from Nreal down the road.

The other key partner of Nreal, a three-year-old company, is Qualcomm. The chipmaker has played an active part in China’s 5G rollout, powering major Chinese phone makers’ next-gen handsets. It supplies Nreal with its Snapdragon processors, allowing the startup’s lightweight mixed reality glasses to easily plug into an Android phone.

“Its closer partnership with Qualcomm will allow it to access Qualcomm’s network of customers including telecoms companies,” Seewan Toong, an industry consultant on AR and VR, told TechCrunch.

Indeed, the mixed reality developer has already signed a deal with Japanese telco KDDI and in Korean, it’s working with LG’s cellular carrier LG Uplus Corp.

The latest round brings Nreal’s total raise to more than $70 million and will accelerate mass adoption of its mixed reality technology in the 5G era, the company said.

It remains to be seen how Nreal will live up to its promise, secure users at scale, and move beyond being a mere poster child for tech giants’ mixed reality ambitions. So far its deals with big telcos are in a way reminiscent of that of Magic Leap, which has been in a legal spat with Nreal, though the Chinese company appears to burn through less cash so far. The troubled American company is currently pivoting to relying on enterprise customers after failing to crack the consumer market.

“Nreal is patient and not in a rush to show they can start selling high volume. It’s trying to prove that there’s a user scenario for its technology,” said Toong.

Xiaomi backs Dyson’s Chinese challenger Dreame in $15 million round

Once known for its affordable smartphones, Xiaomi has in recent years been transforming itself into an online mall for consumer electronics by making deals and building relationships with hundreds of hardware and lifestyle startups. And some of its allies are now going after the Western market with their high-end, China-made products.

Beijing-based Dreame, which produces premium hairdryers and vacuums in the style of Dyson but at lower prices, is one of Xiaomi’s latest bets. The startup announced this week the completion of a Series B+ round led by IDG Capital. The financing of nearly 100 million yuan ($14.6 million) also saw the participation of existing investors Xiaomi and Xiaomi founder Lei Jun’s Shunwei Capital, as well as Peak Valley Capital and Edge Ventures.

Dreame makes Xiaomi-branded vacuums and operates its own label, a common setup between Xiaomi and its suppliers, which get to enjoy the security of Xiaomi distribution and build their names at the same time.

The startup has emerged as a cheaper vacuum brand than the area’s pioneer Dyson, whose inventor James Dyson topped the U.K.’s rich list this year. Dreame’s latest handheld cordless broom V11, for example, costs €350 ($413) whereas Dyson’s new model asks for $600.

“If we compare Dyson to Apple, then there must be a Huawei in the [home cleaning] area, and we believe this company will come from China,” co-founder and vice president of marketing and sales Roc Woo told TechCrunch. Domestic businesses are poised to tap China’s rich manufacturing resources, cheaper labor and longer work hours compared to Western counterparts, he asserted.

“There are more and more success stories of Chinese brands going global, from small players like us through to behemoths like Huawei, Xiaomi, Oppo and Vivo.”

The fresh proceeds will fuel Dreame’s marketing and sales efforts in Europe and North America and allow it to spend more on research and development, which tackles the likes of high-speed motors, fluid mechanics, robot dynamics and visual simultaneous localization and mapping (VSLAM), all essential technologies for Dreame’s family of home cleaners and personal care electronics.

The five-year-old startup likes to talk up its robust engineering background. The founding team consists of friends from Tsinghua University, and chief executive Yu Hao made a dent on campus by launching Skyworks, now the prestigious university’s largest hackerspace with sponsorship from industry giants like Boeing and Megvii. A number of its key staff were involved in China’s national spaceship program Shenzhou.

In addition, the startup boasts spending 12% of its annual sales revenue on R&D and operating a 20,000-sqm factory in eastern China’s Suzhou city, where it works to improve its proprietary designs, a growing trend among Chinese startups as Beijing calls for more tech self-reliance.

Xiaomi codependence

Xiaomi doesn’t put all its eggs in one basket when it comes to picking suppliers. In the realm of home cleaning, it’s also backed robot cleaner Roborock, which raised about 4.4 billion yuan ($640 million) from an initial public listing on China’s new tech board in February. Xiaomi first bankrolled Roborock back in 2014, four years before its first investment in Dreame.

Woo believed Dreame and Roborock can co-exist, for his company targets a wider product spectrum while Roborock is more focused and akin to iRobot. The startup doesn’t consider Tyson, of which Woo spoke highly, a direct competitor either, for it’s venturing beyond cleaning into areas like smart mobility.

When asked whether Xiaomi picks winners, Woo said “Xiaomi is more of a platform and doesn’t allocate resources.” While it tended to work closely with startups in its early years, Xiaomi’s empire of consumer products runs on the basis of market competition these days.

