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Speaker 1: Decrypted is brought to you by red Hat, whose broad

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Speaker 1: portfolio of open source technologies for the enterprise helps you

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Speaker 1: get from where you are to where you want to be.

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Speaker 1: Red Hat the open technology to help you realize your vision.

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Speaker 1: Learn more at red hat dot com slash open tech.

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Speaker 1: Back in early Lei Shan was just another overworked magazine

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Speaker 1: editor in Beijing. He was working for a Chinese financial magazine,

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Speaker 1: his latest job of many type the magazine process, as

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Speaker 1: you know, the production process is very long, from interview

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Speaker 1: to writing and printing. It takes a long time. As

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Speaker 1: you can imagine, there's always delays involved. I always felt

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Speaker 1: like I wasn't in control of that. I'd have to

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Speaker 1: stay up late into the night to finish the magazine.

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Speaker 1: Just a few months later, Lee's life would change. He

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Speaker 1: decided to start producing a business newsletter on a brand

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Speaker 1: new app that was sweeping the country. In just a

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Speaker 1: few months, that app, The Adult, went from being brand

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Speaker 1: new to attracting millions of users. That name translates to

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Speaker 1: mean I get in English. People go there to get

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Speaker 1: daily advice and learn everything from music to economics. Yeah,

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Speaker 1: it's a bit like Corsera and other online education services

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Speaker 1: in the US. But the big difference is that under now,

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Speaker 1: everybody is paying for what they read and listen to,

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Speaker 1: bringing in money not just for the apps founders, but

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Speaker 1: contributors to the magazine. Editor Lee Shang and his team

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Speaker 1: are already generating the equivalent of millions of US dollars.

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Speaker 1: Close to one hundred thousand fee paying subscribers. Each of

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Speaker 1: them are paying an annual fee of one remnant B

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Speaker 1: that's close to that's right for ten minutes of content

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Speaker 1: per Lee's one hundred thousand customers pay around thirty dollars each.

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Speaker 1: That's almost three million dollars in annual revenue. And it's

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Speaker 1: made Lei Sian richer than he could have imagined back

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Speaker 1: when he was still struggling with long hours and a

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Speaker 1: salary job at the magazine. And he's not the only one.

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Speaker 1: In China. Dao was just one of a vast economy

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Speaker 1: of mobile apps where people like Lee Shung can make

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Speaker 1: real money. Hi, I'm Brad Stone and I'm Selina Wang.

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Speaker 1: And this week on Decrypted, we'll take a look at

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Speaker 1: how China has been able to monetize their smartphone apps

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Speaker 1: like no other country. China has dethroned the US as

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Speaker 1: the largest spender on Apple's app store. People, they're spent

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Speaker 1: more than two billion dollars in the fourth quarter alone.

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Speaker 1: Now that's just a fraction of the total money China's

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Speaker 1: consumers spend on apps, since most people there have Android devices.

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Speaker 1: Much of this has to do with how China has

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Speaker 1: figured out how to make money from news, entertainment and

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Speaker 1: social media in a way that the U S still hasn't,

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Speaker 1: by making people actually pay for it instead of relying

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Speaker 1: on advertisers. China still has a reputation as a copycat

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Speaker 1: of the West, but really it's Silicon Valley that's now

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Speaker 1: scrambling to learn from the successives we've seen here across

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Speaker 1: the Pacific. Selena, the Diao app now has seven million

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Speaker 1: users and the service is only about a year old.

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Speaker 1: Tell us what it looks like. It's a pretty clean

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Speaker 1: looking app. You can easily subscribe to channels with content

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Speaker 1: on topics like investing tips, or how to listen to

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Speaker 1: classical music, or even books and magazines. And this is

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Speaker 1: gonna make me really jealous, but people actually pay to

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Speaker 1: subscribe to these channels. Yes, you heard that correctly. None

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Speaker 1: of it is free. Each channel costs the equivalent of

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Speaker 1: about thirty U S dollars per year. It can curate

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Speaker 1: content for you as well. There's even a portal to

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Speaker 1: an e commerce section that sells products like books and

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Speaker 1: high end jewelry, and part of the subscription fee goes

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Speaker 1: directly to people likely who create the content. Some of

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Speaker 1: the columnists have even become millionaires, reasoning that they opened

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Speaker 1: up column by an economics professor from Picking universident. Guess what,

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Speaker 1: in just that month there are hundreds of thousands of

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Speaker 1: subscriptions with a two hundred of buck ish so, which

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Speaker 1: means this problems are generated therein a million. Okay, I

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Speaker 1: am in just a month, he become the richest economists. Okay,

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Speaker 1: economics reaches you know. That's Bob Shuhao Ping, who is

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Speaker 1: one of the early investors into a doll and also

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Speaker 1: happens to be the most successful angel investor in China.

