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Today — April 22nd 2021Your RSS feeds

Westward plans a $30M debut fund to take Chinese indie games global

By Rita Liao

In Hefei, a Chinese city known for its relics from the Three Kingdoms period and its manufacturing industry today, Maxim Rate was thrilled to find a small studio crafting a Western role-playing game, a genre that attracts lovers of gritty aesthetics and dark storylines.

“The design and computer graphics are really good. You can’t tell they are a Chinese team,” said Rate.

Rate’s mission is to find Chinese studios like the bootstrapped Hefei team and help them woo international players. As Chinese regulators tighten rules on game publishing and make licenses hard to obtain in recent years, small studios find themselves struggling. Since last year, Apple has pulled thousands of unlicensed games from its Chinese App Store at the behest of local authorities. Small-time developers begin to look beyond their home turf.

“The problem is these startups have no experience in overseas expansion,” said Rate.

An avid gamer himself, Rate quit his job at a Chinese cross-border payment firm last year and launched a part-incubator, part-investment vehicle to take Chinese games abroad. The firm, called Westward Gaming Ventures, took inspiration from Zheng He, a Chinese diplomat and explorer who embarked on state-sponsored naval expeditions to the “Western Oceans” during the Ming Dynasty.

Westward plans to raise 200 million yuan ($30 million) for its debut fund, Rate told TechCrunch in an interview. It plans to deploy the capital over the next three years with an intended check size of 2-4 million yuan per studio. It’s currently in talks with 20-30 teams that span a wide range of genres.

The Chinese fund being established is a so-called Qualified Foreign Limited Partners Fund, which, for the first time, will enable foreign investors (USD and EUR) to invest directly in Chinese gaming firms. Only a few institutions own a license for QFLP, and while Westward itself doesn’t hold one, it gains legitimacy for direct foreign investment by partnering with the private equity arm of a major Chinese financial conglomerate, which declined to be named at this stage.

To navigate such regulatory complications, Westward also seeks help from its advisors, including one that oversaw the legal and financial process of one of the largest joint ventures established between Chinese and foreign gaming firms in recent years. The partnership, which can’t be named, was also the first time a foreign entity has become the majority shareholder in a gaming joint venture in China.

China limits foreign investments in areas it considers sensitive, such as value-added services, so many companies resort to setting up elaborate offshore entities to receive overseas funding. The restriction makes it difficult for resource-strapped studios to land foreign investors, who could help them venture into global markets. They are left with the option of getting backed or bought by Chinese giants like Tencent or ByteDance.

Rise of Chinese plays

The idea of Westward is not just to lower the barriers for independent Chinese games to secure foreign capital but also better prepare them for overseas expansion.

“Chinese gaming studios, big or small, used to rely heavily on ads for user acquisition when they went abroad,” said Rate. “Sometimes a game would take off, but the team had no idea why, so they continued to test. Those who failed may just give up.”

But taking a game abroad is not as simple as translating it, hitting the publish button and launching an ad campaign on Facebook.

Westward’s plan is to get involved in a game’s early development phase and help them position: Is it an RPG? Is the targeted user a casual or serious player? What’s the graphic style? In addition, the firm also plans to supply developers with workspace, technical assistance, marketing and localization expertise, connection to publishers, and overseas operation help.

Image Credits: Westward Gaming Ventures

To provide post-investment support, Westward has partnered up with V+ Gaming Society, an incubator for games headquartered Shenzhen, which Westward also calls home.

Chinese tech companies are facing mounting challenges in the West as geopolitical tensions rise. Many now prefer calling themselves “global firms” and even deny their Chinese roots outright.

But for Westward, the games it helps doesn’t need to pretend they are non-Chinese. “Most players don’t consider where a game is from if it is a really good game,” said Rate.

“We actually hope to see elements of Chinese culture in these games that can be understood by overseas players.”

Amy Ho, a partner at Westward along with Rate and Edward He, said one of the few Chinese games that have managed to be both “Chinese” and transcend cultural boundaries is Chinese Parents. The simulation game became a global hit by letting users experience what it is like to raise a child in China.

The benchmark Rate gave was the generation of Japanese games that began exporting 20-30 years ago, which he described as “Japanese” in spirit but “globalized” in graphics and game design.

There have already been globally successful titles from Chinese makers like Tencent and rising studios Lilith and Mihoyo. In the past, many Chinese users on Steam would be asking foreign titles to rush out Chinese versions. Now, it’s not uncommon to see Western users demanding English editions of Chinese games, Rate observed.

Rather than politics, the bigger challenge, especially for small studios, is how to “collect key data for product iteration while complying with local privacy laws,” said Ho.

50-70% of Westward’s capital will come from Chinese institutions. The presence of Chinese investments inevitably leads to questions around censorship. Ho said while Westward provides resources and capital to studios, it will work to ensure their independence from investor influence.

If things go well, Westward could help facilitate cultural exchange between China and the rest of the world. Beijing has been trying to export the country’s soft power, and games may be a suitable conduit, suggested Rate. Amid the ongoing trade war, having foreign fundings in Chinese companies may also do good to China’s “brand”, he said.

Bux, a European Robinhood, raises $80M to expand its neo-broker platform

By Ingrid Lunden

A new wave of apps have democratized the concept of investing, bringing the concept of trading stocks and currencies to a wider pool of users who can use these platforms to make incremental, or much larger, bets in the hopes of growing their money at a time when interest rates are low. In the latest development, Bux — a startup form Amsterdam that lets people invest in shares and exchange-traded funds (ETFs) without paying commissions (its pricing is based on flat €1 fees for certain services, no fees for others) — has picked up some investment of its own, a $80 million round that it.