“Our collaboration with Xiaomi is no different from the way we work with Amazon or eBay. The investment means not much more than having a capital tie-up and a foundation for trust,” he said. Being in the Xiaomi family does provide a practical perk: it’s a guarantee for sales and offers a bargaining chip for Dreame in its negotiation with production partners.

What Xiaomi gets in return is millions of global consumers signed onto its Mi Home app, a central platform for managing Xiaomi-branded Internet of Things. In Europe, its biggest market, Dreame said it strictly follows the GDPR’s rules on data protection.

Boosted with new capital, Dreame is ready to foray into the U.S. by the end of this year. It already derives 70-80% of its sales outside of China, with a concentration in Europe where it saw a spike in orders since the COVID-19 outbreak for its products were sold mainly online.

For the current year, it aims to generate 3 billion yuan ($440 million) in sales, which doesn’t seem far off given it had shopped over 1 million vacuums by May since the category’s debut two years ago.

PropertyGuru lands $220M from KKR and TPG to conquer Southeast Asia

Southeast Asia’s leading property listing company PropertyGuru is making great strides across the region as it secures a fresh investment of SG$300 million ($220 million), it announced this week.

The proceeds, financed by existing investors KKR and TPG, both buyout titans, will fuel PropertyGuru’s already ambitious push across its main market Singapore, Thailand, Indonesia, Vietnam and Malaysia, where it operates country-specific real estate portals.

The private funding arrived almost a year after the online realtor pulled its plan to list on the Australian Stock Exchange. The company, launched in 2007, was reportedly aiming to raise up to $275 million at the time. And it has been nearly two years since the firm raised $144 million from KKR.

Growth has been encouraging for PropertyGuru in 2019, with a 24% year-over-year revenue growth that beat its own forecasts. The company calls itself Southeast Asia’s largest player, but it’s up against some formidable opponents, including a joint venture set up by close rivals 99.co and iProperty last year. 99.co is itself backed by prominent investors like Facebook co-founder Eduardo Saverin, Sequoia Capital and East Ventures.

Online realtors have been making aggressive expansion in Southeast Asia as the region becomes an attractive destination for real estate investors who want to tap the region’s relatively low investment threshold and high rental yield. Many come from neighboring China, which has reined in property speculation in recent years.

PropertyGuru has kept itself busy in 2020 so far, launching a mortgage marketplace in Singapore and a virtual walkthrough feature for property developers as well as seekers at a time when traveling is unsafe or unattainable. Every month, 24.5 million property seekers use the company’s various products to find homes, which number 2.7 million across the region at the time of its latest funding news.

“Our strong financial performance over the last few years has enabled us to invest aggressively and smartly, to build what is today an integrated and differentiated technology platform that caters to the unique opportunities in Southeast Asian markets,” chief executive Hari V. Krishnan said in a statement.

China’s logistics titan YTO nets close to $1B from Alibaba in overseas push

E-commerce has brought in a logistics boom in China over the last decade, transforming small-town delivery businesses into multinational corporations. One leading player, YTO, is gearing up for international expansion after it secured 6.6 billion yuan or $970 million from its long-time ally and client, Alibaba.

20-year-old YTO announced this week it will sell 379 million shares to Alibaba at a price of 17.4 yuan per share, lifting Alibaba’s stakes in YTO from 10.5% to 22.5%. The founding couple of YTO owns a controlling stake of 41% via their wholly-owned firm after the transaction.

The new investment, according to the notice, will allow Alibaba and YTO to deepen collaboration on areas including delivery, air freight, global network and supply chains and digital transformation as part of their ambition to beef up their global reach.

An Alibaba spokesperson said the company is “pleased to further strengthen the strategic partnership with YTO, focused on digitization and globalization to enhance the customer service capabilities.”

YTO, which commands a 14% share of China’s express delivery market, is among the five logistics behemoths that hail from eastern China’s rural county of Tonglu. Along with rivals STO, ZTO, Best Express and Yunda, YTO’s rise is inseparable from Alibaba, which relies on third-party logistics services rather than building its own infrastructure like Amazon and JD.com.

The e-commerce giant has over the years invested various amounts in all five major couriers from Tonglu, a relationship that anchors its logistics arm Cainiao, which matches vendors and express couriers to handle 50 billion parcels a year.

The duo was already partnering on international expansion back in 2018 when a Cainiao-YTO joint venture began building a digital logistics center at Hong Kong International Airport, the world’s busiest cargo airport. State-owned airline China National Aviation Corporation also holds a stake in the joint venture, and the center is due to begin operation as soon as 2023.

