Ep. 60: Wuhan Coronavirus: Impact on China Tech
Transcript:
(Y: Ying-Ying Lu; R: Rui Ma )
[00:00] Y: Hey everyone! We hope everyone is safe and healthy, from the Wuhan coronavirus, from the flu, from all disease and disaster. Since all of China is still pretty much on lockdown in response to the virus, we’re dedicating this episode to the impact we see on China tech in these special and transformative times.
R: We actually talked about it a lot already in our Extra Buzz newsletter sent out last week, which we’re making free for you as a preview on pandaily.com for those interested in subscribing. There have been lots of stories on the subject from a variety of media, so we tried to be a little different. For one of the first things we hoped will be impacted, we picked alternative protein AKA fake meats. We don’t think the environmental motivation is quite there, but maybe the combination of last year’s swine flu and concern for eating more clean “meats” will lead people to consider radical substitutes.
[00:53] Y: If you think that’s too optimistic, we won’t blame you. But you’ll probably find our other two picks in line with expectations. One was grocery e-commerce, and the other, remote work. Both pretty self-explanatory, and both sectors have seen major players start heavy promotions for their respective products.
R: Meaning that they’re currently giving it away for free or at a heavily discounted price. For food and grocery delivery, Alibaba moved first and announced a series of benefits for merchants using its local services product Koubei and delivery service ele.me, both of which we’ve covered in detail on Tech Buzz previously. Meituan then followed suit last Sunday.
Y: Collaboration software such as Zoom, WeChat Meeting, Bytedance’s Lark, have all announced some period of free product usage for Chinese users. We discussed how while forced “work-from-home” will definitely benefit usage in the short term for these products, true remote work is still far away for most Chinese companies because it requires a fundamental shift in decision making and management processes.
[1:57] R: By the way, we are still running a Chinese New Year’s promotion for the Extra Buzz newsletter at bit.ly/techbuzzextrabuzz, which means that you can get a full year’s worth extra analyses on China tech from us for the price of just one book, less than $20! And for those of you who signed up already, we want to say an extra thank you for your support. As promised, we donated a month’s worth of gross revenue — that’s $200 — to the Wuhan coronavirus effort.
Y: If you’re interested in contributing more, check out our Twitter or new LinkedIn page for details. Charity-giving has been pretty problematic, so we tried our best to find the most legit, 靠谱 channel. We’ll talk about that a little bit today as well, and now onto the main topic — besides fake meats, grocery delivery and remote work, how is the Wuhan coronavirus impacting China tech and beyond?
[3:13] R: Hi everyone! We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network by SupChina!
Y: We are a biweekly podcast focused on giving you a peek into what’s buzzing within the tech community in China.
R: We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. So you can be smarter about the world of China tech. TechBuzz China is a part of Pandaily.com, an English language site that tells you “everything about China’s innovation.” I’m one of your two co-hosts, Rui Ma.
Y: And I’m your other co-host, Ying-Ying Lu. We’d like to acknowledge our partners DealStreetAsia and SupChina, creator of the Sinica Podcast Network! In addition to TechBuzz, you can also find Sinica which covers current affairs, NuVoices and Ta for Ta on women, the business-oriented ChinaEconTalk, and the Caixin-Sinica Business Brief from China’s leading business magazine.
R: And as a reminder, you can still get on our promotion for our new Extra Buzz newsletter by going to bit.ly/techbuzzextrabuzz, to sign up. More insights and content on China tech for less than $2 a month! Finally, if you enjoyed listening to our podcast, please leave us a review on iTunes or whatever other platform you use.
[4:41] R: First things first, we want to acknowledge that the virus outbreak is indeed very severe and as of recording, the total death toll is already over 500, and nearly 50,000 are confirmed or suspected to be infected. It’s important also to note that most experts believe that these numbers represent only a portion of the true total, due to the lack of proper testing facilities and other problems. So, this is a really serious matter.
Y: Since we are not a medical show or current events show though, we’re only going to focus on the impact on China tech. But before we do that, it’s probably important to provide some more context, just so we’re all on the same page. And the first thing we’re going to talk about is Wuhan, because prior to this epidemic, most of you probably have never heard of this city of 11mm people right? Even though it’s just 500 miles directly west of Shanghai and ranked number 9 in GDP amongst all Chinese cities last year.