Alongside this, the company is announcing a new CEO. Founder Nick Bortot is stepping away and Yorick Naeff, an early employee of the company who had been the COO, is taking over. Bortot will remain a shareholder and involved with the company, which will be using to expand its geographical footprint and expand its tech platform and services to users, said Naeff in an interview.

“Since we started, Bux has been trying to make investments affordable and intuitive, and that will still be the case,” he said. The average age of a Bux customer is 30, so while affordable and intuitive are definitely priorities to capture younger users, it also means that if Bux can earn their loyalty and show positive returns, they have the potential to keep them for a long time to come.

The funding is coming from an interesting group of investors. Jointly led by Prosus Ventures and Tencent (in which Prosus, the tech division of Naspers, is a major investor), it also included ABN Amro Ventures, Citius, Optiver, and Endeit Capital — all new investors — as well as previous backers HV Capital and Velocity Capital Fintech Ventures.

Naeff said in an interview that Bux isn’t disclosing its valuation with this round. But for some context, he confirmed that the startup has around 500,000 customers across the Netherlands, Germany, Austria, France and Belgium, using not just its main Bux Zero app, but also Bux Crypto and Bux X (a contracts for difference (CFDs) app).

Crypto remains a niche but extremely active part of the wider investment market and Naeff described Bux Crypo — formed out of Bux acquiring Blockport last year — as “very profitable.” The company had only raised about $35 million before this round, and it’s been around since 2014, so while he wouldn’t comment on wider profitability, you can draw some conclusions from that.

For some further valuation context, another big player in trading in Europe, eToro, in March announced it was going public by way of a SPAC valuing it at $10 billion. (Note: eToro is significantly bigger, adding 5 million users last year alone.)

Others in the wider competitive landscape include Robinhood out of the US, which had plans but appeared to have stalled in its entry into Europe; Trade Republic out of Germany, which raised $67 million a year ago from the likes of Accel and Founders Fund; and Revolut, which has been running a trading app for some time.

The opportunity that Bux is targeting is a very simple one: technology, and specifically innovations in banking and apps, have opened the door to making it significantly easier for the average consumer to engage in a new set of financial services.

At the same time, some of the more traditional ways of “growing” one’s capital, by way of buying and selling property or opening savings accounts, are not as strong these days as they were in the past, with the housing market being too expensive to enter for younger people, and interest rates very low, leading those consumers to considering other options open to them. Social media is also playing a major role here, opening up conversations around investing that have been traditionally run between professionals in the industry.

“We’re looking for industries that solve big societal needs and fintech continues to be one of them,” said Sandeep Bakshi, who heads up investments for Prosus in Europe, in an interview. “Interest rates being what they are, there are no opportunities for individuals to save and that represents a massive opportunity, and we’re happy to partner and be a part of the journey.”

Although there is a wave of so-called neo-brokers in the market today, Bux’s unique selling point, Naeff said, is the company’s tech stack.

In comparison to others providing trading apps, he said Bux is the first and only one of them to have built a full-stack system of its own.

“It’s not on top of existing broker, which makes it a nimble and modular,” he said. “This is especially critical because fintech is a game of scale, but every market is completely different when you consider tax, payment systems and the ID documents that one needs in order to fill KYC requirements.”

And that is before you consider that doing business in Europe means doing business in a number of different languages.

“Our system is here to scale across Europe,” he said. “The fact that we are live in five countries, and the only neo-broker doing that, shows that this modular system is working.”

Indeed, the scaling opportunity is one of the reasons why China’s tech giant Tencent, owner of WeChat and a vast gaming empire, has come on board.

“We are excited about backing BUX as they are the leading neo-broker in Europe and have been able to build a platform that is sustainable and scalable. BUX is the only neo-broker in Europe that offers zero commission investing without being dependent on kickbacks or payments for order flow. This ensures that its interests are fully aligned with its customers. We will support BUX in its journey of pursuing consistent growth for the years to come”, said Alex Leung, Assistant GM at Tencent, Strategic Development, in a statement.

Before yesterdayYour RSS feeds

China gets serious about antitrust, fines Alibaba $2.75B

By Rita Liao

Chinese regulators have hit Alibaba with a record fine of 18 billion yuan (about $2.75 billion) for violating anti-monopoly rules as the country seeks to rein in the power of its largest internet conglomerates.

In November, China proposed sweeping antitrust regulations targeting its interent economy. In late December, the State Administration for Market Regulation said it had launched an antitrust probe into Alibaba, weeks after the authorities called off the initial public offering of Ant Group, the financial affiliate of Alibaba.

SAMR, the country’s top market regulator, said on Saturday it had determined that Alibaba had been “abusing market dominance” since 2015 by forcing its Chinese merchants to sell exclusively on one e-commerce platform instead of letting them choose freely among different services, such as Pinduoduo and JD.com. Vendors are often pressured to side with Alibaba to take advantage of its enormous user base.

Since late 2020, a clutch of internet giants including Tencent and Alibaba have been hit with various fines for violating anti-competition practices, for instance, failing to clear past acquisitions with regulators. The meager sums of these penalties were symbolic at best compared to the benefits the tech firms reap from their market concentration. No companies have been told to break up their empires and users still have to hop between different super-apps that block each other off.

In recent weeks, however, there are signs that China’s antitrust authorities are getting more serious. The latest fine on Alibaba is equivalent to 4% of the company’s revenue generated in the calendar year of 2019 in China.

“Today, we received the Administrative Penalty Decision issued by the State Administration for Market Regulation of the People’s Republic of China,” Alibaba said in a statement. “We accept the penalty with sincerity and will ensure our compliance with determination. To serve our responsibility to society, we will operate in accordance with the law with utmost diligence, continue to strengthen our compliance systems and build on growth through innovation.”

The thick walls that tech companies build against each other are starting to break down, too. Alibaba has submitted an application to have its shopping deals app run on WeChat’s mini program platform, Wang Hai, an Alibaba executive, recently confirmed.

