Tencent Q4 profit disappoints, but cloud and payments gain ground

China’s Tencent reported disappointing profits in the fourth quarter on the back of surging costs but saw emerging businesses pick up steam as it plots to diversify amid slackening gaming revenues.

Net profit for the quarter slid 32 percent to 14.2 billion yuan ($2.1 billion), behind analysts’ forecast of 18.3 billion yuan. The decrease was due to one-off expenses related to its portfolio companies and investments in non-gaming segments like video content and financial technology.

Excluding non-cash items and M&A deals, Tencent’s net profit from the period rose 13 percent to 19.7 billion yuan ($2.88 billion). The company has to date invested in more than 700 companies, 100 of which are valued over $1 billion each and 60 of which have gone public.

Quarterly revenue edged up 28 percent to 84.9 billion yuan ($12.4 billion) beating expectations.

The Hong Kong-listed company is best known for its billion-user WeChat messenger but had for year relied heavily on a high-margin gaming business. That was until a months-long freeze on games approvals last year that delayed monetization for new titles, spurring a major reorg in the firm to put more focus on enterprise services, including cloud computing and financial technology.

Tencent has received approvals for eight games since China resumed the licensing process, although its blockbusters PlayerUnknown Battlegrounds and Fortnite have yet to get the green light. The firm also warned of a ”sizeable backlog“ for license applications in the industry, which means its “scheduled game releases will initially be slower than in some prior years.”

Video games for the quarter contributed 28.5 percent of Tencent’s total revenues, compared to 36.7 percent in the year-earlier period. Despite the domestic fiasco, Tencent remains as the world’s largest games publisher by revenue according to data compiled by NewZoo. The firm has also gotten more aggressive in taking its titles global.

Social network revenues rose 25 percent on account of growth in live streaming and video subscriptions. The segment made up 22.9 percent of total revenues. Tencent has in recent years spent heavily on making original content and licensing programs as it competes with Baidu’s iQiyi video streaming site. Tencent claimed 89 million subscribers in the latest quarter, compared with iQiyi’s 87.4 million.

Tencent has been relatively slow to monetize WeChat in contrast to its western counterpart Facebook, though it’s under more pressure to step up its game. Tencent’s advertising revenue from the quarter grew 38 percent thanks to expanding advertising inventory on WeChat. Ads accounted for 20 percent of the firm’s quarterly revenues.

All told, WeChat and its local version Weixin reached nearly 1.1 billion monthly active users. 750 million of them checked their friends’ WeChat feeds, and Tencent recently introduced a Snap Story-like feature to lock users in as it vies for eyeball time with challenger TikTok.

The “others” category comprising of financial technology and cloud computing grew 71.8 percent to generate 28.5 percent of total revenues. WeChat’s e-wallet, which is going neck-and-neck with Alibaba affiliate Alipay, saw daily transaction volume exceed 1 billion last year. During the fourth quarter, merchants who used WeChat Pay monthly grew over 80 percent year-over-year.

Meanwhile, cloud revenues doubled to 9.1 billion yuan in 2018, thanks to Tencent’s dominance in the gaming sector as its cloud infrastructure now powers over half of the China-based games companies and is following these clients overseas. Tencent meets Alibaba head-on again in the cloud sector. For comparison, Alibaba’s most recent quarterly cloud revenue was 6.6 billion yuan. Just yesterday, the ecommerce leader claimed that its cloud business is larger than the second to eight players in China combined.

The “splinternet” is already here

There is no question that the arrival of a fragmented and divided internet is now upon us. The “splinternet,” where cyberspace is controlled and regulated by different countries is no longer just a concept, but now a dangerous reality. With the future of the “World Wide Web” at stake, governments and advocates in support of a free and open internet have an obligation to stem the tide of authoritarian regimes isolating the web to control information and their populations.

Both China and Russia have been rapidly increasing their internet oversight, leading to increased digital authoritarianism. Earlier this month Russia announced a plan to disconnect the entire country from the internet to simulate an all-out cyberwar. And, last month China issued two new censorship rules, identifying 100 new categories of banned content and implementing mandatory reviews of all content posted on short video platforms.

While China and Russia may be two of the biggest internet disruptors, they are by no means the only ones. Cuban, Iranian and even Turkish politicians have begun pushing “information sovereignty,” a euphemism for replacing services provided by western internet companies with their own more limited but easier to control products. And a 2017 study found that numerous countries, including Saudi Arabia, Syria and Yemen have engaged in “substantial politically motivated filtering.”