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Speaker 1: I spoke to him at a conference. Bob's venture capital firm,

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Speaker 1: called Zen Fund, has made bets on hundreds of startups,

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Speaker 1: some of which are now worth more than a billion

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Speaker 1: dollars or publicly traded companies. So presumably Bob has a

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Speaker 1: good idea for startups with potential. Yes, And I asked

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Speaker 1: Bob why he decided to back Lord's He's the man

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Speaker 1: who founded the dud app. We used to to look

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Speaker 1: at the founder's profile for education side, for experience side,

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Speaker 1: but the most important point to see is there as

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Speaker 1: do they have whatever it takes to do? What do

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Speaker 1: they want to do? So here's a bit on Lord

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Speaker 1: zung you story. He was a TV producer before he

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Speaker 1: started Logic Knowledge Group in twelve and that's the parent

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Speaker 1: company of the Dodo app. Logic has a very big following,

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Speaker 1: partly because Lord Zung is the celebrity in his own right.

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Speaker 1: The company's public wheach Had account has nine million subscribers

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Speaker 1: in Lord Zungi has an online talk show that gets

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Speaker 1: two point four million views per episode. Okay, so with

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Speaker 1: all this firepower did that was? Growth is skyrocketing. But

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Speaker 1: Dido is facing a ton of competitions as well, from

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Speaker 1: companies like do Ban who in Shi Malaya right, and

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Speaker 1: not to mention ten Cent, the Chinese internet giant, right,

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Speaker 1: and they all allow official channels to charge users for content.

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Speaker 1: But Bob, the legendary angel investor, says Dondo isn't simply

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Speaker 1: a promising company that's growing fast. He thinks this company

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Speaker 1: is going to be truly transformative. This is I thought,

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Speaker 1: you know, largest this company actually created uh this revolution.

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Speaker 1: So now there is a heat in China, golden rush

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Speaker 1: in knowledge paying services. Iob has seen a lot in

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Speaker 1: the sixty years. He lived through China's cultural revolution and

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Speaker 1: delivered pizzas before going on to found China's leading private

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Speaker 1: education company. So it's high praise for him to say,

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Speaker 1: Dadao has started a gold rush in China. Actually, this

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Speaker 1: company actually created a revolution in China. We call it

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Speaker 1: a tru translated, the literary is a knowledge payment. You

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Speaker 1: pay a fee to knowledge. Le Shang, the magazine editor

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Speaker 1: we heard from earlier, couldn't have known how all of

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Speaker 1: this would play out when Lords and the founder of

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Speaker 1: a first approached him about brainstorming different ways that journalists

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Speaker 1: could get paid for their work. Before the adult Le

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Speaker 1: Shang had worked out a string of different magazines, including

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Speaker 1: the Chinese language version of Bloomberg Business Weeks Now school, Yes,

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Speaker 1: this is my full time job. Now. When I started,

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Speaker 1: I didn't expect as much attention. I didn't tell my

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Speaker 1: friends or Luo gen you. When I started, I treated

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Speaker 1: as an experiments through the process. I discussed with Luo

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Speaker 1: gen You about different ways of providing content without advertise months.

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Speaker 1: He mentioned the idea of an app that asks user

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Speaker 1: to pay a fee to subscribe for content. The story

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Speaker 1: seems incredible, but it isn't as rare as you might think.

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Speaker 1: Lee told me he knows other journalists who have left

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Speaker 1: traditional news organizations to work for themselves and making content

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Speaker 1: for apps like Dell Adult or the messaging platform we Chat.

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Speaker 1: Just as you know, many of the journalists in China

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Speaker 1: and many of the content producers moved their careers to

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Speaker 1: new media. On we Chat, it has a free subscription chat.