For years, Alibaba services have been absent from Tencent’s sprawling lite app ecosystem, which now features millions of third-party services. Vice versa, WeChat is notably missing from Alibaba’s online marketplaces as a payment method. If approved, the WeChat-powered Alibaba mini app would break with precedent of the pair’s long stand-off.

Bilibili ups the ante in games with $123 million investment in TapTap

By Rita Liao

Competition in China’s gaming industry is getting stiffer in recent times as tech giants sniff out potential buyouts and investments to beef up their gaming alliance, whether it pertains to content or distribution.

Bilibili, the go-to video streaming platform for young Chinese, is the latest to make a major gaming deal. It has agreed to invest HK$960 million (about $123 million) into X.D. Network, which runs the popular game distribution platform TapTap in China, the company announced on Thursday.

Dual-listed in Hong Kong and New York, Bilibili will purchase 22,660,000 shares of X.D.’s common stock at HK$42.38 apiece, which will grant it a 4.72% stake.

The partners will initiate a series of “deep collaborations” around X.D.’s own games and TapTap, without offering more detail.

Though known for its trove of video content produced by amateur and professional creators, Bilibili derives a big chunk of its income from mobile games, which accounted for 40% of its revenues in 2020. The ratio had declined from 71% and 53% in 2018 and 2019, a sign that it’s trying to diversify revenue streams beyond distributing games.

Tencent has similarly leaned on games to drive revenues for years. The WeChat operator dominates China’s gaming market through original titles and a sprawling investment portfolio whose content it helps operate and promote.

X.D. makes games, too, but in recent years it has also emerged as a rebel against traditional game distributors, which are Android app stores operated by smartphone makers. The vision is to skip the high commission fees charged by the likes of Huawei and Xiaomi and monetize through ads. X.D.’s proposition has helped it attract a swathe of gaming companies to be its investors, including fast-growing studios Lilith Games and miHoYo, as well as ByteDance, which built up a 3,000-people strong gaming team within six years.

Bilibili’s investment further strengthens X.D.’s matrix of top-tier gaming investors. Tencent is conspicuously absent, but it’s no secret that ByteDance is its new nemesis. The TikTok parent recently outbid Tencent to acquire Moonton, a gaming studio that has gained ground in Southeast Asia, according to Reuters. Douyin, the Chinese version of TikTok, is also vying for user attention away from content published on WeChat.

Gorillas, the on-demand grocery delivery startup, raises $290M and ‘surpasses’ $1B valuation

By Steve O'Hear

Gorillas, the Berlin-HQ’d startup that promises to let you order groceries and other “every day” items for delivery in as little as 10 minutes, has raised $290 million in Series B funding, at a valuation that surpasses $1 billion.

The round — which was first reported by BI — is led by Coatue Management, DST Global and Tencent, with participation from Green Oaks, Fifth Wall and Dragoneer. Previous backer Atlantic Food Labs also followed on.

Noteworthy, Gorillas CEO and co-founder Kağan Sümer tells TechCrunch the round is “100% equity” (i.e. without a debt component). Asked if it includes any secondary funding — seeing existing shareholders liquidate a portion of their shares — Gorillas declined to comment.

Having become one of the fastest European startups to have achieved so-called “unicorn” status — a valuation of $1 billion or more — Gorillas says it will reward its rider crew and warehouse staff with $1 million in bonuses. However, the company isn’t disclosing how this one-off bonus breaks down per worker, and it isn’t clear if the bonus is cash or stock or a mixture of both. The move comes at a time when Gorillas riders in Germany are reportedly organising to unionise.

“In contrast to established gig economy models, we employ more than a thousand riders directly,” says Sümer. “Therefore, we invest in a strong career development program, rider security and a healthy working environment. Beyond that, all riders will receive a once-off payment”.

Founded last May by Kağan Sümer and Jörg Kattner in Berlin, Gorillas has already expanded to more than 12 cities, including Amsterdam, London and Munich. The company lets you order groceries and other household items on-demand with an average delivery time of 10 minutes.

To do this, it operates a vertical or “dark store” model, seeing it set up its own micro fulfillment centers, which currently total 40, spread across Germany, the U.K. and the Netherlands. Customers are charged just over $2 per delivery and can order from “more than 2,000 essential items at retail prices”.

“We believe that the weekly grocery run is outdated because people’s lives are increasingly spontaneous and shopping habits change accordingly,” says Sümer, noting that while access to supermarkets has increased, the space we have to store goods has decreased as people in cities are living in smaller spaces.

“Additionally, this pandemic has accelerated the need for grocery deliveries. If we can order clothes and trinkets and have them delivered to our door, the same should be said for our essential needs. Gorillas helps customers get what they need when they need it, whether this is their weekly grocery list or the tomatoes they forgot for tonight’s pasta recipe”.

Sümer says the service initially attracted typical early adopters because it was a radically new experience and the app was only available in English. He claims that Gorillas has since gained a “very broad” base of users that are “extremely loyal”. “With geographical expansion and the rapid increase of word-of-mouth, we now cater to pretty much anyone you’d meet in a supermarket,” he says.

Asked to share what a typical basket looks like, and therefore what kind of existing grocery habits Gorillas is displacing, Sümer says that users increase their basket size over time as they gain trust in the service and its products. “Simultaneously, customers are integrating an increasing share of their typical supermarket purchases within their Gorillas orders. This includes fresh goods like fruit and vegetables, as well as products of local suppliers”.

Meanwhile, dark store competition in cities like London — where Gorillas recently expanded and counts as a key market — continues to ramp up. This is seeing operators issue vouchers and offer sizeable discounts in a bid to acquire customers fast, while VCs are pumping huge amounts of early-stage cash into a space where unit economics aren’t yet definitively proven.