This digital control has also spread beyond authoritarian regimes. Increasingly, there are more attempts to keep foreign nationals off certain web properties.

For example, digital content available to U.K. citizens via the BBC’s iPlayer is becoming increasingly unavailable to Germans. South Korea filters, censors and blocks news agencies belonging to North Korea. Never have so many governments, authoritarian and democratic, actively blocked internet access to their own nationals.

The consequences of the splinternet and digital authoritarianism stretch far beyond the populations of these individual countries.

Back in 2016, U.S. trade officials accused China’s Great Firewall of creating what foreign internet executives defined as a trade barrier. Through controlling the rules of the internet, the Chinese government has nurtured a trio of domestic internet giants, known as BAT (Baidu, Alibaba and Tencent), who are all in lock step with the government’s ultra-strict regime.

The super-apps that these internet giants produce, such as WeChat, are built for censorship. The result? According to former Google CEO Eric Schmidt, “the Chinese Firewall will lead to two distinct internets. The U.S. will dominate the western internet and China will dominate the internet for all of Asia.”

Surprisingly, U.S. companies are helping to facilitate this splinternet.

Google had spent decades attempting to break into the Chinese market but had difficulty coexisting with the Chinese government’s strict censorship and collection of data, so much so that in March 2010, Google chose to pull its search engines and other services out of China. However now, in 2019, Google has completely changed its tune.

Google has made censorship allowances through an entirely different Chinese internet platform called project Dragonfly . Dragonfly is a censored version of Google’s Western search platform, with the key difference being that it blocks results for sensitive public queries.

Sundar Pichai, chief executive officer of Google Inc., sits before the start of a House Judiciary Committee hearing in Washington, D.C., U.S., on Tuesday, Dec. 11, 2018. Pichai backed privacy legislation and denied the company is politically biased, according to a transcript of testimony he plans to deliver. Photographer: Andrew Harrer/Bloomberg via Getty Images

The Universal Declaration of Human Rights states that “people have the right to seek, receive, and impart information and ideas through any media and regardless of frontiers.”

Drafted in 1948, this declaration reflects the sentiment felt following World War II, when people worked to prevent authoritarian propaganda and censorship from ever taking hold the way it once did. And, while these words were written over 70 years ago, well before the age of the internet, this declaration challenges the very concept of the splinternet and the undemocratic digital boundaries we see developing today.

As the web becomes more splintered and information more controlled across the globe, we risk the deterioration of democratic systems, the corruption of free markets and further cyber misinformation campaigns. We must act now to save a free and open internet from censorship and international maneuvering before history is bound to repeat itself.

BRUSSELS, BELGIUM – MAY 22: An Avaaz activist attends an anti-Facebook demonstration with cardboard cutouts of Facebook chief Mark Zuckerberg, on which is written “Fix Fakebook”, in front of the Berlaymont, the EU Commission headquarter on May 22, 2018 in Brussels, Belgium. Avaaz.org is an international non-governmental cybermilitating organization, founded in 2007. Presenting itself as a “supranational democratic movement,” it says it empowers citizens around the world to mobilize on various international issues, such as human rights, corruption or poverty. (Photo by Thierry Monasse/Corbis via Getty Images)

The Ultimate Solution

Similar to the UDHR drafted in 1948, in 2016, the United Nations declared “online freedom” to be a fundamental human right that must be protected. While not legally binding, the motion passed with consensus, and therefore the UN was provided limited power to endorse an open internet (OI) system. Through selectively applying pressure on governments who are not compliant, the UN can now enforce digital human rights standards.

The first step would be to implement a transparent monitoring system which ensures that the full resources of the internet, and ability to operate on it, are easily accessible to all citizens. Countries such as North Korea, China, Iran and Syria, who block websites and filter email plus social media communication, would be encouraged to improve through the imposition of incentives and consequences.

All countries would be ranked on their achievement of multiple positive factors including open standards, lack of censorship, and low barriers to internet entry. A three tier open internet ranking system would divide all nations into Free, Partly Free or Not Free. The ultimate goal would be to have all countries gradually migrate towards the Free category, allowing all citizens full information across the WWW, equally free and open without constraints.

The second step would be for the UN to align itself much more closely with the largest western internet companies. Together they could jointly assemble detailed reports on each government’s efforts towards censorship creep and government overreach. The global tech companies are keenly aware of which specific countries are applying pressure for censorship and the restriction of digital speech. Together, the UN and global tech firms would prove strong adversaries, protecting the citizens of the world. Every individual in every country deserves to know what is truly happening in the world.