As of 2019, YTO had set up 18 entities and 53 service stations worldwide that support its distribution in 150 countries and regions. The overseas push plays into its larger goal to tap the enormous export potential brought by the Belt and Road Initiative, China’s grand plan to build rail lines, telecommunication networks and other forms of infrastructure around the world.

TikTok parent ByteDance says it will ‘strictly follow’ China export controls

While Beijing has repeatedly spoken out against Washington’s pressure on Huawei, it has remained relatively quiet amid TikTok’s recent struggles in the U.S. As the red-hot video app approaches a final sale in the U.S., however, the Chinese authority moved unexpectedly to make the deal more complicated to go through.

On late Friday, China’s Ministry of Commerce updated its export control categories to cover artificial intelligence technologies. AI is the anchor of ByteDance products including TikTok, which has thrived on customized content surfaced by machines. The next day, China’s official Xinhua news agency quoted scholar Cui Fan as saying the updated rules could apply to ByteDance. He advised companies with ongoing deals to “halt negotiations and transactions so as to conduct the relevant procedures.”

On late Sunday, TikTok’s Chinese parent ByteDance issued a statement saying it will “strictly follow” the new technology export rules and handle its “related export businesses.”

Though the new rule is not explicitly targeted at the TikTok deal, its timing is curious, just weeks before ByteDance is due to divest from its largest overseas market. ByteDance could now face hurdles as it advances to sell TikTok, for the regulation restricts the export of personalized recommendation and AI-powered interface technologies, according to Cui, a professor at China’s University of International Business and Economics.

A TikTok sale is already complicated on the technical level even without China’s trade restrictions. As The Information pointed out, ByteDance’s engineers and developers at its headquarters Beijing provide all the software code deployed in its family of apps including TikTok. It’s a strategy known as the “central platform” in the Chinese tech sector, one that also undergirds many businesses of Alibaba and Tencent for its purported advantage of increasing productivity and minimizing redundant resources. As such, breaking TikTok off from its Chinese parent would almost certainly disrupt the app’s operations in the short run.

Many Chinese internet users have chastised ByteDance chief Zhang Yiming for caving in to U.S. pressure, which ordered the TikTok sale over alleged national security threats. Some go as far as labeling the tech boss of the world’s most valuable startup a “traitor“. They compare Zhang to the Huawei boss Ren Zhengfei, whose responses to American sanctions have been thought of as much more aggressive.

It remains to be seen whether Beijing will further step in TikTok’s negotiations with the U.S. Industry observers have noted that the case is distinct from that of Huawei, whose 5G technology is a focal point of China’s race with the U.S., and who directly and indirectly has created many manufacturing jobs in China. Albeit being unprecedented in its penetration into the Western internet, ByteDance develops software that is considered more replaceable and relies on a narrower range of elitist talents.

A damaged TikTok app may cause complaints from marketers who live off the app, but it probably won’t set off the same level of corporate resistance as seen with Trump’s proposed WeChat ban, which reportedly had giants including Apple, Walmart and Disney move to discuss the issue with the White House.

 

Podcast is social: How China’s Lizhi makes audio interactive

For Marco Lai, the founder of Chinese podcast network Lizhi, radio has always been social.

Twenty years ago, the entrepreneur was a host at a radio station in southern China. He ran a late-night program where listeners could call in and chat about anything as they wished, often riffing on feelings, relationships or other intimate subjects. Those who couldn’t get through the phone line sent text messages that Lai would then read on air. At the time, it was a popular and promising model for radio stations, which divided the revenue earned from messaging fees with network carriers.

Now, Lai manages one of China’s largest podcast companies. Lizhi means “lychee” in Chinese, the aromatic tropical fruit from his hometown in the southern province of Guangdong. He picked up one of the red-shell fruits from a tea table in his office as he began telling me Lizhi’s story.

“I learned from my days working in radio that interaction is the best monetization model in the audio business. For years in China, the main revenue source for radio stations was these text messages,” Lai reminisced, speaking at a relaxed, slow pace that is uncharacteristic in China’s dog-eat-dog entrepreneurial world.

Marco Lai, founder and CEO of Lizhi (Photo: Lizhi)

The headquarters itself felt more like a giant, inviting coffee shop than a high-strung workplace of a Nasdaq-listed firm. Tugged away in a low-rise warehouse-turned-office in Guangzhou, the place is dotted with well-tended bonsai and staff sitting on bean bags behind glass meeting rooms.

Lai built the app for podcast production as well as consumption, capturing both the supply and demand sides. As of June, 56 million people used Lizhi monthly. Over 6 million of them were creators, and the cumulative number of podcasts uploaded to the platform hit a new record high of 215 million.