Earlier this month, Berlin-based Flink announced that it had raised $52 million in seed financing in a mixture of equity and debt. The company didn’t break out the equity-debt split, though one source told me the equity component was roughly half and half.

Others in the space include London’s Jiffy, Dija and Weezy, and France’s Cajoo. There’s also London-based Zapp, which remains in stealth, and heavily backed Getir, which started in Turkey but recently also came to London.

Meanwhile, U.S.-founded goPuff — which this week raised another $1.15 billion in funding at a whopping $8.9 billion valuation (compared to $3.9 billion in October) — is also looking to expand into Europe and has held talks to acquire or invest in the U.K.’s Fancy.

Tencent Music now has joint labels with all ‘big three’ record labels

By Rita Liao

The music streaming arm of Tencent is further tightening its ties with the “big three” record label companies, its major licensing partners. Tencent Music Entertainment announced Tuesday that it has formed a new joint label with Warner Music Group, following similar deals with Universal Music Group in August 2020 and Sony Music Entertainment in early 2018.

The collaboration will take advantage of “Warner Music’s global resources and experience in supporting artists’ careers, as well as TME’s massive influence in mainland China’s music and entertainment market,” TME says in an announcement.

The joint label established with UMG similarly aims to bring international artists to China, one of the world’s fastest-growing music markets, and take Chinese musicians abroad.

Alongside the label deal, TME and WMG have signed a multi-year licensing agreement, an extension of their decade-long collaboration.

TME has ongoing licensing relationships with all three major record labels and some have manifested in equity relationships. In January, a Tencent-led consortium increased its total stake in UMG to 20%.

TME also operates some of China’s most popular online music services. Through its family of music streaming apps including QQ Music, Kugou Music and Kuwo Music, TME collectively commands 622 mobile monthly active users as of the fourth quarter.

Paying ratio remains relatively low, however, with 9% of the users paying in the quarter, up from 6.2% in the previous year.

But TME has another major revenue stream that distinguishes it from Western streaming services like Spotify: social entertainment. This category includes the karaoke app WeSing which monetizes through the sales of virtual gifts, which are bought by users and sent to performers they appreciate. It mirrors real-life fan-idol interaction.

The segment contributed $854 million to Q4 revenue, compared to $423 million generated from user subscription and digital music sales.

How ByteDance plans to crack the gaming industry

By Rita Liao

For the last few years, ByteDance, the parent company of short video app TikTok, has been working to diversify its revenue streams beyond advertisement and find more ways to monetize its hundreds of millions of users. One area it is targeting is gaming, which has historically been a lucrative business in China’s internet economy.

China is the world’s largest gaming market, generating revenues of $40.85 billion in 2020, according to market research firm Newzoo. The United States trailed behind at $36.92 billion.

But competition is also intense. Giants Tencent and NetEase have long dominated and smaller players like Mihoyo and Lilith are making breakthroughs. According to market research firm Analysys, Tencent occupied over half of the Chinese gaming market in 2019, while NetEase and 37 Interactive respectively commanded around 16% and 10%, leaving little breathing room for smaller rivals.

Regardless, ByteDance is forging ahead, giving a brand name, Nuversegame, and a website to its gaming business for the first time last month. Its strategy consists of a genre-spanning portfolio, a hiring spree, a proven monetization scheme, and a focus on both the domestic and overseas markets. During his short-lived stint with ByteDance, Kevin Meyer was put in charge of multiple overseas businesses, including gaming.

ByteDance, the David when it comes to games, seems undeterred by the Goliaths. As one of the company’s gaming executives Yan Shou wrote in a social media post a year ago: “Gaming is a content business. A monopoly is difficult to maintain [in this industry] as long as there is patience.”

Battle for talent

In recent years, ByteDance has hired a large number of ex-employees from the BAT, the acronym for three of the most prominent tech firms in China: Baidu, Alibaba, and Tencent. Yan himself worked on strategy at Tencent for over two years before joining ByteDance in 2015. While poaching and job-hopping are common in China’s fast-changing tech industry, ByteDance is known for doling out generous paychecks and many tech workers are lured by the prospects of receiving employee options before the firm goes public someday.

Ambitious staff may also feel stagnant after a long period at Alibaba and Tencent, which are both over 20 years old and where room for career advancement is limited. ByteDance, in comparison, is merely nine years old and is still in a fast-growth phase, a Beijing-based headhunter for technology firms tells TechCrunch.

“The current stage of ByteDance and the new businesses it is incubating provide the right platform for these people to achieve their ambitions,” the headhunter says.

In gaming, too, ByteDance has gone on a recruiting spree. The company’s gaming headcount numbers nearly 3,000 today, up from only 1,000 last year, according to a person with knowledge. These employees are scattered across China’s major tech hubs, from Beijing, Shanghai, Hangzhou to Shenzhen, working in various gaming studios under ByteDance.

How big is a 3,000-person team? 37 Interactive, the third-largest gaming firm in China, had around 4,000 gaming staff as of January, according to a company executive. It took the company 10 years to reach this scale. ByteDance began exploring games only around five years ago.

ByteDance declined to comment on the story.

Factory of games

Being late to the game could bring advantages. Having seen how Tencent and other predecessors tackle the gaming market allows ByteDance to learn. For one, ByteDance is working on a diverse range of genres simultaneously, from disposable mobile games to indie titles with unorthodox design or topics. This makes ByteDance different from Tencent, says Daniel Ahmad, a gaming analyst at Niko Partners. Tencent, the world’s largest gaming firm, cut its teeth on board and card games in the 2000s before gradually expanding into other genres.

Of course, only a deep-pocketed upstart like ByteDance could strive for a diverse portfolio from day one. With a well-oiled advertising business built upon its short video app Douyin and news aggregator Toutiao, as well as over $7 billion raised from equity funding over the years, ByteDance has been able to fund its horizontal expansions in not just games but also education and SaaS.

