How an Editor’s Career Crisis Led to a $500 Million Dollar Startup

Editor

By Tony Jing

How an Editor’s Career Crisis Led to a $500 Million Dollar Startup

Recently a YouTube channel and a Facebook page caught my eye. It’s called Yitiao — meaning “One Article” or “One Piece” in Chinese. For the past three years, Yitiao published one or two highly produced short videos everyday, showcasing well-designed homes, architecture, crafts, photography and art. These videos are mostly narrated in Mandarin Chinese, although subjects range from China to around the world.

Well designed homes are the most subject in Yitiao videos [0]

It was clear that these were made deliberately for the web, and more specifically for mobile, as the length of videos ranged from 3 to 5 minutes. I knew this was an expensive operation to maintain, based on the consistent production quality and release schedule. There had to be a disciplined full-time team dedicated to sourcing stories, travelling to sites, shooting the footage, and doing post-production. These are not trivial tasks, definitely not the feat of amateurs.

Yitiao’s videos on Facebook, Youtube, and WeChat

Two questions gnawed at me as I watched more videos. Who was behind this company? How did they make money? I pondered. These two questions later led me to discover a new business model and the story of Yitiao — a startup that is currently valued at 500 million (USD).

The more I researched, the more I found its origin story fascinating. This is my telling of how Yitiao came to be.


The Story Began in 2013

The then 40 year-old Xu Husheng sat in his office, located in the former French Concession neighbourhood of Shanghai. As he gazed at the plane tree leaves just below his fifth-floor window, he felt a sense of anxiety.

That feeling was quite unfamiliar to him, because life was predicable and well-off. His job was stable, his salary was good, and everyday he pedalled his vintage bike to work, in a mere 15 minutes — a real luxury for most Shanghainese. At 40, he had become the editor of a popular magazine, a dream job that afforded him abundant time to be with his 5 year old daughter, to read whatever books he wanted , and even to play with family cat. [1]

The last real anxiety he felt was eight years ago. Back in 2005, he took over as the acting chief editor of the Bund magazine. His ascension was a last ditch effort by the executives and the board of directors to save the company — it was losing subscribers and hemorrhaging money.

A 2003 cover of the Bund magazine — it focused on social issues and current events

According to many retellings of the same story, Xu’s timely pivots turned things around. Before his arrival, the magazine focused on social issues and current events. While this positioning had its audience, Xu realized that for most young city dwelling Chinese professionals, an audience that was rapidly growing in size and affluence, these subjects were utterly uninteresting.

To them, the world of entertainment, fashion, and culture were way more interesting. Xu tapped into this insight and revised the Bund to be more international , while working hard to land timely interviews with big name celebrities. Adding a dash of glamour and a clean graphic design, the magazine pulled away from its pack. [2] In a few years, the Bund became one of China’s most circulated periodicals. In 2013 alone, it raked in close to 200 million RMB (30 million USD) in advertising revenue. [3]

Later covers of the Bund magazine

On this warm spring day in 2013, Xu noticed a sharp decline in sales numbers. This was the reason behind his sudden anxiety. Little did Xu know then that 2013 would become the worst years in history for China’s magazine and newspaper industry. Magazine and newspaper booths in most cities would generate less than $20 (USD) a day in sales. Even at the best locations, with heavy foot traffic, daily revenue hovered around $50 by the end of 2013. [4]

Looking back with today’s knowledge, the reason for this couldn’t be more obvious. 2013 marked the inflection point in the adoption of the smartphone in China. The number of smartphone users had surpassed the US for the first time, and at the same time WeChat announced that it had reached 300 million monthly active users. [5]

China overtaking the US in smartphone users [6]

Xu had always considered himself a traditional media person. He did not use WeChat, nor did he dabble in desktop social apps such as QQ or Renren, both of which had gained popularity among China’s youth, years before the smartphone’s arrival. However as 2013 progressed from spring to summer, he couldn’t help but to notice the correlation between the rise of smartphone and decline of the magazine and newspaper industry. [7]

WeChat Public Accounts

Soon after that day, Xu decided to see for himself — replacing his feature phone with a smartphone. First thing he did was to install WeChat. It was on WeChat that he noticed the existence of public accounts, which are accounts that any individual, business, or organization can setup. These accounts can publish content and communicate with their followers, similar to Facebook Pages.