The Free countries with an open internet, zero undue regulation or censorship would have a clear path to tremendous economic prosperity. Countries who remain in the Not Free tier, attempting to impose their self-serving political and social values would find themselves completely isolated, visibly violating digital human rights law.

This is not a hollow threat. A completely closed off splinternet will inevitably lead a country to isolation, low growth rates, and stagnation.

Food delivered to the doorstep is not so cheap in China anymore

A big selling point of ordering food to the doorstep in China is price, which, in the early years, could be much cheaper than eating in-house. That’s arguably indulged a demographic of lazy, indoorsy eaters, but that may not last for much longer.

Over the past few months, users in China have noticed incremental price increases on their meals ordered via Ele.me and Meituan, the country’s largest food delivery apps. The trigger? China’s food heavyweights have gone about taking a bigger cut of each order — over 20 percent in some cases — as their priorities shifted following a major upheaval.

Three-way war

Ele.me and Meituan work just like their American counterparts Uber Eats, GrubHub, DoorDash and the likes. The apps list menu items from an assortment of local restaurants. When a user places an order, they pass it along to the restaurant and dispatch a driver — in China’s case, a scooter driver — to pick up the food. The customer can then see when their meal will arrive through a live map tracking the driver’s movement.

This new habit of ordering food via a marketplace app rather than calling a restaurant caught on rapidly in China, in part thanks to vast sums of subsidies from companies like Ele.me and Meituan to bring costs down for restaurants and users. The market was on course to reach 240 billion yuan ($35.8 billion) in transactions in 2018 with an 18 percent year-over-year growth rate, estimates research firm iiMedia. Total users would reach 355 million, which means a quarter of Chinese are now ordering food from their phones.

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Meituan’s delivery driver pictured in an ad / Image: Meituan via Weibo

Food delivery startups willingly undertook the cash-intensive fight because they had deep-pocketed backers. For a few years, the sector was a three-way proxy war between China’s tech mammoths Baidu, Alibaba and Tencent, which are collectively known as the “BAT”. Baidu effectively quit the scene after selling its food delivery business to rival Ele.me in 2017. Last year saw more shakeup as Alibaba took over Ele.me, which subsequently merged with the parent’s local services unit Koubei, while Meituan went public with Tencent being a major shareholder.

Meituan led the game in 2018 with a 61.3 percent market share according to research firm TrustData, giving it a meaningful edge over Ele.me, which alongside its newly acquired Baidu Waimai commanded a total of 36.5 percent share.

Subsidies were helpful in enlisting restaurants and consumers early on, but as the market consolidates, investors will likely become more attuned to monetization. It’s thus unsurprising to see both major players scaling back from subsidy-powered growth. It’s too soon to know how the faceoff between Ele.me and Meituan will play out in the next few years, as the duo is now dealing with a fresh set of challenges and goals.

New adventures

It’s hard to nail down how much Ele.me and Meituan are charging restaurants from each transaction since fees vary on the location, type and size of a restaurant. What’s widely acknowledged is that both have been raising commission rates once every few months, forcing restaurants to rethink their strategy for ferrying food around.

“We’ve raised all our items by at least two yuan [$0.30]. We aren’t worried because we’ve built a loyal customer base over the years. For those who just started and focus on delivery, they may have a harder time,” a restaurant owner who operates a take-out kitchen in Hefei, the capital of China’s Anhui Province, told TechCrunch.

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Ele.me’s delivery driver pictured in an ad / Image: Ele.me via Weibo

The subsidy-fuelled period cultivated a clan of “virtual restaurants” that operate only out of a kitchen. As subsidies shrink, those reliant on delivery as a lifeline are left with three options: close down, absorb the new costs to keep customers happy, or in some cases where the kitchen is well-functioning, shift the costs to customers.

TechCrunch spoke to more than a dozen restaurants and take-out kitchens in China’s major cities and found most are paying at least 20 percent of each order — a considerable bite to the low-margin business — to Meituan and slightly less to Ele.me. The discrepancy may speak to Meituan’s mounting operating losses — which tripled year-over-year to 3.45 billion yuan ($510 million) in the third quarter of 2018 — a soft spot that its rival poignantly pointed out.

“Ele.me promises it won’t further raise fees [on restaurants] and its rate will always be lower than that of Meituan,” Ele.me vice president Wang Jingfeng told news portal Sina in an interview in January. “Meituan is under financial pressure. But Ele.me understands the food delivery market is still in the phase of being educated. Reaping rewards from merchants too early can do great harm to the market.”