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Speaker 1: What Lee means they're by free subscription channel is that

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Speaker 1: anyone can set one up. And this trend of paying

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Speaker 1: for online content goes way beyond just education. Video live

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Speaker 1: streaming is another huge area. This is where people watch

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Speaker 1: anything from people singing, telling jokes, are just going about

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Speaker 1: their daily lives. Think of those random videos you can

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Speaker 1: find on YouTube but happening live and Credit Suite estimates

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Speaker 1: video a live streaming alone could generate about five billion

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Speaker 1: dollars this year in China. The fact live streaming has

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Speaker 1: become so popular means thousands, maybe millions of people are

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Speaker 1: able to earn a living this way. Here's Bob, it's

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Speaker 1: a national past of time. There's this guy for the

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Speaker 1: year for some man. He spent that literally okay a

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Speaker 1: million dollar on live screaming service, paying too many many minute.

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Speaker 1: We quired a whole hostessess and he appeared that until

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Speaker 1: he said, yeah, it's my way of appreciating them, supporting them.

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Speaker 1: But you know, that's a very unusual story. But a

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Speaker 1: many people would have spending lots of money, spend a fortune.

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Speaker 1: The hostess is Bob's talking about, are just regular people

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Speaker 1: finding they can make a live been talking to or

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Speaker 1: performing for live viewers. People can watch for free, but

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Speaker 1: hostesses make money because people show their adoration by sending

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Speaker 1: them virtual gifts. It's just so different from how the

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Speaker 1: big internet services operate in the US. It's really hard

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Speaker 1: to imagine Twitter, for example, asking users to pay before

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Speaker 1: they could follow someone. It's even harder to imagine that

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Speaker 1: Twitter users would accept that. In China. Uh, you know,

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Speaker 1: we don't really talk about advertising supported model UM. You know,

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Speaker 1: whether it's on PC or a mobile UM. There are

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Speaker 1: very few start ups that actually UM growing very big.

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Speaker 1: You know, on the back of just advertising and obviously

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Speaker 1: by dool with such. You know, it's a very classical model.

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Speaker 1: But beyond the search based advertising model, you'll find that

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Speaker 1: most of the large internet companies in China actually grugle

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Speaker 1: or monetized by charging the consumer directly. That's Jenny Lee,

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Speaker 1: a venture capitalist at g g V. I think that

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Speaker 1: the the whole idea of having to you know, look

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Speaker 1: that d before you can access the video. Um, it's

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Speaker 1: just not a very direct way of enjoying the features.

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Speaker 1: Chinese entrepreneurs, I have to say, they're very practical if

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Speaker 1: they can get, you know, the consumer to pay them directly,

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Speaker 1: I think that's what they're gonna do. You know, in

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Speaker 1: the US, both the companies that make these apps and

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Speaker 1: the content creators would absolutely love it if consumers paid

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Speaker 1: them directly. Right, But as yet, there aren't many examples

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Speaker 1: of big successful companies that have been able to escape

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Speaker 1: their dependence on advertising. Well, they can know why the

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Speaker 1: Chinese apps have been so much more successful at this

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Speaker 1: than their ad dependent U S counterparts. Right after ironically

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Speaker 1: this word from our sponsor, you know where you want

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Speaker 1: to be? Red Hat has the broad portfolio of open

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Speaker 1: source technologies to get you there. Meet your evolving business

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Speaker 1: challenges head on with secure solutions for the enterprise including

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Speaker 1: operations management, and beyond. Visit red hat dot com slash

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Speaker 1: open tech to learn more. Red hat the open technology

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Speaker 1: to help you realize your vision. Before the break, we

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Speaker 1: learned the Chinese consumers somehow seem to be so much

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Speaker 1: more willing to pay for what they read or watch

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Speaker 1: on their phones. Now, Bob has one theory as to

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Speaker 1: why that might be the case. Chinese people, relatively compared

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Speaker 1: to the US, they are lack awful uh more ways

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Speaker 1: of the entertainment. Okay, many things in the available here

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Speaker 1: in the US maybe not available in China. Bob is

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Speaker 1: talking about the Chinese government strict regulation of media. That

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Speaker 1: means the type of information and entertainment that Chinese consumers

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Speaker 1: can read or watch as much more limited than in

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Speaker 1: the West. And you also have cultural and demographic forces

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Speaker 1: at work here in China. Tens of millions of young

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Speaker 1: people have migrated to the large industrial cities. They live

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Speaker 1: far away from their families, so video livestream in particular

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Speaker 1: has become a form of digital companionship. In the US,

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Speaker 1: we think of Facebook Live and Periscope as live streaming

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Speaker 1: tools to broadcast or watch events, right. But in China,

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Speaker 1: many of these streams are people doing very ordinary things

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Speaker 1: like putting on makeup, giving advice, or eating food, and

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Speaker 1: it's enormously popular. Some estimates say that more than three

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Speaker 1: twelve million Chinese users consume live stream video in one

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Speaker 1: way or another. Okay, so that helps us understand why

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Speaker 1: people are consuming so much of this content, but does

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Speaker 1: it explain why they are paying for it? I think

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Speaker 1: China is su pine the whole um free to play model.