Image result for public accounts wechat
The type of accounts on WeChat [8]

Any WeChat users could follow these accounts by searching keyword or by scanning a QR code.

QR codes examples to public accounts

When WeChat first launched public accounts in 2012, mainstream media were still oblivious to its later powers and simply ignored it. However as its functionalities improved, and as the number of WeChat users skyrocketed, public accounts became the main way news spread in China.

Xu’s office also caught the Public Accounts bug by mid 2013 — every department had created their own public account. However, as time progressed, it became apparent to Xu that traditional media simply couldn’t move fast enough to come out on top of this storm. He had to make a move.[9]

Two is Less Than Five

In November 2013, Xu found himself talking with the New Media executive at Southern Weekend, arguable the most popular weekly newspaper in China. They conversed for hours. Xu came out feeling dazed. But he was not confused.

That same night, Xu downloaded several hundred media and information apps on his iPhone and followed several hundred public accounts on WeChat— staying up until 4am, browsing, clicking and reading. He lamented before finally sleeping, saying “my rice bowl is really going to be broken” — a Chinese idiom describing one’s livelihood being eradicated.[10]

Xu started downloading apps on his new iPhone

Seeing that it would be impossible to retire early, as he had hoped when he turned 40, he decided to do something about this right away. [11]

Finding That ‘Something’

Software is eating the world. The web is eating software.

Xu realized that videos are eating the web. He looked to the premier video sharing platform of the world — YouTube, for inspiration.

Hopping over the Great Firewall with VPN, he watched the most viewed videos on YouTube. But due faulty VPN connections, he had to first download the videos, then watch them offline. In a few months, he had amassed over 6000 clips with a combined size of 60GB.

On YouTube, as Xu put it, “over half of the most popular video were about lifestyle, there are many popular videos about teaching how to make clothes, how to cook, how to fix things”. [12] While in China, the overwhelming majority of content was still about entertainment, memes and celebrity gossip.

He gave the example of Michelle Phan, a YouTuber with millions of subscribers, whose videos were mostly of herself facing her camera, next to a mirror, explaining and showcasing fashion, cosmetics and other lifestyle tips. Xu noted that she eventually was able to use her success to launch a cosmetics company with a valuation in the hundreds of millions.

A cover thumbnail of one of Michelle Phan’s Youtube videos

To Xu, there was no reason why lifestyle videos couldn’t succeed in China.

Armed with this discovery, he returned to work. His proposal was to setup a video team. To his surprise, this was met with strong resistance immediately. One his superiors responded by saying that they were in the magazine business, not the video production business, and that he should leave that to Shanghai’s various TV stations.

They simply didn’t see what he saw. But Xu felt a dire need to capture the opportunity and redefine what a media company should be. He later described that period like this:

It was very difficult to transform from within. I felt as if a huge tsunami was about to overtake a village, yet the villagers were still talking about how to fix the broken windows. [13]

The debates eventually took its toll. Xu handed in his resignation two months later. He talked about it like this: “The decision was simple. At the worst, I’ll just be a small Shanghai-based video production company making short promos for different companies. I was confident that I could still make ends meet.” [14] [15]

Show Me the Money

Because of his previous life as a leading editor, he was able to secure meetings with many angel investors. But few were interested to invest after hearing the pitch. His proposal didn’t have a clear path to revenue and the media business had its own baggages in China, given the political environment.

Despite the odds, one VC firm — Whales Capital did invest, however, with a final test. In the final round of negotiations, the investors at Whales asked Xu to commit $160,000 USD of his personal money into the business as a sign of conviction. Xu agreed without hesitation, despite it being a sizeable chunk of his savings.

And because of this, the deal closed quickly. [16] With the money in the bank, Xu went about renting an office and hired a group of six, then ten, mostly fresh-out-of-school college graduates from various programs and started learning and making videos together.

Copying YouTubers?

They initially tried to make their videos just like the ones on YouTube, adopting similar speaking, lighting, editing techniques and styles.

The resulting videos felt lively and fast-paced, and in many ways indistinguishable from those of the YouTubers who inspired them. Yet something didn’t feel right.