Aside from hunting down talent from other tech giants, ByteDance also relies on swallowing smaller companies to boost its workforce. Since 2018, ByteDance has invested in at least 11 gaming companies, six of which were full acquisitions, according to public disclosures. The acquired assets and talent were subsequently incorporated into ByteDance’s gaming studios. Acqui-hiring is an old and proven formula at ByteDance. Kelly Zhang, the product manager credited for taking Douyin, the Chinese version of TikTok, off the ground, also joined after her photo-sharing startup was bought by ByteDance.

Like many gaming firms, ByteDance’s monetization scheme is two-pronged: distribution of third-party titles and original creation. Quality games don’t come overnight, so the strategy allows its gaming unit to have some revenue as it bets on one of its own works to be a cash cow. Casual games are great for ads, which are normally placed between levels. More complex games rely on user loyalty and the natural way to make money is through in-app purchases.

A number of ByteDance’s licensed casual games have so far made it into the Top 10 iOS free games in China, including car racing game Drift Race, music game Yinyue Qiuqiu, and puzzle game Brain Out. While these collaborations don’t make big bucks yet, the initial traction proves the viability of ByteDance’s traffic strategy.

ByteDance said in 2019 it had 1.5 billion monthly users across its app family (there can be user overlap between apps). One way ByteDance is marketing games is by inserting native ads into users’ content feeds. Videos, says Niko Partners’ Ahmad, are “interactive, easy to use, easy to click through and can get much higher conversion than traditional ads.”

In some cases, the ad may prompt users to download a standalone gaming app. But like WeChat and most of China’s popular apps,  Douyin and Toutiao support third-party “mini apps” within their own platforms. Users can, for instance, play a lite game on Douyin just as they can on WeChat.

With hundreds of millions of monthly users, ByteDance already has a good grasp of people’s tastes and behavior, so it knows what games to recommend. In theory, the more people see and react, the more accurate its predictions become.

“Through targeted ‘recommendations’, our ‘algorithms’ will automatically show users mini games presented in various forms,” explains ByteDance’s gaming developer handbook. “All games have a fair and equal chance of getting initial exposure.”

TikTok parent ByteDance joins patent troll protection group LOT Network

By Frederic Lardinois

LOT Network, the nonprofit that helps businesses of all sizes and across industries defend themselves against patent trolls by creating a shared pool of patents to immunize themselves against them, today announced that TikTik parent ByteDance is joining its group.

ByteDance has acquired its fair share of patents in recent years and is itself embroiled in a patent fight with its rival Triller. That’s not what joining the LOT Network is about, though. ByteDance is joining a group of companies here that includes the likes of IBM, the Coca-Cola Company, Cisco, Lyft, Microsoft, Oracle, Target, Tencent, Tesla, VW, Ford, Waymo, Xiaomi and Zelle. In total, the group now has more than 1,300 members.

As LOT CEO Ken Seddon told me, the six-year-old group had a record year in 2020, with 574 companies joining and bringing its set of immunized patents to over 3 million, including 14% of all patents issued in the U.S.

Among the core features of LOT, which only charges members who make more than $25 million in annual revenue, is that its members aren’t losing control over the patents they add to the pool. They can still buy and trade them as before, but if they decide to sell to what the industry calls a “patent assertion entity,” (PAE) that is, a patent troll, they automatically provide a free license to that patent to every other member of the group. This essentially turns LOT into what Seddon calls a “flu shot” against patent trolls (and one that’s free for startups).

“The conclusion that people are waking up to is, is that we’re basically like a herd, we’re herd immunization, effectively,” Seddon said. “And every time a company joins, people realize that the community of non-members shrinks by one. It’s like those that don’t have the vaccination shrinks — and they are, ‘wait a minute, that makes me a higher risk of getting sued. I’m a bigger target.’ And they’re like, ‘wait a minute, I don’t want to be the target.’ ”

ByteDance, he argues, is a good example for a company that can profit from membership in LOT. While you may think of patents as purely a sign of a company’s innovativeness, for corporate lawyers, they are also highly effective defense tools (that can be used aggressively as well, if needed). But it can take a small company years to build up a patent portfolio. But a fast-growing, successful company also becomes an obvious target for patent trolls.

“When you are a successful company, you naturally become a target,” Seddon said. “People become jealous and they become threatened by you. And they covet your money and your revenue and your success. One of the ways that companies can defend themselves and protect their innovation is through patents. Some companies grow so fast, they become so successful, that their revenue grows faster than they can grow their patent portfolio organically.” He cited Instacart, which acquired 250 patents from IBM earlier this month, and Airbnb, which was sued by IBM over patent infringement in early 2020 (the companies settled in December), as examples.

ByteDance, thanks to the success of TikTok, now finds itself in a situation where it, too, is likely to become a target of patent trolls. The company has started acquiring patents itself to grow its portfolio faster and now it is joining LOT to strengthen its protection there.

“[ByteDance] is being a visionary and trying to get ahead of the wave,” Seddon noted. “They are a successful global company that needs to develop a global IP strategy. Historically, PAEs were just a U.S. problem, but now ByteDance has to worry about PAEs being an issue in China and Europe as well.  By joining LOT, they protect themselves and their investments from over 3 million patents should they ever fall into the hands of a PAE.”

Lynn Wu, director and chief IP Counsel, Global IP and Digital Licensing Strategy at ByteDance, agrees. “Innovation is core to the culture at ByteDance, and we believe it’s important to protect our diverse technical and creative community,” she said in today’s announcement. “As champions for the fair use of IP, we encourage other companies to help us make the industry safer by joining LOT Network. If we work together, we can protect the industry from exploitation and continue advancing innovation, which is key to the growth and success of the entire community.”