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Speaker 1: In the West, it was always playing um, you know,

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Speaker 1: it was always paying for a time um. And it's

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Speaker 1: it's critical because the whole ecosystem shift one where the

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Speaker 1: because if they're not well done, if the features are

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Speaker 1: that's key. That was the venture capitalist Jenny And this

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Speaker 1: So they hook you in with the zero dollar price tag,

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Speaker 1: this and that upgrade. And these games are everywhere in China,

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Speaker 1: and Jenny thinks those games made this act of paying

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Speaker 1: just a habit. The rapid rise of knowledge sharing apps

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Speaker 1: like the Adult might satisfy another source of anxiety in

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Speaker 1: Chinese society. There's a hunger of ledge, there's a hunger

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Speaker 1: of quality contents trying. This is Bob, the early investor

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Speaker 1: Chinese people in general, okay, they are eager to study.

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Speaker 1: They're eager to enrich themselves not only in money, okay,

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Speaker 1: but also in thoughts, in ideas. I think that there

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Speaker 1: to have quality knowledge, quality ideas, satisfying the intellectual curiosity

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Speaker 1: of China's new middle class. Yeah, and in particular, the

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Speaker 1: venture investor Jenny V said, you know, if you think

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Speaker 1: about the millenniums today, China is over three million millenniums

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Speaker 1: h below thirty five, they're no longer that young, right.

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Speaker 1: This is a this is a population that have graduated.

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Speaker 1: You know, they are in the workforce, some of them, uh,

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Speaker 1: they're married. The cause of leaving in China means that

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Speaker 1: that translate into uh, the should continue to invest back

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Speaker 1: into their own learning and education. We'd be remiss if

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Speaker 1: we didn't mention how much the shift to mobile computing

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Speaker 1: smartphone was their first Internet connected device. They may not

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Speaker 1: show me we're selling phones at very affordable prices. So

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Speaker 1: you know, when when the mobile phone becomes your only

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Speaker 1: access to the Internet, you actually do everything there, right,

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Speaker 1: because it's it's your point of sale to a certain extend,

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Speaker 1: your point of access to information, uh, to commerce, and

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Speaker 1: you know, to consumption. Now I want to focus on

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Speaker 1: commerce for a moment. China never had an established credit

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Speaker 1: of smartphones, China leap frog to mobile payments. That explains

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Speaker 1: the rise of we chat and Alley Pay, which connect

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Speaker 1: your phone to your bank account. Now, some Western listeners

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Speaker 1: are probably thinking, sure they have Venmo or Apple Pay

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Speaker 1: or Google Wallet. But just to put things in perspective,

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Speaker 1: China's mobile payment market is nearly fifty times bigger than

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Speaker 1: in the US. Ali Pay started out as the online

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Speaker 1: payments processor for Ali Baba's e commerce sites, and we

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Speaker 1: Chat pay is the payment service linked to ten cents

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Speaker 1: ubiquitous social messaging app. These two services operate in a

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Speaker 1: Just to put this in perspective, for those of us

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Speaker 1: only for messaging all, this might sound strange, but Chinese

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Speaker 1: consumers use we chat for everything from paying for groceries

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Speaker 1: to taxis to booking manicures. The mobile payment in China proper,

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Speaker 1: it is that most convenient in the whole. That's Bob again,

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Speaker 1: the Angel Investor. You can people even one buck, We

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Speaker 1: got that paying the feet. So people are extremely covetable

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Speaker 1: using mobile phone to make a payment. So, in other words,

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Speaker 1: China already had the systems and habits in place to

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Speaker 1: make it really easy for people to spend money on

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Speaker 1: these various apps. After all, you wouldn't pay for something

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Speaker 1: if it wasn't easy to do. The latest twist on

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Speaker 1: all of this is that in China, online shopping has

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Speaker 1: started to converge with what we normally think of as

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Speaker 1: social media. So, Selena, what's the difference here? Why haven't Facebook, Instagram, Pinterest,

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Speaker 1: etcetera been able to get users buying things on their apps.