Meituan said it had no comment on its increased fees for restaurants. But the Hong Kong-listed company, driven with the vision to become the “Amazon for services,” already showed signs of stress when it ceased expansions on its costly new ventures — car-hailing and bike-rental. Food delivery accounts for the majority of Meituan’s revenues, while hotel booking is its second-most significant revenue source. The company, however, assured investors that it’s in no rush to turn a profit.

“We are not focused on the short-term profitability, even though we have been proven that we are able to do so, to make it — continue improvement in our unit economics. We would rather focus on growth and improve the overall user and merchant experience and to continue to strengthen our leadership in this market,” said Chen Shaohui Chen, Meituan’s vice president of corporate development, during the company’s Q3 earnings call. 

Despite enjoying support from consistently profitable Alibaba, Ele.me will also face pressure soon as parent company Alibaba copes with slowing revenue growth. For Ele.me, opportunities lie outside China’s megacities where eating via an app is not yet a norm. All told, Alibaba plans to hire 5,000 new employees in 2019 for Ele.me and Koubei to infiltrate the largely untapped Tier 3 and 4 cities, a source close to the matter told TechCrunch, and the team will focus not just on delivery but also work to digitally power up conventional restaurants.

Food delivery is just one way to generate income. Both Ele.me and Meituan are aiming to upgrade restaurants the way Alibaba and JD.com have transformed brick-and-mortar stores: from how data analytics can beef up sourcing efficiency to implementing scan-to-order for in-house diners. The hope is a data-centric practice will convert to cost-saving for restaurants, which will eventually boost their loyalty and willingness to pay for the tech giants’ tools.

Tiger Global and Ant Financial lead $500M investment in China’s shared housing startup Danke

A Chinese startup that’s taking a dorm-like approach to urban housing just raised $500 million as its valuation jumped over $2 billion. Danke Apartment, whose name means “eggshell” in Chinese, closed the Series C round led by returning investor Tiger Global Management and newcomer Ant Financial, Alibaba’s e-payment and financial affiliate controlled by Jack Ma.

Four years ago, Beijing-based Danke set out with a mission to provide more affordable housing for young Chinese working in large urban centers. It applies the coworking concept to housing by renting apartments that come renovated and fully furnished, a model not unlike that of WeWork’s WeLive. The idea is by slicing up a flat designed for a family of three to four — the more common type of urban housing in China — into smaller units, young professionals can afford to live in nicer neighborhoods as Danke takes care of hassles like housekeeping and maintenance. To date, the startup has set foot in ten major Chinese cities.

With the new funds, Danke plans to upgrade its data processing system that deals with rental transactions. Housing prices are set by AI-driven algorithms that take into account market forces such as locations rather than rely on the hunches of a real estate agent. The more data it gleans, the smarter the system becomes. That layout is the engine of the startup, which believes an internet platform play is a win-win for both homeowners and tenants because it provides greater transparency and efficiency while allowing the company to scale faster.

“We are focused on business intelligence from day one,” Danke’s angel investor and chairman Derek Shen told TechCrunch in an interview. Shen was the former president of LinkedIn China and was instrumental in helping the professional networking site enter the country. “By doing so we are eliminating the need to set up offline retail outlets and are able to speed up the decision-making process. What landlords normally care is who will be the first to rent out their property. The model is also copiable because it requires less manpower.”

“We’ve proven that the rental housing business can be decentralized and done online,” added Shen.

danke apartment

Photo: Danke Apartment via Weibo

Danke doesn’t just want to digitize the market it’s after. Half of the company’s core members have hailed from Nuomi, the local services startup that Shen founded and was sold to Baidu for $3.2 billion back in 2015. Having worked for a business of which mission was to let users explore and hire offline services from their connected devices, these executives developed a propensity to digitize all business aspects including Danke’s day-to-day operations, a scheme that will also take up some of the new funds. This will allow Danke to “boost operational efficiency and cut costs” as it “actively works with the government to stabilize rental prices in the housing market,” the company says.

The rest of the proceeds will go towards improving the quality of Danke’s apartment amenities and tenant experiences, a segment that Shen believes will see great revenue potential down the road, akin to how WeWork touts software services to enterprises. The money will also enable Danke, which currently zeroes in on office workers and recent college graduates, to explore the emerging housing market for blue-collar workers.

Other investors from the round include new backer Primavera Capital and existing investors CMC Capital, Gaorong Capital and Joy Capital.