There’s another reason companies are so eager to join the group now, though, and that’s because these patent assertion entities, which had faded into the background a bit in the mid-to late-2010s, may be making a comeback. The core assumption here is a bit gloomy: Many companies seem to assume we’re in for an economic downturn. If we hit a recession, a lot of patent holders will start looking at their patent portfolios and start selling off some of their more valuable patents in order to stay afloat. Because beggars can’t be choosers, that often means they’ll sell to a patent troll if that troll is the highest bidder. Last year, a patent troll sued Uber using a patent sold by IBM, for example (and IBM gets a bit of a bad rap for this, but, hey, it’s business).

That’s what happened after the last recession — though it typically takes a few years for the effect to be felt. Nothing in the patent world moves quickly.

Now, when LOT members sell to a troll, that troll can’t sue other LOT members over it. Take IBM, for example, which joined LOT last year.

“People give IBM a lot of grief and criticism for selling to PAEs, but at least IBM is giving everybody a chance to get a free license,” Seddon told me. “IBM joined LOT last year and what IBM is effectively doing is saying to everybody, ‘look, I joined LOT.’ And they put all of their entire patent portfolio into LOT. And they’re saying to everybody, ‘look, I have the right to sell my patents to anybody I want, and I’m going to sell it to the highest bidder. And if I sell it to a patent troll and you don’t join LOT — and if you get sued by a troll, is that my fault or your fault? Because if you join LOT, you could have gotten a free license.’ ”

Tencent backs digital rights startup Pex in $57M round

By Anthony Ha

Pex, a startup aiming to giving rightsholders more control over how their content is used and reused online, has raised $57 million in new funding.

The round comes from existing investors including Susa Ventures and Illuminate Ventures, as well as Tencent, Tencent Music Entertainment, the CueBall Group, NexGen Ventures Partners, Amaranthine and others.

Founded in 2014, Pex had previously raised $7 million, and it acquired music rights startup Dubset last year. Founder and CEO Rasty Turek told me that while the product has evolved from what he described as “a Google-like search engine for rightsholders to find copyright infringement” into a broader platform, the vision of creating a better system of managing copyright and payments online has remained the same.

The startup describes its Attribution Engine as the “licensing infrastructure for the Internet,” bringing together the individuals and companies who own content rights, creators who might want to license and remix that content, the big digital platforms where content gets shared and the law enforcement agencies that want to monitor all of this.

The product includes six modules — an asset registry, a system for identifying those assets when they’re used in new content, a licensing system, a dispute resolution system, a payment system and data and reporting to see how your content is being used.

Turek said that while Pex is being used by “most of the largest rightsholders in the world,” the system was built to be accessible to “a struggling musician out on the streets of Los Angeles” who doesn’t have the resources to “police all of this content” online.

Pex CEO Rasty Turek

Pex CEO Rasty Turek. Image Credits: Pex

He also suggested that the broader regulatory environment is calling for a solution like Pex, with the European Union passing a new copyright directive that’s set to take effect this year, and new copyright legislation also on the table in the United States. The EU bill was criticized for potentially prompting larger platforms to preemptively block broad swaths of content, but Turek argued, “There’s so much content out there in search of an audience that this is going to be the opposite of overblocking.”

Not that Pex is relying entirely on regulators. Turek also said the platform is structured to balance the needs of the different groups using it — and that it has an incentive to strike that balance because its revenue comes from licensing deals, so it’s focused on “really being the Switzerland, really being the neutral party.”

“We designed all of our business around the idea that if we try to abuse the system, we lose, too,” he said. “We don’t make money [when someone] abuses the system, we only make money when everybody plays nice.”

Turek also claimed that public domain and Creative Commons licenses are “first-class citizens” on the platform, and that many of the rightsholders using the Attribution Engine don’t necessarily want monetary compensation: “A lot of people are happy to do this for recognition. We are social animals.” (Plus, recognition can lead to moneymaking opportunities.)

Pex says the new funding will allow it to continue scaling the Attribution Engine.

“I don’t believe investments are validation,” Turek added. “I believe they’re more obligation than validation, but they do prove you are directionally correct.”

China’s draft payments rules put Ant, Tencent on notice

By Rita Liao

A string of recent events in China’s payments industry suggests the duopoly comprising Ant Group and Tencent may be getting a shakeup.

Following the abrupt call-off of Ant’s public sale and a government directive to reform the firm’s business, the Chinese authorities sent another message this week signaling its plan to curb concentration in the flourishing digital payments industry.

The set of draft rules, designed to regulate non-bank payments and released by the People’s Bank of China (PBOC) this week, said any non-bank payments processor with over one-third of the non-bank payments market or two companies with a combined half of the market could be subject to regulatory warnings from the anti-monopoly authority under the State Council.

Meanwhile, a single non-bank payments provider with over one half of the digital payments market or two companies with a combined two-thirds of the market could be investigated for whether they constitute a monopoly.

The difference between the two rules is nuanced here, with the second stipulation focusing on digital payments as opposed to non-bank payments in the first.

Furthermore, the rules did not specify how authorities measure an organization’s market share, say, whether the judgment is based on an entity’s total transaction value, its transaction volume, or other metrics.

Alipay processed over half of China’s third-party payments transactions in the first quarter of 2020, according to market researcher iResearch, while Tencent handled nearly 40% of the payments in the same period.

 

As China heightens scrutiny over its payments giants, it’s also opening up the financial market to international players. In December, Goldman Sachs moved to take full ownership of its Chinese joint venture. This month, PayPal became the first foreign company with 100% control of a payments business in China after it bought out the remaining stake in its local payments partner Guofubao.

Industry experts told TechCrunch that PayPal won’t likely go after the domestic payments giants but may instead explore opportunities in cross-border payments, a market with established players like XTransfer, which was founded by a team of Ant veterans.

