TikTok

[0] Cool.

[1] Yeah, we're jamming a lot in here.

[2] I know.

[3] Welcome to Season 5, Episode 8 of Acquired, the podcast about great technology companies and the stories behind them.

[4] I'm Ben Gilbert, and I'm the co -founder of Pioneer Square Labs, a startup studio and early -stage venture fund in Seattle.

[5] And I'm David Rosenthal, and I'm a general partner at Wave Capital, an early -stage venture fund focused on marketplaces based in San Francisco.

[6] And we are your hosts.

[7] Today, we'll tell the story of the most valuable tech startup in the world, bite dance.

[8] You may not have heard of it, but you have almost certainly heard of their most popular product, doyne.

[9] Or wait, if you're in our Western audience, I mean TikTok.

[10] Valued at close to $80 billion, this privately held venture -backed Chinese company has completely changed how a generation of teens and 20 -somethings globally use their phones.

[11] Or another fun way to introduce TikTok.

[12] What is this machine learning -based social media app that skyrocketed the then -unknown Lil Nas X to number one on the Billboard Hot 100 for 17 weeks, the longest of any song in history with his breakout track, Old Town Road?

[13] Do it.

[14] After doing this research, I finally know what the EHawt Challenge was.

[15] Well, David, I mean, how on earth can this app create such a universal sensation for so many people at once to skyrocket it to number one like this.

[16] I mean, this is something that no other social media app has been able to accomplish.

[17] Well, not in quite a long time.

[18] The other fun thing that we're not going to talk as much about on the episode, but to say up front, to also just build the acquired theme and suspense here, you of course know who assigned the, I think it's $70, it's either $78 or $79 billion valuation to buy dance, right?

[19] Is it Sequoia China?

[20] No. They were an earlier investor.

[21] It was an earlier investor.

[22] Oh boy.

[23] All right, I can't wait for this.

[24] The hits keep on coming, although this one actually is a hit.

[25] Indeed.

[26] Well, listeners, the way we'll be telling this story is through BightDance's 2017 acquisition of another China -based company, Musically.

[27] So join us on this journey of BightDance acquiring Musically to create the TikTok that we know today.

[28] Okay, listeners, now is a great.

[29] great time to thank one of our big partners here at Acquired, ServiceNow.

[30] Yes, Service Now is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[31] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsoft's at the NVIDias as one of the most important enterprise technology vendors in the world.

[32] And, just like them, Service Now has AI baked in everywhere in their platform.

[33] they're also a major partner of both Microsoft and Nvidia.

[34] I was at Nvidia's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[35] So why is ServiceNow so important to both Nvidia and Microsoft companies we've explored deeply in the last year on the show?

[36] Well, AI in the real world is only as good as the bedrock platform it's built into.

[37] So whether you're looking for AI to supercharge developers and IT, empower and streamline customer service, or enable HR to deliver better employee experiences, ServiceNow is the platform that can make it possible.

[38] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[39] For example, smarter self -service for changing 401K contributions directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[40] With ServiceNow's platform, your business can put AI to work today.

[41] It's pretty incredible that ServiceNow built AI directly into their platform.

[42] So all the integration work to prepare for it that otherwise would have taken you years is already done.

[43] So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to ServiceNow .com slash acquired.

[44] And when you get in touch, just tell them Ben and David sent you.

[45] Thanks, service now.

[46] And now, on to TikTok.

[47] On to TikTok.

[48] So to start history and facts, we're going to go all the way back to the 1920s and Charlie Chaplin, the origins of, no, I'm kidding, although if we really, really wanted to give it the full acquired treatment, we would do that.

[49] But no, of course, I was referring to the great performer and the performing arts and the origins of showbiz, Charlie Chaplin.

[50] But no, we pick up the story relatively recently this time by Acquired Standards in 2012, not in China, but in the San Francisco Bay Area with a man and not a young man, as we so often talk about on this show, but a man named Alex Jew, who is in his mid -30s.

[51] He's from China originally, and he is working.

[52] I love that that's like not a young man to you.

[53] Well, hey, I mean, I just turned 35, so I definitely don't feel like a young man anymore.

[54] But in comparison to what we're about to talk about, you might think that TikTok or musically, if you knew its initial incarnation, would have been started by a teenager or an Evan Spiegel -like character.

[55] But no, not at all, as we will see.

[56] In many ways, Alex is kind of the anti -Evon Spiegel.

[57] So he's in his mid -30s, and he's working as a UI designer at the Enterprise Software giant, the European enterprise software giant, SAP, hotbed of consumer mobile social app innovation.

[58] Oh yeah.

[59] Totally, the SAP mafia of social network startups.

[60] Indeed.

[61] Indeed.

[62] After working, this is actually his second stint with SAP.

[63] Alex, at this point, has a long career in enterprise software.

[64] And after his second stint at SAP that this is, working there for about a year.

[65] He's just been appointed as an in -house futurist at SAP, focused specifically on the future of education.

[66] You can just see musically jumping right off the page here.

[67] I saw some tweet years ago that said, if you have the word digital in your title, then you have the right job at the wrong company.

[68] I think that might be the same thing for futurists.

[69] Yeah, yeah.

[70] Why is it all that like enterprise companies have futurists?