China’s rental housing market has boomed in recent years as Beijing pledges to promote affordable apartments in a country where few have the money to buy property. As President Xi Jinping often stresses, “houses are for living in, not for speculation.” As such, investors and entrepreneurs have been piling into the rental flat market, but that fervor has also created unexpected risks.

One much-criticized byproduct is the development of so-called “rental loans.” It goes like this: Housing operators would obtain loans in tenants’ names from banks or other lending institutions allegedly by obscuring relevant details from contracts. So when a tenant signs an agreement that they think binds them to rents, they have in fact agreed to take on loans and their “rent” payments become monthly loan repayments.

Housing operators are keen to embrace such practices for the loans provide working capital for renovation and their pipeline of properties. On the other hand, the capital allows companies like Danke to lower deposits for cash-strapped young tenants. “There’s nothing wrong with the financial instrument itself,” suggested Shen. “The real issue is when the housing operator struggles to repay, so the key is to make sure the business is well-functioning.”

Danke alongside competitors Ziroom and 5I5J has drawn fire for not fully informing tenants when signing contracts. Shen said his company is actively working to increase transparency. “We will make it clear to customers that what they are signing are loans. As long as we give them enough notice, there should be little risk involved.”

Korean conglomerate SK leads $600M round for Chinese chipmaker Horizon Robotics

Horizon Robotics, a three-year-old Chinese startup backed by Intel Capital, just raised a mega-round of fundings from domestic and overseas backers as it competes for global supremacy in developing AI solutions and chips aimed at autonomous vehicles, smart retail stores, surveillance equipment and other devices for everyday scenarios.

The Beijing-based company announced Wednesday in a statement that it’s hauled in $600 million in a Series B funding round led by SK China, the China subsidiary of South Korean conglomerate SK Group; SK Hynix, SK’s semiconductor unit; and a number of undisclosed Chinese automakers along with their funds.

The fresh capital drove Horizon’s valuation to at least $3 billion, the company claims. The Financial Times previously reported that the chipmaker was raising up to $1 billion in a funding round that could value it at as much as $4 billion. Such a price tag could perhaps be justified by the vast amount of resources China has poured into the red-hot sector as part of a national push to shed dependency on imported chips and work towards what analysts call “semiconductor sovereignty.”

Horizon did not specify how the proceeds will be used. The company could not be immediately reached for comments.

In 2015, Yu Kai left Baidu as the Chinese search engine giant’s deep learning executive and founded Horizon to make the “brains” for a broad spectrum of connected devices. In doing so Yu essentially set himself up for a race against industry veterans like Intel and Nvidia. To date, the startup has managed to make a dent by securing government contracts, which provide a stable source of income for China’s AI upstarts including SenseTime, and several big-name clients like SK’s telecommunication unit, which is already leveraging Horizon’s algorithms to develop smart retail solutions. Like many of its peers who are at the forefront of the AI race, Horizon has set up an office in Silicon Valley and hiring local talents for its lab.

Other investors who joined the round included several of Horizon’s returning investors such as Hillhouse Capital and Morningside Venture Capital . There were also some heavyweight new backers, such as a fund run by conglomerate China Oceanwide Holdings as well as the CSOBOR Fund, a private equity entity set up by China’s state-owned CITIC to back projects pertaining to China’s ambitious “One Belt, One Road” modern Silk Road initiative.

Baidu’s video site iQiyi adds 37M subscribers in 2018 amid mounting losses

China’s Baidu, which is often compared to Alphabet’s Google, is showing no signs of slowing down its pace of betting on video content as its core advertising unit feels the squeeze from rivals. The company’s latest financial results show its video streaming business iQiyi posted a net loss of 9.1 billion yuan or $1.3 billion in 2018, compared to just 3.74 billion yuan in 2017.

Not long ago, iQiyi announced raising $500 million in convertible notes to fuel its spending spree. The video site, which filed for a $1.5 billion U.S. IPO last February, aspires to be the “Disney of China” with a Netflix-style production house and a plan to merchandise a library of intellectual property. Baidu also felt the heat as content costs from 2018 jumped 75 percent to $3.42 billion mainly on account of iQiyi expenses.

The cash burn appears to be paying off. IQiyi added 36.6 million subscribers last year, bringing its total users to 87.4 million. 98.5 percent of them were paying, a promising ratio given Chinese users were long used to getting free content in a country with rampant online piracy. IQiyi’s most serious contender Tencent Video had 82 million users as of Q3.