The Yitiao team working hard in 2014 [17]

It was very costly to source subject matter experts in topics such as fashion, makeup, or cooking, who also wanted to be in front of the camera, essentially acting and teaching. When they did find the right content creators, it didn’t make much sense for them to work with Yitiao, as they could simply work directly with the video platforms, and shoot less high produced by still engaging videos on their own. [18]

What made matters worse was that China didn’t have a de facto video distribution / subscription platform like YouTube. The video audience was scattered across sites like Youku, iQiYi, Sohu, and Tencent Videos. It was impossible to gather them all.

Xu and team realized that they had to make breakthroughs in both content and distribution in order to succeed. “Why are we trying to make videos like these kids on YouTube? They are doing their thing, but that’s not us.” One team member calmly expressed her frustrations at a company all hands.

The team shooting a magazine style profile about a local craftsperson

They didn’t have an answer to her question.

But they decided then that they should learn their craft regardless of their direction. The team kept going. They focused on improving their skills for twelve hours days, 100 days straight, by shooting and editing a few dozen videos without ever releasing them publicly.

It Should Feel Like a Magazine

In hindsight, this 100 days was the team’s learning curve. And surprisingly the process actually allowed them to find their direction.

They realized that they didn’t want the videos to feel amateurish or funny, as China’s internet had plenty of content like that already. What was interesting to them were those shot in a magazine style, that showed interesting stories and lifestyles. [19]

Seeing that there was something interesting there, they quickly ditched tutorials to focus on stories, with topics that range from architecture, design, art, to craft — all subjects that Xu was already familiar with. On September 8th, 2014, they released their first public video on the various video platforms. It was a four minute clip about a Shanghai antique shop named Brocantic.

The difference was apparent from the first scene.

The shop owner Camille stood in front of an old neighbourhood alley as a long exposure shot captured cars passing by in a blur. The entire video featured her narration to accompany the moving images, as it documented item to item in the shop. The video ended with a still of the shop’s address and hours info.

The shop owner narrated the video, showcasing various items from her store

Before releasing the video publicly, Xu showed it and other a few other similar clips to his investors. He received this comment:

We really like these videos, but they won’t get any traction online.

This was the typical response Xu got when he showed these videos to people. Their experience gave them the impression that these are niche content, suitable for only a small audience. They were right in that these videos were not going to go viral, but Xu knew two things they didn’t:

1People who enjoy magazines, like them for their content, not their form factor. Fundamentally the shift was not in people’s taste but in their preferred medium — from paper to mobile / digital. The type of content that people liked were largely the same. So if an audience existed for the Bund on paperit also should exist online.

What was clear to Xu was that the techniques of arranging imagery and text on paper (aka graphic design), no longer engaged the audience of WeChat and other social media. The Magazine spread simply could not exist on a small screen. The hunch that Xu had was that video was the form factor that could capture attention on digital / mobile. Compared to texts and images, videos are much harder to create — good video skills were not as proliferate as good graphic design skills.[20]

2What the critics overlooked was the size of China’s population. Even a niche audience could be in the size of tens of millions. What was emerging as a theme was that people who would be interested in Yitiao’s content was China’s growing middle class — same as the customers of the Bund magazine. When a reporter later ask about the size of China’s middle class, Xu smiled and said simply:

I think Jack Ma said it was 300 million.

He continued. “It’s actually very difficult to discuss the middle class of China. What are the differences between China’s middle class and those of Japan, US, and Europe? I’d like to simply think of the middle class as a group of people with higher education, with more disposable incomes, and perhaps an aspiration to a higher quality of living. This is what I would define as the target audience of Yitiao.” [21]

Along with the growth of the smartphone and WeChat users, is the number of affluent and middle income households. [22]

1 Million Followers in 15 Days

By the fall of 2014, WeChat has emerged as the messaging platform for China. Many WeChat public accounts have gained tens of millions of followers. Riding these two waves, Yitiao decided to focus growing their audience on WeChat.

They decided to act on this new product called GuangDianTong (GDT or 广点通) . It’s a targeted advertising platform developed by WeChat’s parent company, Tencent. Like the advertising platforms from Google and Facebook, GDT also advertised based on bids for a specific audience.

Yitiao only had 1.25 million dollars available, yet they still put in $315,000 into GDT in the first week. [23] This was a calculated gamble by Xu.

