Deal focus: Qutoutiao finds its own news angle

Toutiao has become the major player among China’s news and video aggregation apps by establishing itself as the preferred source of content ranging from economic analysis to celebrity news in cities like Beijing and Shanghai. 

Qutoutiao – which operates a similar business model based on extracting content from bloggers and media outlets and using artificial intelligence technology to create personalized news feeds – had to be different. Launched in mid-2016 by executives from Shanda Games and Baidu, the company focuses on entertainment-oriented news and short-form videos that are primarily distributed in third and fourth-tier cities. 

“Chinese internet companies are paying more attention to lower-tier cities because the mobile app penetration rate is relatively low in these cities. The supply of content is limited, despite strong demand, and Qutoutiao quickly seized this opportunity by offering casual and entertainment focused content,” says Peter Li, a managing director at CMC Capital, an investor in the company. “As such, there isn’t much user overlap between Toutiao and Qutoutiao.”

With 70 million registered users – including 10 million daily active users – Qutoutiao is the third most popular news app in China after Tencent News and Toutiao. In addition to its niche market position, the company has created a unique mechanism for user acquisition and retention. Users receive digital coins when they share Qutoutiao’s news on social networking sites and these can be spent on paid content or online games offered on the same platform. 

“One of the biggest problems for Chinese mobile app developers is the cost of user acquisition is very high. Qutoutiao has developed a strategy that allows it to outperform the competition,” Li adds. 

Tencent Holdings was suitably impressed by Qutoutiao’s offering that it recently led a Series B round for the company worth more than $200 million. Other investors include Shunwei Capital, Chinese smart phone maker Xiaomi, Advantech Capital, China InnoVision Capital, Shanghai Chuangban Investment Management, and Lighthouse Capital Group. CMC Capital – which participated in a $42 million Series A round last year alongside Chengwei Capital and Redpoint China Ventures – also re-upped. 

Now valued at $1.6 billion, Qutoutiao will use the latest funding for technology development, brand building, and hiring additional staff. It also wants to continue improving content and user experience by leveraging Tencent’s resources.

“We still see a lot of entrepreneurial opportunities in China’s mobile internet space. It’s just that new generation entrepreneurs must be much smarter. Start-ups face many challenges, particularly in user acquisition because tech giants really monopolize the user base in many verticals. But there are still areas that haven’t been covered by the BAT [Baidu, Alibaba and Tencent], which provides opportunities for start-ups,” says David Yuan, a managing partner at Redpoint China.   

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• Topics
• Greater China
• Early-stage
• Technology
• Media
• China
• Venture
• TMT
• Tencent
• China Media Capital
• Redpoint China Ventures