2018 also turned out to be the first time Baidu has crossed the 100 billion yuan earnings mark as the firm pocketed 102.3 billion yuan ($14.88 billion) in total revenues, an increase of 28 percent from 2017.

In Q4 alone, Baidu’s total revenues grew 22 percent to $3.96 billion at a slower rate compared to the previous quarter. Online advertising from search results, news feed and video content still made up the majority of the company’s income despite the considerable resources the behemoth has poured into autonomous driving and other AI-focused efforts.

Meanwhile, Baidu’s lucrative advertising business is facing heightened competition from ByteDance, the fast-ascending new media company with a suite of news and video apps that are proven popular with marketers. The Beijing-based firm that’s also unnerved Tencent was expected to achieve $7.4 billion in revenues last year, Bloomberg reported citing sources.

To fend off attackers, Baidu has broadened its advertising inventory beyond the web to include the likes of elevators. In another move, Baidu paid $133 million in cash prizes luring users to its namesake search app on the eve of Chinese New Year. But its search service has over the years been a repeated target for criticism on issues ranging from false medical ads to more recently the subpar quality of its search results. Baidu has nonetheless held onto its commanding position in a market where Google is absent and smaller players like Bing and Sogou remain the underdogs.

On the AI front, Baidu made a total of 13 investments in 2018 that made it the most prolific corporate venture capital focused on the realm, according to a report from CB Insights. Microsoft’s M12 venture and Google Ventures followed closely behind.

Though Baidu’s AI business is far from achieving mass commercialization, the segment has scored some notable landmarks. Over 200 million devices now use DuerOS, the company’s answer to the Alexa voice assistant. Baidu’s autonomous driving open platform Apollo has accumulated 135 original equipment manufacturers (OEMs) including Volvo, which is working with its Chinese ally to deliver level four self-driving passenger vehicles that can operate on pre-mapped roads with minimum human intervention.

Alibaba takes an 8% stake in Tencent-backed anime streaming site Bilibili

Ecommerce giant Alibaba is continuing its push into the world of youth culture after it scooped up an 8 percent stake in anime streaming and game publishing company Bilibili.

According to a securities filing on Thursday, Alibaba’s Taobao marketplace has acquired about 24 million shares in Bilibili, the Shanghai-based firm that has captured 93 million monthly users from hosting licensed anime titles, video games and user-generated content.

The financial gesture is hot on the heels of a partnership announced in December that saw the pair working to monetize Bilibili’s content assets. For one, Alibaba can help Bilibili creators sell merchandise like cosplay costumes and anime toys through Taobao’s online bazaar. Bilibili itself owns an e-store, but Taobao’s command of 700 million monthly users dwarfs its reach. 

“The partnership is great news for ACG content creators,” a Shanghai-based merchant that sells Lolita costumes on Taobao told TechCrunch, referring to the acrynom for “anime, comic and games.” The owner sells through both Taobao and Bilibili, though most sales have come from Taobao.

“We can now leverage Taobao’s gigantic platform and seasoned ecommerce operating capabilities to further help our content creators realize and improve their commercial values, thereby building a more virtuous content community and commercialization-focused ecosystem,” says Bilibili chief executive and chairman Chen Rui in a statement.

taobao acg alibaba

Screenshot: Taobao has a dedicated channel for anime, comic and gaming (ACG) items.

What Alibaba gets in return is access to China’s Generation Z. Bilibili claims that 82 percent of its users were born between 1990 and 2009. In a savvy move, Alibaba hooked up its food delivery unit Ele.me with Bilibili in December to tap a demographic of anime-watching and game-playing young people reliant on delivered meals.

Over 1.6 million content creators, including anime, comic and games (ACG) experts, were actively supporting the Taobao app and helping brands on our platform engage with consumers,” says Fan Jiang, vice president of Alibaba and president of Taobao. “Through deep cooperation with intellectual property holders and content creators, Taobao has experienced the great potential of ACG.”

Investors’ darling

Tencent and Baidu’s iQiyi have also spent big bucks to beef up their respective anime offering, but Bilibili’s flourishing youth community gives it an edge over these deep-pocketed video-streaming heavyweights and to an extent makes it an investors’ darling. The eight-year-old company is notable for being one of the rare companies that count both Alibaba and Tencent — which compete on multiple fronts spanning ecommerce to cloud computing — as their investors. Other companies that won backings from the duo include China’s largest ride-hailing service Didi Chuxing.