They had planned to release a dozen videos in the first two weeks of launching on WeChat. If it was possible to gain one million followers within that time, that news in itself would become a spectacle. The effect of such an event would be a long-tail of new followers weeks and months down the road, based on the media coverage alone.

Xu reflected on that decision: “based on the metrics we were seeing (from GDT), it was probable to assume that the money will translate into exposure as well as followers. We just didn’t know how many. What we were confident in was that even if even we only captured a small audience based on the wide exposure, we can still survive on native advertising, and overtime the money can be recuperated. So even though the decision was risky, the risks were actually calculated.”

Spending big on GDT proved to be an effective strategy — in two weeks time, they gained nearly one million followers on WeChat. Xu later compared to his decision-making process to crossing a deep crevasse:

If you look down, it is very scary, and few dare to make that leap. But if you ignore the depth and just look across it, you’ll realize it could be less than a meter wide — a distance that you can easily jump across. [24]

Aside from GDT, influencers also provided valuable fuel for subscriber growth in the first two weeks. First, because of Xu’s connections, several celebrities shared Yitiao videos on their own social feeds. Second, despite the none of the dozen videos going viral , each was niche enough to turn heads on its own, because they appeal to influencers within specific industries to share among their own followers.

Three videos of first twelve videos on WeChat. They’re about architecture, tea and boutique hotels

For example, the video titled “Architectures’ New Wave” circulated in the architecture enthusiasts scene; Another video about tea was viewed among the fans and lovers of tea; The one about a boutique hotel was widely shared among hotel industry.

Yitiao’s first food video was about a wonton shop.

The reason for this was that not only were the videos highly produced, the protagonists in each video were all individuals who were doing very interesting work in a particular industry. Xu’s decades of editorials work showed its strength in the effective sourcing of these stories.

What became clear was that most of China’s top sites aimed for the mass public audience. Audiences who preferred editorial and highly produced content, although perhaps that group only accounted for 10% of the total, were always overlooked and even ignored. But given the scale of China, that audience alone could be in the tens, if not hundreds of millions.

Mobile Video Growth

Yitiao grew to six million followers in seven months. In three years time, China’s mobile video audience as a whole would grow from 56 million to 353 million.

The number of mobile video viewers in China (in 100 millions), with growth rates from 2014 to 2017 [25]

This hawk like ability to pinpoint social, economic, and population trends before they hit mainstream was what led to the pivot at the Bund nine years earlier. And it seemed that Xu managed to pull off the same transformation once again. His former colleague Dai Guo Feng noted. “In terms of positioning and taste, there isn’t another person like Xu in China.” [26]

How to Retain Followers

To retain followers, the videos’ quality and released schedule both needed to be maintained. Xu thought that the best way to do that was to codify the production process.

They key is to make the sourcing of story, shooting, editing and distributing of content repeatable and efficient. The team analyzed their previous work and iterated on a template.

The level of details that ended up in the final template was extremely meticulous. For example, for cinematography alone, the number of long, tracking, panning, and dollying shots were spelled out.

Common camera movements [27]

For narration, a 950-word template was created to establish a logical order of storytelling. It could be used to tell any story in no more than ten points. In terms of timing, every minute and half, as the audience got bored, a new thread of points were revealed to refresh their attention. Another example was to show the most interesting footage at the beginning, because if the first 5–10 seconds weren’t interesting, many viewers would churn immediately.

Despite not having directors, producers, or scripts, the quality of the videos was kept consistent as a result. But this method did create some tensions among the team. Xu spoke candidly about how there is a constant struggle between artistic freedom and product discipline. [28]

“Often I have to remind people that they are not here to create art, they are here to build a product. If their goal is to to create art, which is a noble goal, they should pursue that, but not at Yitiao.”

What is the Product?

Revenue soon became the elephant in the room as their audience grew. Naturally, the team turned to advertising.

Given the coarse and ineffective styles of popup advertising, and blocker videos, the team decided against that early on. They initially focused on native advertising.

Xu pointed out that content and marketing have always been intertwined. He gave the example of Michelin, a tire manufacturer that publishes the renowned restaurant guides. The guides were initially created to helped drive demand for automobiles, back at a time when the auto-industry industry was still nascent.