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Speaker 1: I spoke to Richardly recently. He's the CEO of JD

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Speaker 1: dot Com, the second largest online retailer in China. He

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Speaker 1: thinks that even huge companies like Facebook need to get

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Speaker 1: even bigger to turn users into customers. Only in China,

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Speaker 1: tess and full owned of the social media that they have,

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Speaker 1: they are almost chefs. So I mean Facebook on Amazon

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Speaker 1: is what he's saying is. Richard thinks that the China

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Speaker 1: model would only work in the U s if Facebook

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Speaker 1: or Google acquired a part of Amazon, so that our

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Speaker 1: incentives would be aligned to boost each other. And that,

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Speaker 1: of course, is incredibly unlikely. It's somewhat more probable that

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Speaker 1: Amazon might acquire or build its own social media tool.

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Speaker 1: But borring that, what's it going to take for American

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Speaker 1: Internet users to feel like spending money on the mobile

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Speaker 1: amps they have on their phones. It's exciting, Uh innovation

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Speaker 1: only in China. So many of people are not trying

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Speaker 1: to copy it, uh, you know to America. Many Chinese companies, okay,

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Speaker 1: they want to do that scene of things, you know

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Speaker 1: to America. Basically, Bob thinks it will be Chinese companies,

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Speaker 1: not US companies bringing about this change. In fact, we're

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Speaker 1: already starting to see that happen. You know. The one

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Speaker 1: time we use is called KFC. It's a call by

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Speaker 1: which is the Chinese copy from China. Charles Fan is

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Speaker 1: a ct of Cheetah Mobile. It's a publicly traded Beijing

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Speaker 1: based company that makes utility apps for smartphones. He noticed

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Speaker 1: a few years ago that there was huge opportunity to

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Speaker 1: make money by copying Chinese app innovations and bringing them

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Speaker 1: to America. I think we'll be moible KFC content where

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Speaker 1: something like mobile payment, like live broadcasting kind of the

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Speaker 1: first see site success in China and then and then

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Speaker 1: go to other countries including US. First of all, they're

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Speaker 1: going to need an acronym other than KFC. But it

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Speaker 1: is interesting because for a long time there was an

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Speaker 1: arrogance in the West around China copying our ideas, not

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Speaker 1: the other way around. And today the fast growing part

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Speaker 1: of Cheetah Mobile's business is its live streaming service live

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Speaker 1: dot Me, which targets the US market. The app only

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Speaker 1: launched a year ago and it already has more than

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Speaker 1: twenty million users and more than two hundred thousand hours

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Speaker 1: of content stream daily. So it seems like there is

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Speaker 1: a possibility that US consumers are catching on the trends

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Speaker 1: like watching live stream video and paying for at least

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Speaker 1: some form of virtual content. We have proven them wrong, uh,

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Speaker 1: you know, just by by practice. Uh. The in turned out.

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Speaker 1: You know that the scale our population might not be

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Speaker 1: quite at a level of China. But the the answer

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Speaker 1: to both questions seems to be yes, Yes, there are

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Speaker 1: enough people who are interested in broadcasting and while watching broadcasts, uh.

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Speaker 1: And there are people who are willing to pay for

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Speaker 1: virtual gifts. That said, there are also US based companies

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Speaker 1: that are starting to pick up on some elements of

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Speaker 1: Chinese apps today. I think that there's so much learning

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Speaker 1: between US and China market that a lot of the

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Speaker 1: US internet places uh and companies are realizing that they

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Speaker 1: need to add that social element. They need to add

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Speaker 1: the gamification element and the whole virtual currencies elements. Now.

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Speaker 1: A good example of this is Twitch, which is a

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Speaker 1: site actually owned by Amazon where you can watch people

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Speaker 1: play video games. It's planning to make it easier for

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Speaker 1: the gamers that stream themselves, these content creators to make

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Speaker 1: money on the site with a feature called Cheering that

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Speaker 1: lets fans buy animated emoticons and send them to their

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Speaker 1: favorite video game stars. That sounds kind of similar to

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Speaker 1: the virtual gifting that we've seen with the live streaming

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Speaker 1: apps in China. Yeah, and Twitch has already had success

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Speaker 1: allowing its biggest stars to collect not just ad revenue,

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Speaker 1: but also a subscription fee from their viewers, which is

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Speaker 1: of course shared between Twitch and the stars. What are

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Speaker 1: some other examples, Well, Apple's eye Message has added stickers

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Speaker 1: that you can pay for, Facebook allows you to pay

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Speaker 1: for things inside its messaging platform, and Snapchat has talked

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Speaker 1: about adding premium filters that charge of view. These are

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Speaker 1: all interesting, but none of them have achieved the scale

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Speaker 1: or success of what's happening in China. I'm mean, Brad,

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Speaker 1: do you have a bank account connected to Facebook or Snapchat?