[71] I think Google does.

[72] Isn't Ray Kurzweil, the Google's chief futurist or something?

[73] Oh, I don't know.

[74] Maybe.

[75] We'll have to look that up.

[76] So his new role as futurist, Alex's new role, is to, and he says this is on his LinkedIn profile, which we'll link to in the show notes, is quite amazing.

[77] He says his job was to research the future trends of education and learning, specifically identify opportunities for breakthrough innovation and social impact and convert ideas.

[78] into prototypes and applications.

[79] And what did this mean at the time in 2012?

[80] I remember this super clearly.

[81] I was about to start business school at Stanford.

[82] And what was all the rage, both in the tech world and in the education world, were MOOCs.

[83] Coursera and Udacity had just launched, both of them out of Stanford, raised tons of money, and they were going to digitize universities and learning and education and bring it all online.

[84] Neither of them, but you know, both of them are still around, of course, but neither of them would go on to realize the potential that everyone thought they had at the moment, or at least not in a near -term time frame.

[85] Interestingly, though, it was actually an enterprise software company to you that would go public and become quite a large company that would help existing schools manage their online degree programs.

[86] And actually, my old undergrad classmate Jeremy Johnson, who's now the CEO of Andella, was one of the co -founders of that.

[87] So it was enterprise software.

[88] It did, you know, you could be in a story why it sort of made sense for Alex to be working on this within SAP.

[89] But as he gets deeper and deeper into it, he becomes really convinced that there are a couple problems with the way MOOCs and online education is being approached at the time.

[90] And he's totally right.

[91] The biggest one, as he digs in, is that nobody finishes the courses.

[92] And not only nobody finishes the courses, nobody even finishes.

[93] like a single video of a single lecture.

[94] They're just too long for most people, unless you're in an actual degree program where you have to, you know, I mean, geez, students at college is barely, you know, stay awake through lectures.

[95] Like, who's going to, of their own free will and volition, watch a whole course?

[96] Yeah, reflecting back on it, I think, like, I would, if I'm to watch, even like the Khan Academy type stuff, it's going to be like one video at a time and maybe not even the whole video.

[97] You kind of get that thing that you need and pop back out.

[98] get in exactly.

[99] You're going to spend five minutes or less on there.

[100] And so as he comes to this realization, he thinks, so maybe the way to attack this is to make the videos short form instead of long form, these educational videos.

[101] And he realizes, you know, look, this is not something that an enterprise software company like SAP is going to really be equipped to tackle here.

[102] So he is passionate about the space, though, and he does decide to start a company on the side outside of SAP while he's still working there.

[103] He's going to take his futurism talents elsewhere.

[104] Yeah, exactly.

[105] At least according to his LinkedIn, he does stop being a futurist at SAP.

[106] He goes back to working on other normal projects as a UI designer and actually stays at the company according to his LinkedIn for quite a few years to come.

[107] But on the side, he's working on realizing this opportunity and he calls up an old friend from back in China, Lewis Yang, who he had worked with at another company back in China, and they start a company called Cicada Education, a real auspicious name.

[108] Cicada?

[109] Like the bug?

[110] I believe so.

[111] At least that is how it's spelled.

[112] I don't know if where you grew up, there were cicadas, but like in Ohio every, I don't know, it was 13 years or something, these gnarly bugs like for two weeks of summer.

[113] Yeah, I mean, same where I grew up in Pennsylvania and then, especially in New Jersey, going to college.

[114] like uh did not make you want to study or name a company after them so so far you know there's this is a interesting compelling story you know there are a few a few twists here but but it kind of sounds like your typical you know bay area startup story on the surface but when you peel back the onion a little bit there's a couple really unique things going on for the time so one the dual China and U .S. headquarters of the company, Alex, stays in the Bay Area, is still working at SAP there.

[115] Lewis is back in China.

[116] This is like not done at the time.

[117] I mean, A, I remember, you know, starting to invest in companies at when I joined Medrana at this time.

[118] Remote teams, period, are like a no -no for venture capitalists and startups, let alone cross -continent, cross -border, cross -cultural remote teams is just crazy.

[119] But these guys have a little bit of experience with that, or at least Alex does.

[120] After undergrad, he first worked at China Pages in China as a designer, and then he spent three years at WebEx where I believe, I can't verify for sure, but I believe he reported up to Eric Yuan.

[121] Wow.

[122] Founder and CEO, of course, of Zoom.

[123] Of Zoom.

[124] And Zoom would leverage this model.

[125] of course, as we covered on the Zoom episode, to amazing success.

[126] And Eric also did within WebEx of having engineering back in China and all over the world, really, while having go -to -market based in the Bay Area.

[127] Crazy.

[128] So Alex, after WebEx, joined SAP, then left SAP and went to an insurance software company called EBO, and that's where he met Lewis, who was the best PM there.

[129] And they worked together briefly there before Alex went and rejoined SAP.

[130] and move to the Bay Area.

[131] So he calls up Lewis, this really talented PM who he's worked with before, and they go out and they raise $250 ,000.

[132] And Ben, you actually know the folks that they raise this angel money from, right?

[133] Yeah, yeah.

[134] One of the firms in there is China Rock Capital Management.

[135] It's a great cross -border China -U

[136].S.