The first Michelin guidebook [29]

That model seemed to be a perfect match. Yitiao had attracted a group of viewers who had, by pressing the follow button, informed Yitiao of their desire to keep up with content that showcased more ways of living with quality.

In this sense Yitiao could be the “Michelin Guide” of lifestyle products — a media platform that connects people with products and brands that match their tastes. In order to do that, Yitiao must first discover products, then present them, and then connect the audience to them.

The team began working on this idea after reach six million followers in mid 2015. However, soon after, Xu realized just connecting the audience with products wasn’t enough — many of these shop had little to no online presence and many more simply couldn’t figure out how to do ecommerce. This meant that there was no way for them to expand beyond one city.

Unless Yitiao Pivots to Ecommerce

The need to for Yitiao to venture into ecommerce was apparent.

Rather than linking videos to shops and websites, Yitiao could integrate both the marketing and selling portions of the whole experience and allow their supplier companies to focus on creating great products. This way customers can truly enjoy the benefit of buying directly on Yitiao.

As the team pondered this idea without fulling committing to it, they soon reached ten million subscribers. It was clear then that there existed a bigger opportunity than advertising. The hypothesis they came up with was this: “Users love our content, because we showcase interesting products, designers, and indie brands. Why don’t we allow them to place orders right there?” [30]

In late 2015, the Yitiao created a lean test. The first item available for sale on Yitiao’s WeChat public account was a series of reprinted vintage style textbooks from the Republic of China era (1912–1949). This is a niche item with a relatively high price tag — 120 USD, but it tapped into the buzz around retro books and furnitures — people often acquired them as furnishings and collectibles. [31]

First items sold on Yitiao: vintage books

From a business perspective, the risk was minimum. Having these orders placed in advance would help book publishers budget their prints and eliminate stockpiled inventory. To test the profitability of this model, Yitiao even charged a hefty commission — 30% percent of the sale price. As Xu later put it, “this would be the cost to access to the aggregated high-intent target audience that individual Taobao shops would not able to reach on their own.”

The experiment was a surprise for everyone. In only two days, over 430 copies were sold, grossing $47,000 USD. A week later, the publisher not only cleared their inventory, they had to add more prints to match the influx of new orders. [32] By mid 2016, this book series alone would gross over $300,000 in sales. [33]

This proves their hypothesis and gave them the confidence to proceed. Content aside, Yitiao began selling products.

Don’t Sell Products, Sell Stories

With the newly hired technical staff, Yitiao built up a robust shopping experience inside their WeChat public account by early 2016.

They named it “Living Hall”. Two weeks after launch, Living Hall would gross over $1.5 million USD.

They continued the technical efforts and launched a stand alone iOS app seven months later. The app and the public account had the same interface so that users can access Yitiao wherever they preferred.

Yitiao’s app in August 2016

The difference between Yitiao and traditional ecommerce is that Yitiao treated ecommerce content like media content. Instead of showcasing a product’s specifications and features, Yitiao focused on what the story behind the object was.

They typically chose well designed products, and told stories about the inspirations and the craft behind those designs. “We called this adding warmth to cold objects. The value was not just in the products, the value was in how people used the products. A lot of that can be conveyed through storytelling — by revealing inspirations, problems and successes behind each object.” Xu explained later. [34]

A screenshot from the Yitiao promo video for the book “S”.

One of their most interesting cases was the novel S. It had an innovative format for a novel. The printed text formed its own complete story, but added to it were scribbles in the book margins from two people . These marks and annotations by these two voices were done throughout the book. Included in the book package were also photos, maps, and documents. Altogether these artifacts added a story on top of a story.

Translated copy of the book S [35]

This book sold only 20,000 copies in America. Yitiao contacted the publisher and secured presale rights for 25,000 copies in China. Again the results astonished everyone. In two days, the presale copies were all gone. Over the subsequent years, the book grossed over $656,000 USD. For someone who came out of the publishing industry, Xu realized that this was unprecedented.

Screenshots from Yitiao’s video on Mao Wang Radios

The next case even further solidified Yitiao’s belief in this model.

Mao Wang Radio was a brand that designed and manufactured a retro style radio. It had were many sales channels, but its Yitiao presence was the fastest growing. By the end of 2016, they’ve grossed over $1.1 million on the platform.