R: The Fortune 500 certainly have, because over 300 of them have a presence there. There’s a reason why some people call Wuhan the Chicago of China. First time hearing it? Don’t worry, me too. But apparently the nickname comes from its enviable geographic position at the intersection of major waterways and other transportation thoroughfares. And because of that, Wuhan has always been a large and bustling place. It’s especially got a really strong base of traditional industries, like auto manufacturing, steel, renewable energy, etc. And more importantly for us, it was just starting to really embrace tech.
[6:12] Y: That’s right. If Wuhan sounds familiar to you, it’s because we’ve mentioned it in at least a few episodes. For one, it’s where Xiaomi’s Lei Jun went to school. By the way, so did my cousin. My grandmother also lived there before passing. As Rui explained, Wuhan is quite an established city, and it definitely feels bustling and central. It’s the capital of Hubei, the province where fellow entrepreneurs Hongyi Zhou 周鸿祎 of Qihoo and Joe Chen of Renren hail from. We covered the latter, you might remember, on Episode 30: The Greatest Trainwreck of China Internet.
R: But none of them built their companies there. The only one you might recognize, which really did have its start in Wuhan, is publicly listed esports livestreaming platform Douyu. But other than that, Wuhan lags far behind Beijing, Shanghai and Shenzhen in terms of unicorn production.
Y: But what Wuhan does have are some great universities, including Wuhan University, Lei Jun’s alma mater, and Huazhong University of Science & Technology, Allen Zhang, WeChat creator’s alma mater, which are both ranked in the top 10 nationally. In fact, Wuhan is known for its schools. Which explains why even though great companies weren’t getting started there, they were expanding there.
R: RIght. By one count, nearly 70 well-known internet companies had established a second headquarters in Wuhan, almost all in the last three years. And these aren’t startups, but big names. Publicly listed companies like TAL, iFlyTek, and large unicorn Xiaohongshu, etc And at least one of the most well-known of them, Xiaomi, was actually opening up an R&D center there, not any second headquarters, but a research institute.
[7:59] Y: Our point is — it’s very well-educated. And because of efforts by the city to upgrade its tech ecosystem in the last few years, you’re going to find that lots of Chinese tech companies either already have presence there or are planning to be there. Luckily, at least for the short term, these tech and other knowledge workers shouldn’t be too worried about being soon out of a job, when much of their work can still be done from home.
R: They shouldn’t be worried, that is, if they’re in a few choice industries. As you would expect, videogaming and videowatching are two of the industries that are benefitting from this extended quarantine. I mean, no surprise that a flood of gamers stuck at home overwhelmed Tencent’s servers last week, but that’s probably not going to last forever.
Y: Right. What people found more interesting was in the video-watching category, specifically, when Bytedance, maker of Tik Tok, announced that it would pay a movie studio just under $100mm for the right to show the movie online on its platforms for free. And because this was announced relatively early into the crisis, on the 24th of January, Chinese New Year’s Eve, before the death toll began to really climb, it was pretty much all anyone talked about.
R: Most of the headlines were extremely effusive about the deal. Bytedance was praised for being much quicker and cleverer than their competitors, and this was seen as the transaction that will change online media forever. Whether or not you believed the second part of that statement, the first part was true — based on how events were unfolding, it was clear that Bytedance did the deal in something like 48 hours.
[9:35] Y: But was it simply a no-brainer? Well, let’s analyze the numbers. The movie, which was called “Lost in Russia,” was the third of a comedy franchise whose first two films, Lost in Thailand and Lost in Hong Kong, made almost half a billion dollars collectively. They both smashed box office records at the time, and so there was reason to believe this one was going to do well too.
R: But not nearly as well as its predecessors. Early pre-sales of the movie were poor. Very poor. As of a few days before New Year’s, Chinatown Detective 3, which was also a franchise, was in the lead in terms of pre-sales, beating Lost in Russia by a factor of 5 to 1. Some people estimated $150mm as the final box office. Not bad, but the top New Year movie last year, Wandering Earth, made $700mm. So in comparison, this would be considered a flop.