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Speaker 1: I certainly don't that would be a negative. Although I

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Speaker 1: am more willing these days to use something like PayPal

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Speaker 1: to pay for pieces of content online. And that's true.

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Speaker 1: I mean I have considered now and then maybe switching

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Speaker 1: from Venmo and paying my friend through Facebook. I could.

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Speaker 1: I could see it happening potentially in the future. It's

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Speaker 1: also probably worth noting here, Selena, that over the last

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Speaker 1: couple of months, some major newspapers like The New York

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Speaker 1: Times the Wall Street Journal have seen tremendous growth in

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Speaker 1: their digital subscriptions. So it does seem like Western are

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Speaker 1: becoming a little more comfortable with the idea of paying

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Speaker 1: for digital content. Definitely, a lot of these innovations in

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Speaker 1: China are coming as a whole news industry is kind

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Speaker 1: of being upended as we're all searching for ways to

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Speaker 1: make money beyond ads. So I think that a lot

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Speaker 1: of the success is over there, give us some hope

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Speaker 1: over here. It does seem like the thing that we

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Speaker 1: haven't gotten to here in the in the West was

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Speaker 1: an idea that was very popular early on in the Internet,

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Speaker 1: and that's people paying for micro content for individual articles

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Speaker 1: or in vidual as we say earlier in the in

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Speaker 1: the show programs like live streams. That's the thing that

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Speaker 1: perhaps people aren't quite comfortable with yet. But tell us, Alina,

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Speaker 1: what's the magazine and editor Lee Shang up to today. Well,

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Speaker 1: I mean he's already pulling in millions of dollars in

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Speaker 1: revenue from just one daily column, so he's really thinking

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Speaker 1: about what's next. Well, we foresee a big change of

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Speaker 1: my team and my company in terms of the content

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Speaker 1: and the business model. Well, our current users are only

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Speaker 1: coming from this one product. In the future, we're looking

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Speaker 1: to launch more products and more programs. Uh, the current

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Speaker 1: one is just focused on business and opinion. We're exploring

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Speaker 1: other products in the future. And that's it for this

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Speaker 1: week's to crypt It. Thanks for listening. Please get in touch.

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00:25:08,320 --> 00:25:10,280
Speaker 1: You can record a voice message and send it to

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00:25:10,359 --> 00:25:14,520
Speaker 1: us at Decrypted at Bloomberg dot net or I'm on

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00:25:14,520 --> 00:25:19,400
Speaker 1: Twitter at Selena Underscore, Why Underscore Wang, and I'm at

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00:25:19,400 --> 00:25:22,360
Speaker 1: brad Stone. Please subscribe to our show wherever you get

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00:25:22,400 --> 00:25:25,359
Speaker 1: your podcasts. While you're there, please leave us a rating

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00:25:25,400 --> 00:25:28,399
Speaker 1: and a review. It really helps more listeners find our show.

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00:25:28,960 --> 00:25:33,080
Speaker 1: This episode was produced by Pia gadkari Aki, Edo, Liz Smith,

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00:25:33,200 --> 00:25:36,600
Speaker 1: and Magnus Hendrickson. Thanks to Nico Grant, who helped with

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00:25:36,720 --> 00:25:39,480
Speaker 1: some research for today's show, and to Lilian Chen who

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00:25:39,480 --> 00:25:43,160
Speaker 1: helped with Mandarin translation. Robin and Jello edited my print

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Speaker 1: story about the ap economy in China, which you can

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Speaker 1: read at Bloomberg dot com slash Tech. Alec McCabe's head

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00:25:48,840 --> 00:25:57,879
Speaker 1: of Bloomberg Podcasts, We'll see you next week. Decrypted is

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Speaker 1: brought to you by red Hat, whose broad port folio

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Speaker 1: of open source technologies for the enterprise helps you get

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Speaker 1: from where you are to where you want to be.

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Speaker 1: Red Hat the open technology to help you realize your vision.

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Speaker 1: Learn more at red hat dot com, slash open Tech,