Ant and Tencent also face competition from other Chinese internet firms. Companies ranging from food delivery platform Meituan, e-commerce platforms Pinduoduo and JD.com, to TikTok’s parent firm ByteDance have introduced their own e-wallets, though none of them have posed an imminent threat to Alipay or WeChat Pay.

The comprehensive proposal from PBOC also defines how payments processors handle customer data. Non-bank payments services are to store certain user information and transaction history and cooperate with relevant authorities on data checks. Companies are also required to obtain user consent and make clear to customers how their data are collected and used, a rule that reflects China’s broader effort to clamp down on unscrupulous data collection.

Chinese esports player VSPN closes $60M Series B+ round to boost its international strategy

By Mike Butcher

eSports “total solutions provider” VSPN (Versus Programming Network) has closed a $60 million Series B+ funding round, joined by Prospect Avenue Capital (PAC), Guotai Junan International and Nan Fung Group.

VSPN facilitates esports competitions in China, which is a massive industry and has expanded into related areas such as esports venues. It is the principal tournament organizer and broadcaster for a number of top competitions, partnering with more than 70% of China’s eSports tournaments.

The “B+” funding round comes only three months after the company raised around $100 million in a Series B funding round, led by Tencent Holdings.

This funding round will, among other things, be used to branch out VSPN’s overseas esports services.

Dino Ying, Founder, and CEO of VSPN said in a statement: “The esports industry is through its nascent phase and is entering a new era. In this coming year, we at VSPN look forward to showcasing diversified esports products and content… and we are counting the days until the pandemic is over.”

Ming Liao, the co-founder of PAC, commented: “As a one-of-its-kind company in the capital market, VSPN is renowned for its financial management; these credentials will be strong foundations for VSPN’s future development.”

Xuan Zhao, Head of Private Equity at Guotai Junan International said: “We at Guotai Junan International are very optimistic of VSPN’s sharp market insight as well as their team’s exceptional business model.”

Meng Gao, Managing Director at Nan Fung Group’s CEO’s Office said: “Nan Fung is honored to be a part of this round of investment for VSPN in strengthening their current business model and promoting the rapid development of emerging services and the esports streaming ecosystem.”

WeChat advances e-commerce goals with $250B in transactions

By Rita Liao

WeChat continues to advance its shopping ambitions as the social networking app turns 10 years old. The Chinese messenger facilitated 1.6 trillion yuan (close to $250 billion) in annual transactions through its “mini programs,” third-party services that run on the super app that allow users to buy clothes, order food, hail taxis and more.

That is double the value of transactions on WeChat’s mini programs in 2019, the networking giant announced at its annual conference for business partners and ecosystem developers, which normally takes place in its home city of Guangzhou in southern China but was moved online this year due to the pandemic.

To compare, e-commerce upstart Pinduoduo, Alibaba’s archrival, saw total transactions of $214.7 billion in the third quarter.

WeChat introduced mini programs in early 2017 in a move some saw as a challenge to Apple’s App Store and has over time shaped the messenger into an online infrastructure that keeps people’s life running. It hasn’t recently disclosed how many third-party lite apps it houses, but by 2018 the number reached one million, half the size of the App Store at the time.

From Tencent’s strategic perspective, the growth in mini program-based transactions helps further the company’s goal to strengthen its fintech business, which counts digital payments as a major revenue driver.

A big proportion of WeChat’s mini programs are games, which the app said exceeded 500 million monthly users thanks to a boost in female and middle-aged users, as well as players residing in China’s Tier 3 cities, WeChat said.

The virtual conference also unveiled a set of other milestones from China’s biggest messaging app, which surpassed 1.2 billion monthly active users last year.

Among its monthly users, 500 million have tried the WeChat Search function. The Chinese internet is carved into several walled gardens controlled by titans like Tencent, Alibaba and ByteDance, which often block competitors from their services. When users search on WeChat, they are in effect retrieving information published on the messenger as well as Tencent’s allies like Sogou, Pinduoduo and Zhihu, rather than the open web.

WeChat said 240 million people have used its “payments score.” When the feature debuted back in 2019, there was speculation that it signaled WeChat’s entry into consumer credit finance and participation in the government’s social credit system. WeChat reiterated at this year’s event that the WeChat score does neither of that.

Like Ant’s Sesame Score, the rating system works more like a royalty program, “designed to build trust between merchants and users.” For instance, people who reach a certain score can waive deposits or delay payments when using merchant services on WeChat. The score, WeChat said, helped users save more than $30 billion in deposits a year.

WeChat’s enterprise version has surpassed 130 million active users. Its biggest rival, Dingtalk, operated by Alibaba, reached 155 million daily active users last March.

The one-day event concluded with the much-anticipated appearance of Allen Zhang, WeChat’s creator. Zhang went to great lengths to talk about WeChat’s nascent short-video feature, which is somewhat similar to Snap’s Stories. He didn’t disclose the number of users on short videos because “the PR team doesn’t allow” him to, but said that “if we set a goal for ourselves, we will have to achieve it.”

Zhang also announced the WeChat team is weighing up an input tool for users. It’d be a tiny project given Tencent’s colossal size, but the project reflects Zhang’s belief in “privacy protection,” despite public skepticism about how WeChat handles user data.

“If we analyze users’ chat history, we can bring great advertising revenue to the company. But we don’t do that, so WeChat cares a lot about user privacy,” asserted Zhang.

“But why do you still get ads [related to] what you have just said on WeChat? There are many other channels that process your information, not just WeChat. From there, our technical team said, ‘Why don’t we create an input tool ourselves?'”

Tencent-backed Hike, once India’s answer to WhatsApp, has given up on messaging

By Manish Singh

India’s answer to WhatsApp has completely moved on from messaging.