Y: The director and producer and star of the movie, Xu Zheng 徐峥, one of China’s top actors at the moment, was pretty worried. The movie was rumored to have cost $100mm to make, which I find hard to believe, but not super crazy. Supposedly Xu had signed an agreement with the distributor, which, by the way, calls itself the HBO of China, that said he would eat all of the production costs if the film did not gross at least $340mm.
R: And as we can see, early results weren’t promising that would happen. So, it makes sense that out of the 7 major films slated to be released during New Year’s, this one kinda had parties desperate to find a solution, or AKA a buyer. I mean, they actually moved up the release date to try to get an edge, but that didn’t really work either, and as we now know, that was not necessary.
[11:23] Y: Right. The contract was supposedly voided because of the outbreak, and the distributor ended up selling the rights to Bytedance for roughly what they would have minimally received under the agreement with Xu Zheng, or so we’ve read. But this at least partially explains the quick turnaround of the deal. The movie seemed headed in the direction of Cats and needed a savior. There was a clearing price at which the main parties involved don’t lose money, and so that’s where it landed.
R: Was it the right price for Bytedance though? Most people guess yes. So first, the movie wasn’t just available on Douyin. It was available for streaming across all Bytedance assets, which includes Xigua and Douyin Huoshan, which mean “watermelon” and Douyin “volcano” respectively. We’ll probably talk about them more at a future date, but they are part of Bytedance’s suite of video apps, all targeting a slightly different niche.
Y: The temptation is basically to think of this $100mm as customer acquisition cost across the three apps. As we know from past New Years, the holiday week is one of the best times to get new users. Design something interactive, like WeChat did with its digital red packet strategy a few years ago, and you basically get the entire, probably extended, family. 60mm new active users across these apps, which wouldn’t actually be that crazy, since it would be just an acquisition cost of $1.40 per user.
[12:45] R: Right, and that’s not counting the advertising that could be sold against the movie. Either way, for Bytedance, I would have to say it’s a big win. Regardless of how much they actually make. For one, they spent less than the $140mm spent by nemesis Kuaishou to give out cash hongbaos during the Spring Festival Gala TV special, but got way more attention. Giving out cash is yesterday’s news, releasing a major new movie for free? Now that’s interesting.
Y: Two, the deal isn’t actually for just this movie but includes other longform content from this distributor down the line. Investors were certainly excited, because they pushed up the distributor’s stock over 40% in the days following. Anyway, everyone is wondering, is Bytedance going to be a Netflix now too? Like, long videos, acquire content, maybe even produce some?
R: But wait, hasn’t Bytedance already been doing … Netflix-like things? You see, they’ve actually been buying up copyrights to well-known tv series for a while now, actually, angering some fans who were used to watching them on Bilibili and other video sites. And Bytedance seems to have ambitions to make Xigua into a … well, long video app.
Y: Xigua shot to the top of the free iOS app charts after the “Lost in Russia” announcement and stayed there for a week. So it seems that the customer acquisition strategy worked. And as for the filmmakers, it was a success as well. Even though the movie was crappy — it rated just 6 out of 10 on Douban, it was played 600mm times over 3 days. Probably most of those views were not completed, as it seems to be only equivalent to 180mm people. But still. 180mm people tried to watch your movie. Not horrible.
[14:38] R: But of course other long video platforms weren’t content to just play the spectator. The week after, iQiyi and Tencent Video announced that “Enter the Fat Dragon,” a movie originally slotted for Valentine’s Day, would be shown two weeks earlier on the video platforms. The movie wouldn’t be free though. It would cost $1 or so for members, and $2 for non-members.
Y: Bytedance definitely won the PR war this time, but I’m not sure that the deal they pulled off makes any sense for the long term. Longer term, Bytedance, an advertising heavy company, should be acquiring mostly more lengthy web series and not movies. And certainly as a viewer I’d want to see certain movies in theatres, as they were made to be enjoyed. But maybe they develop more mobile-friendly snack-sized content like Snap Originals and soon-to-come Quibi shows.
R: Yes, I only recently realized that so many people, especially Gen Z’ers, watched Snap Originals. One show had more people tuning in than the Game of Thrones finale, or so goes the soundbite. Whatever Bytedance decides to do, professional user generated content, or PUGC as they like to call it in China, is on the horizon for them for sure. As for the rest of the industry, because the epidemic has so many people stuck at home, this seems to be the best time to experiment and launch new initiatives if you’re in anything video related. Kudos to Bytedance for the fast reaction time.