Reflecting on Growth

Yitiao was growing at a rate of two million followers per month for the year 2016. By 2017, it had reached 30 million followers. Fast forward to the end of 2017, with more than 500 suppliers and tens of thousands of SKUs ranging from cosmetics to furnitures, the company’s ecommerce business netted more than 234 million USD in revenue. [36]

They’ve also raised three more rounds of financing and amassed a war chest of several hundreds of million. Through this process their valuation also grew north of $500 million USD. [37]

Xu reflected on why their business grew so quickly.

“If you look at our videos, they are all about people, whether they are designers, artists, authors or just someone with an unique perspective. It is very natural to discuss their lifestyles, objects in their lives, and their products. This is something that audiences feel acceptable. When a story’s angle is about a person, how that person tells their story, and their challenges, the details of their lives become much closer. The objects, spaces, and products behind that person become much more interconnected with us.”

He continued. “Many of the small yet beautiful brands struggle to survive because they cannot reach their audience, and many of the larger and more banal platforms such as Taobao and JD.com cannot easily good products that match the tastes of the middle class. I think Yitiao has created a path in that middle space. That’s why we’ve been successful.”

“For people who don’t mind spending a little extra, the cost of searching and browsing is actually very high. It is almost impossible to compare the various items on their functions and utilities. Yitiao aims to be that trusted platform where quality has been vetted and where shopping is more about feeling rightthan comparing right.” [38]

Challenges Ahead

The effect of Yitiao’s success has reshaped China’s media and ecommerce landscape. More and more startups are creating videos, some are directly copying Yitiao’s model. Content-to-Ecommerce has become the new buzzword of the day. [39] Also as the proliferation of content and ecommerce ramps up, Yitiao’s user growth has plateaued.[40]

We want to be better than MUJI.

One of the executives said in an interview in 2016. But how? The executive didn’t elaborate. Making such a bold statement made Yitiao appear arrogant in hindsight.

Indeed, there are many challenges ahead. Their current bottleneck revolves around the need to vet tens of thousands of products and they enter the platform. Judging from user feedback online, the process is somewhat flawed and has not been able to scale well, now that their SKU is in the tens of thousands.

Yitiao’s current executive team

Perhaps another Achilles’ heel is its inconsistent customer experience, which is indicative of a bigger problem, that aside from product curation, a fantastic ecommerce experience requires quality assurance, operational excellence, efficiency in logistics, and above and beyond customer support — a whole slew of efforts that Yitiao’s model doesn’t account for. [41]

It’s impossible to know how big the issues are in aggregate, but online reviews reveal that issues are common. One user wrote about her experience and went on to speculate that the product she bought was not in fact an original import, as claimed on Yitiao. This was a serious accusation for a platform that prides itself on quality and trustworthiness.

There was no follow-up to that thread, so it’s impossible to know what happened. Another user claimed that out of three dozens of products she ordered on Yitiao, only about a dozen were satisfactory. [42] She explained that it was impossible to return most of those items, because they were labelled as “rare” and “sourced with great difficulty”, which are euphemisms for “no returns”.

Aside from these reviews, there has also been pushback on Yitiao’s content. This Weibo post illustrates that sentiment.

The protagonists in ‘Yitiao’ videos, either own hotels, or built houses by hand for their loved ones, or bought islands, or spent $400k renovating rented residences in the center of Beijing. Rather than calling it Yitiao, it should be called The Rich.

— BaoZhaTaiZi, (V — verified Weibo) [43]

Xu admitted that the content and format of their videos cannot stay the same forever. There is a need to refresh and redesign that is much faster than magazines, he said in an interview in 2016. [44]

However, despite these challenges, Yitiao strives forward. Similar to how Michelin created content to expand the appeal of the entire auto industry, and how IKEA created meticulous showrooms to bring lifestyle and design education to customers, Yitiao is combining content, lifestyle and ecommerce in new and interesting ways. There is a long way to go, but so far it’s been an exciting ride.

I hope, that was an inspring story about an editor’s career change. To stay up to date. Just like my Facebook Fanpage: The Doan’s Blog. If you want to know, how to get sustainable traffic, read this: What is SEO? My most popular blog article: International money.

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