Last October, social media and gaming juggernaut Tencent poured nearly $320 million into Bilibili in exchange for a 12.3 percent stake. While Alibaba helps drive revenues to Bilibili’s community of creators and potentially boost their loyalty to the site, Tencent could help it save on licensing fees for games and animes.

“Tencent and Bilibili are two of the major players in the animation industry. By working with Tencent, this will intensively expand our content offering and effectively decrease our content investment in the animation copyright procurement,” Chen of Bilibili said during the company’s Q3 earnings call.

“The agreement will enable us to leverage Tencent’s primary content, particularly in licensing, co-producing and investment in anime as well as publish Tencent’s large portfolio of high-quality mobile games,” Bilibili’s chief financial officer Sam Fan added.

It isn’t just apps. China’s cinemas broke records during Lunar New Year

China celebrated Lunar New Year last week as hundreds of millions of people travelled to their hometowns. While many had longed to see their separated loved ones, others dreaded the weeklong holiday as relatives awkwardly caught up with them with questions like: “Why are you not married? How much do you earn?”

Luckily, there are ways to survive the festive time in this digital age. Smartphone usage during this period has historically surged. Short video app TikTok’s China version Douyin noticeably took off by acquiring 42 million new users over the first week of last year’s holiday, a report from data analytics firm QuestMobile shows. Tencent’s mobile game blockbuster Honor of Kings similarly gained 76 percent DAUs during that time, according to another QuestMobile report.

People also hid away by immersing themselves in the cinema during the Lunar New Year, a movie-going period akin to the American holiday season. This year, China wrapped up the first six days of the New Year with a record-breaking 5.8 billion ($860 million) yuan box office, according to data collected by Maoyan, Alibaba’s movie ticketing service slated for an initial public offering.

The new benchmark, however, did not reflect an expanding viewership. Rather, it came from price hikes in movie tickets, market research firm EntGroup suggests. On the first day of Year of the Pig, tickets were sold at an average of 45 yuan ($6.65), up from 39 yuan last year. That certainly put some price-sensitive audience off — though not by a huge margin as there wasn’t much to do otherwise. (Shops were closed. Fireworks and firecrackers, which are traditionally set off during the New Year to drive bad spirits away, are also banned in most Chinese cities for safety concerns.) Cinemas across China sold 31.69 million tickets on the first day, a slight decline from last year’s 32.63 million.

Dawn of Chinese sci-fi

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Image source: The Wandering Earth via Weibo

Many Chinese companies don’t return to work until this Thursday, so the box office results are still being announced. Investment bank Nomura put the estimated total at 6.2 billion yuan. What’s also noticeable about this year’s film-inspired holiday peak is the fervor that sci-fi The Wandering Earth whipped up.

American audiences may find in the Chinese film elements of Interstellar’s space adventures, but The Wandering Earth will likely resonate better with the Chinese audience. Adapted from the novel of Hugo Award-winning Chinese author Liu Cixin, the film tells the story of the human race seeking a new home as the aging sun is about to devour the earth. A group of Chinese astronauts, scientists and soldiers eventually work out a plan to postpone the apocalypse — a plot deemed to have stoke Chinese viewers’ sense of pride, though the rescue also involves participation from other nations.

The film, featuring convincing special effects, is also widely heralded as the dawn of Chinese-made sci-fi films. The sensation gave rise to a wave of patriotic online reviews like “If you are Chinese, go watch The Wandering Earth” though it’s unclear whether the discourse was genuine or have been manipulated.

Alibaba’s movie powerhouse

This record-smashing holiday has also been a big win for Alibaba, the Chinese internet outfit best known for ecommerce and increasingly cloud computing. Its content production segment Alibaba Pictures has backed five of the movies screened during the holiday, one of which being the blockbuster The Wandering Earth that also counts Tencent as an investor.

Tech giants with online streaming services are on course to upend China’s film and entertainment industry, a sector traditionally controlled by old-school production houses. In its most recent quarter, Alibaba increased its stake to take majority control in Alibaba Pictures, the film production business it acquired in 2014. Tencent and Baidu have also spent big bucks on content creation. While Tencent zooms in on video games and anime, Baidu’s Netflix-style video site iQiyi has received wide acclaim for house-produced dramas like Yanxi Palace, a smash hit drama about backstabbing concubines that was streamed over 15 billion times.

Seeing all the entertainment options on the table, the Chinese government made a pre-emptive move against the private players by introducing a news app designed for propaganda purposes in the weeks leading to the vacation.