Y: OK so, video is definitely benefitting in a big way, and of course on the opposite end of the spectrum, travel is suffering. That will be temporary, though. We want to talk about sectors that could be fundamentally altered or sped up and go on a different trajectory because of the unique challenges presented by the disease.
[16:26] R: Well, another obvious one would be online education. As you’d expect, schools are not opening for another two weeks or so at least, and many parents are saying that they’re doubting their kids return to the classroom until March. Online education has been big business in China for a long time, mostly in the context of after-school prep or postsecondary skills training.
Y: But now, with school delayed, and parents scared their kids are going to fall behind, perfect time to try out some of these online services if they haven’t already. One of the bigger unicorns in the space, the $3Bn Yuanfudao 猿辅导, which means Ape Tutor in Chinese, has opened up free livestreaming for students across all subjects and levels, and already received 4 million signups as of recording. K12 education is a serious business in China!
R: Very serious. Even if we’re in the middle of a real zombie apocalypse, I’m pretty sure Chinese parents will be thinking — but my child will fall behind in school! That’s because if you don’t study all the time, you really can’t keep up with all the testing. And for high school seniors, especially, who basically spend this entire year in guided study, they’re especially stressed out. Remember, they only get this one chance in the summer during the College Entrance Exams the 高考 to prove their last twelve years was not spent in vain. And if SARS sets any precedent, it’s that even if schools are closed, the gaokao will go on. No delays..
[17:55] Y: Aside from the already established edtech companies though, the official education system itself has to get involved. So school districts are assigning their teachers to do prerecorded lessons. Some teachers are offering personal livestreaming. It seems that most teachers are going to have to learn how to use this technology, and how to teach remotely. Some teachers may find that they’re quite good at this, and I wouldn’t be surprised if they try to make a business out of it.
R: There’s so much education content on the livestreaming and video platforms. What can we say? Chinese people are very intense when it comes to schooling. Again, while most of these services and tools already existed, and indeed some of them were used to link up urban and rural schools via livestreaming, they haven’t been used on this massive scale as the official, primary method of delivery. This is a big experiment, and it’ll be really interesting to see what comes out of it.
Y: OK let’s see, we’ve talked about video and education, and we already know that games are peaking. Probably also video livestreaming then as well. Although with China already so dominant in e-sports — remember that it accounts for basically two-thirds of both the over half a billion esports players and just under half a billion esports viewers globally — I don’t think the virus is really fundamentally altering any behavior here.
R: Yeah, we’ve also seen others post that for example, fitness apps like Keep are also seeing a boon, but that just seems like a temporary boost. The other things I do think the epidemic might fundamentally accelerate or change people’s behaviors are — telemedicine and online giving. Of these, telemedicine is pretty intuitive, and there isn’t a ton to say about it other than that just like with remote work software and online education, leading players like Alibaba and Pingan are offering free telemedicine consultations.
[19:54] Y: Usage and signups have surged, as expected. Hospitals in Wuhan are overwhelmed, so this might be the best way to get some medical attention. Furthermore, since the virus seems to be highly contagious, some people don’t want to risk infection by going to the hospital, where the highest concentration of contagion is. Others are pretty sure they’re infected but aren’t very ill, and so stay home so as to not infect others.
R: I had my first telemedicine appointment last week — don’t worry, not for the coronavirus — so I definitely buy into the convenience. And anyone who’s ever been to a hospital in China … well, let’s just say it can be a very frustrating experience, and telemedicine is probably a big improvement for many situations. At the same time, though, I don’t want you to think I’m just bagging on China’s healthhcare. It’s actually made huge progress. Just 20 years ago, a WHO healthcare study put China in the bottom quartile, #144 out of 191 countries, just 5 spots above Papua New Guinea. Whatever the complaints today, it’s much, much improved from then.