Hike Messenger, backed by Tencent, Tiger Global and SoftBank and valued at $1.4 billion in 2016, earlier this month announced that it was shutting down Sticker Chat, its messaging app.

The startup, founded by Kavin Bharti Mittal, this month pivoted to two virtual social apps called Vibe and Rush, said Mittal, who is the son of telecom giant Airtel’s chairman Sunil Bharti Mittal.

In a series of tweets earlier this month, Kavin said that India will never have a homegrown messenger that makes inroads in the world’s second largest market unless it chooses to ban Western companies from operating in the nation. “Global network effects are too strong,” he said. WhatsApp has amassed over 450 million users in India, its biggest market by users.

Mittal described opportunities in building virtual worlds as a “much better approach for today’s world that is unconstrained by cheap, fast data and powerful smartphones.”

In recent years, Hike made bets on stickers and emojis to cater to the younger population in India. In a meeting with TechCrunch in late 2019, Mittal said that the startup was overwhelmed with the engagement stickers on its platform and was working to automate development of personalized stickers.

In a different meeting last year, Mittal showcased emojis that replicated human expressions and a virtual hangout place called HikeLand. Vibe is the rebranded version of HikeLand and the emojis Hike developed will continue to be available to users on both the newer apps, Mittal said earlier this month.

Hike, which has raised more than $260 million to date, had enough runway last year, Mittal said, who hinted that the startup may raise more capital a year later.

Hike also attempted to build its own operating system through acquisition of a startup called Creo. In 2018, Hike launched Total OS that aimed to cater to users with low-cost Android smartphones and slow internet data.

The startup later shut down the project. Mittal told TechCrunch that the arrival of Reliance Jio, which prompted Airtel and Vodafone to lower mobile data tariff on their networks, solved the data issues in the country and Total OS was no longer needed in the market.

Signal and Telegram are also growing in China — for now

By Rita Liao

As fears over WhatsApp’s privacy policies send millions of users in the West to Signal and Telegram, the two encrypted apps are also seeing a slight user uptick in China, where WeChat has long dominated and the government has a tight grip on online communication.

Following WhatsApp’s pop-up notification reminding users that it shares their data with its parent Facebook, people began fleeing to alternate encrypted platforms. Telegram added 25 million just between January 10-13, the company said on its official Telegram channel, while Signal surged to the top of the App Store and Google Play Store in dozens of countries, TechCrunch learned earlier.

The migration was accelerated when, on January 7, Elon Musk urged his 40 million Twitter followers to install Signal in a tweet that likely stoked more interest in the end-to-end encryption messenger.

The growth of Telegram and Signal in China isn’t nearly as remarkable as their soaring popularity in regions where WhatsApp has been the mainstream chat app, but the uplift is a reminder that WeChat alternatives still exist in China in various capacities.

Signal amassed 9,000 new downloads from the China App Store between January 8 and 12, up 500% from the period between January 3 and 7, according to data from research firm Sensor Tower. Telegram added 17,000 downloads during January 8-12, up 6% from the January 3-7 duration. WhatsApp’s growth stalled, recording 10,000 downloads in both periods.

Sensor Tower estimates that Telegram has seen about 2.7 million total installs on China’s App Store, compared to 458,000 downloads from Signal and 9.5 million times from WhatsApp.

The fact that Telegram, Signal and WhatsApp are accessible in China might come as a surprise to some people. But China’s censorship decisions can be arbitrary and inconsistent. As censorship monitoring site Apple Censorship shows, all major Western messengers are still available on the China App Store.

The situation for Android is trickier. Google services are largely blocked in China and Android users revert to Android app stores operated by local companies like Tencent and Baidu. Neither Telegram nor Signal is available on these third-party Android stores, but users with a tool that can bypass China’s Great Firewall, such as a virtual private network (VPN), can access Google Play and install the encrypted messengers.

The next challenge is actually using these apps. The major chat apps all get slightly different treatment from Beijing’s censorship apparatus. Some, like Signal, work perfectly without the need for a VPN. The catch is to sign up for Signal, a user must activate their account with a phone number, and Chinese phone numbers are tied to people’s real identities. Users have reported that WhatsApp occasionally works in China without a VPN, though it loads very slowly. And Facebook doesn’t work at all without a VPN.

“Some websites and apps can remain untouched until they reach a certain threshold of users at which point the authorities will try to block or disrupt the website or app,” said Charlie Smith, the pseudonymous head of Great Fire, an organization monitoring the Chinese internet that also runs Apple Censorship.

“Perhaps before this mass migration from WhatsApp, Signal did not have that many users in China. That might have changed over the last week in which case the authorities could be pondering restrictions for Signal,” Smith added.

To legally operate in China, companies must store their data within China and submit information to the authorities for security spot-checks, according to a cybersecurity law enacted in 2017. Apple, for instance, partners with a local cloud provider to store the data of its Chinese users.

The requirement raises questions about the type of interaction that Signal, Telegram and other foreign apps have with the Chinese authorities. Signal said it never turned over data to the Hong Kong police and had no data to turn over when concerns grew over Beijing’s heightened controls over the former British colony.

The biggest challenges for apps like Signal in China, according to Smith, will come from Apple, which is constantly under fire by investors and activists for submitting to the Chinese authorities.

In recent years, the American giant has stepped up app crackdown in China, zeroing in on services that grant Chinese users access to unfiltered information, such as VPN providers, RSS feed readers and podcast apps. Apple has also purged tens of thousands of unlicensed games in recent quarters after a years-long delay.

“Apple has a history of preemptively censoring apps that they believe the authorities would want censored,” Smith observed. “If Apple decides to remove Signal in China, either on its own initiative or in direct response to a request from the authorities, then Apple customers in China will be left with no secure messaging options.”

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