“The timing of the publishing of this app might be linked to the upcoming Chinese New Year Festival, which the Chinese Communist Party sees as an opportunity and a necessity to spread their ideology,” Kristin Shi-Kupfer, director of German think tank MERICS, told TechCrunch earlier. “[It] may be hoping that people would use the holiday season to take a closer look, but probably also knowing that most people would rather choose other sources to relax, consume and travel.”

Microsoft confirms Bing is down in China

Microsoft’s Bing is down in China, according to users who took to social media beginning Wednesday afternoon to complain and express concerns.

The Seattle-based behemoth has confirmed that its search engine is currently inaccessible in China and is “engaged to determine next steps,” a company spokesperson said in a statement to TechCrunch Thursday morning.

Citing sources, the Financial Times reported (paywalled) on Thursday that China Unicom, a major state-owned telecommunication company, confirmed the government had ordered a block on Bing.

Public reaction

The situation appears to be a DNS (domain name system) corruption, one method for China to block websites through its intricate censoring system called the Great Firewall. When a user enters a domain name associated with a banned IP address, the Firewall will corrupt the connection to stop the page from loading.

Several users told TechCrunch they are still able to access Bing by directly visiting its IP address as of Thursday morning.

Other users writing on social media believe the block is a result of Bing’s server crash after a viral article (link in Chinese) attacking Baidu’s search quality directed traffic to its lesser-known American rival. Many referred to a Chinese report that says high traffic from Baidu had crashed Bing. The article, published by Jiemian, a news site under the state-owned Shanghai United Media Group, now returns a 404 error.

Tight seal

Bing remained one of the few non-Chinese internet firms that still have their core products up and running in a country where Google and Facebook have long been unavailable. Another rare case is LinkedIn, which runs a filtered version of its social network for professionals and caught flack for bending to local censorship.

Bing also censors its search service for Chinese users, so it would be odd if its inaccessibility turned out to be a case of government clampdown. That said, China appears to be further tightening control over the cyberspace. Case in point, LinkedIn recently started to run strict identity checks on its China-based users.

Baidu remains the biggest search engine in China with smaller rival Sogou coming in second. Bing, which some users find is a more pleasant alternative to local options that are usually flooded with ads, is active on 320,000 unique devices monthly, according to third-party research firm iResearch. That’s dwarfed by Baidu’s 466 million and Sogou’s 43 million.

Google told the U.S. Congress in December it had no immediate plans to relaunch its search engine in China but felt “reaching out and giving users more information has a very positive impact.” The Mountain View-based firm shut down its search engine in mainland China back in 2010 under pressure over censorship but also cited cyber attacks as a factor in its decision to leave.

Apple HomePod comes to China at $400 amid iPhone sales woes

Apple is finally launching HomePod in China, but the timing is tricky as the premium device will have to wrestle with local competitors and a slowing economy. The firm said over the weekend that its smart speaker will be available in Mainland China and Hong Kong starting January 18, adding to a list of countries where it has entered including US, UK, Australia, Canada, France, Germany, Mexico and Spain.

The Amazon Echo competitor, which launched in mid-2017, is already available to Chinese buyers through third-party channels like “daigou”, or shopping agents who bring overseas products into China. What separates the new model is that it supports Mandarin, the official language on Mainland China and Cantonese, which is spoken in Hong Kong and China’s most populated province Guangdong. Previously, Chinese-speaking users had to converse with HomePod in English until a system update in December that added Siri support for the two Chinese dialects.

A main selling point of HomePod is its focus on music, so the China version comes with Airplay support of a range of local music streaming apps like Tencent’s QQ Music for Mainland users and JOOX which is more popular in Hong Kong.

In its home market, HomePod remains an underdog with 5 percent market share while Amazon Echo and Google Home command 66 percent and 29 percent, respectively.

The question is how many Chinese shoppers are willing to shell out 2799 yuan, or $414, for the Siri-controlled speaker. A host of much cheaper options from local giants are available, such as Alibaba’s Tmall Genie, Xiaomi’s Mi AI and several models from Baidu.

Analysts have cited relatively high price — on top of a softening economy — as a major culprit for iPhones’ low sales in China, which have prompted Apple to lower its quarterly revenue forecast for the first time in over a decade and Chinese retailers to slash iPhone prices. It remains to see how Chinese shoppers react to HomePod, which is already about 17 percent higher than its normal $349 price in the US.

Correction: (January 14, 2018, 14:00 pm): The article has been updated to reflect that HomePod in non-China markets began supporting Chinese in December.