Deal focus: Content to the masses

It was spring 2020 and China was under lockdown. Kuantai Yeh (pictured), a partner at Qiming Venture Partners, kept asking himself: “With everyone stuck at home, how can companies reached out to customers and continue doing business?”

Yeh wasn’t alone in confronting this dilemma, but in Xiaoe Tong he found a solution. The company, a software-as-a-service (SaaS) provider that integrates its products with WeChat, had seen massive customer growth during the pandemic. It helped that online education platforms, which experienced a surge in demand as offline facilities were closed, are among the most prolific users.

Yeh conducted online meetings with Xiaoe Tong’s management team in February and March, and then flew to Shenzhen the following month for an in-person encounter. This culminated in Qiming participating in a Series D round that recently closed at $120 million. IDG Capital took the lead with GGV Capital and GL Ventures also contributing capital.

Founded in 2016, Xiaoe Tong initially catered to well-known writers like Xiaobo Wu and Defen Zhang, respectively specialists in finance and spiritual growth. It served as a monetization tool, enabling them to sell courses via the WeChat ecosystem.

At that time, a common concern among investors was whether there were enough Xiaobo Wus for the company to achieve scale. However, this market is proven larger than expected. From yoga teachers to chefs, anyone can sell their content on the Xiaoe Tong platform. In addition, the company seized on the potential of live broadcast and private domain traffic, allowing users to distribute content through channels like Douyin and Youku, and build up their own data pools.

Xiaoe Tong now employs 1,000 staff, of which half are in product development. It has served more than 1.6 million registered customers to date, including heavyweights such as New Oriental Education & Technology, TAL Education, China Asset Management, and Tencent University. Customers have produced 20 million knowledge products, catering to 780 million end-users. The peak for simultaneous online users exceeds 10 million.

A key attraction for Qiming was that Xiaoe Tong delivers a standard, zero-customization product regardless of whether the customer is corporate or an individual. “It has product development in its DNA and the team comes from Tencent – and Tencent basically makes standardized products,” says Yeh.

He adds that when large-scale customers like Tencent or TAL subscribe to Xiaoe Tong, the relatively low price means purchasing decisions are usually made at local level, not by a centralized procurement department. As such, there is no need to comply with standard corporate bidding processes.

Indeed, pricing is considered crucial to the company’s customer acquisition and retention. There are three product types – basic content monetization, marketing, and user management packages, a multi-platform live training platform, and an enterprise-level private domain solution – and three pricing tiers, ranging from RMB4800 ($742) to RMB19,999 per year, based on the scale of a business and the sophistication of its needs.

Small businesses make up the core customer base, which lends itself to product standardization. Larger often have mature IT systems and many years of product accumulation, so any SaaS offering must be backward compatible and involve a degree of customization. Yeh refers to this as “heavy SaaS.”

"At present, heavy SaaS is still relatively difficult to push in China. We have invested in some industrial software companies that need to work on integration with existing systems. Xiaoe Tong's light SaaS model mostly targets individuals or small business customers with no existing software needs. It can sell them a tool directly without any customization. I think this is a very good product in China,” says Yeh.

The company’s founder, Chunjian Bao, wants to serve as CTO to tens of thousands of small companies that have no such function, and perhaps don’t even know what software they should be using. But there is a general recognition that digital transformation is necessary, and they want affordable, easy-to-use tools to get them there.

Yeh notes that reaching these customers does not involve substantial marketing spend. Rather, traffic begets traffic. “If you look at Xiaobo Wu's content, it says ‘Powered by Xiaoe Tong,’ and this definitely encourages other content creators to try the product,” he says.

The company wants to leverage this low-cost growth to become a broader platform that connects with many other SaaS tools. This begs the question as to whether it will capitulate and offer customization to large corporates. Yeh concedes that some special features might be introduced, but Xiaoe Tong is unlikely to give much more ground.

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• Topics
• Greater China
• Expansion
• Technology
• China
• Growth capital
• Qiming Venture Partners
• Hillhouse Capital Management
• GGV Capital
• IDG capital