Y: Much improved but still falls short, of course. There’s not even a standard for treating diseases across different hospitals in China, and the medical education system itself is still going through major revisions. Meaning, definitely don’t equate a “doctor” in China for an MD degree here in the US, there’s quite a bit of variation. And for serious illnesses like cancer, Chinese mortality rates are 30-40% higher than in the US. But what that really means is, out of all of the positive developments from the coronavirus, improvements to healthcare are probably the most valuable.
R: Definitely the most valuable and important. But perhaps just below that is the impact to online giving and philanthropy. Chinese tech companies really got into online giving in a big way after the big Sichuan earthquake twelve years ago, and their involvement has really changed the face of giving. Sure, there’s still a good amount of fraud, but it’s gotten less rampant due to the greater transparency that the internet offers.
[22:09] Y: Tencent’s product, for example, allows you to see a lot of specifics on the project you want to give to, including how long it’s been on the platform, past financial statements, various official documents, latest updates, and for every metric, including how often updates are provided, you get to know how it compares with other projects in the same category. It’s actually pretty fantastic.
R: Again, that doesn’t really eliminate all problems, and this time around, especially with the donation of medical equipment and supplies, there were a lot of issues actually delivering the goods to the right place. That’s not really the responsibility of the giving platforms, strictly speaking, but the people’s outrage remain, and I think pretty soon, we will see the next evolution of online giving to be even more transparent and convenient, and solve the issues that people ran into this time around.
Y: OK, that’s it. I think we wrap up here, do a brief review, and maybe we can each give a few sentences on the “impact” that we hope is most lasting from this virus outbreak. The silver lining, so to speak. Just like SARS coincided with the launch of Taobao and forced Richard Liu to pivot JD’s business from offline to online, therefore birthing two e-commerce giants, maybe there are lots of successes waiting to happen after this epidemic is over.
[23:31] R: I hope they’re more interesting than just selling people more stuff, but so far, it looks like unlike video games, which I think is experiencing a temporary boost, Bytedance and others are making some moves into professional longform content that could change online video a bit. Maybe, in an extreme case, disrupt how movies are released in China. The super blockbusters are probably still going to be in theatres, but depending on how these experiments work out, maybe online distribution becomes viable for the smaller flicks.
Y: Right, and related to video is online education. We hope it will get teachers using more technology and experimenting with different teaching methods. There was already a lot of online education going on in China, especially after school, but now the official school system is getting involved, and that seems like a plus in the long term, right?
R: Also huge pluses in the long term are impacts on healthcare and philanthropy, specifically telemedicine and online giving. The first speaks for itself. Again, the services have been around for a few years, but now, millions will be onboarded and user behaviors changed. The second is also pretty good. Online giving has come a long way but this crisis shows it can still do better. There’s always room for more transparency.
[24:43] Y: Combining these with what we said in our Extra Buzz newsletter — alternative proteins, grocery e-commerce, and remote work — I think I’ll pick philanthropy as the one I hope sees the most lasting impact. Modern China has often been criticized for policies that are not supportive of nonprofits or conducive to a thriving philanthropic sector. But societally, Chinese people tend to see themselves as a race that “pulls through” difficult times together. You could say that the nationalist sentiment at the moment is being channeled into giving, both online and off — and we’ll see if that lasts.
R: I’ll go for remote work, but that’s just because I think it solves so many other issues at the same time. Less traffic, so more environmental, no commute, so better mental health, and results show — higher productivity. But I recognize for China, there’s a really large cultural hurdle. I actually just came back from a meeting with someone who worked for one of the early fully remote companies. The company had no offices, except in China. Even if your bosses don’t care, your neighbors might. If you don’t go to an office, people are going to be like, do you really have a job?
Y: It’s going to be really hard, I agree. What do you think? Have any comments or questions for us? What’s your list! Let us know! E-mail ying@techbuzzchina.com.
[26:24] R: OK, that’s all for this week folks! Thanks for listening. We really enjoyed putting this together, and we are always open to any comments or suggestions. You can find us on twitter at thepandaily, at techbuzzchina, and my personal Twitter account is RUIMA.
Y: And my Twitter is spelled GINYGINY. Tech Buzz China by Pandaily is powered by the Sinica Podcast Network on SupChina. Pandaily.com is an English language site that tells you “everything about China’s innovation.” Our producers are Caiwei Chen and Kaiser Kuo. Thank you for listening!