In late August, the top legislative body in the People’s Republic of China voted to adopt a national privacy directive called the Personal Information Protection Law (PIPL). PIPL is an omnibus privacy law that will go into effect on November 1st and represents the latest in a series of regulatory incursions by the Chinese government into the country’s technology sector. PIPL is often compared to GDPR, although it is more stringent and doesn’t prevent China’s government from accessing user data.
This new law aligns with similar such measures that various government agencies in the country have enacted, such as the revised Law on the Protection of Minors, which compels the country’s citizenry to proactively participate in preventing widespread youth internet addiction. Consistent with this initiative, the country has engaged in a campaign to limit the amount of time that children can spend playing video games, initially restraining play to 90 minutes per day during the school week in 2019 and curtailing that window to just three hours per week starting on September 1st of this year. In implementing this new restriction, China’s National Press and Publication Administration (NPPA) derided videogames as “spiritual opium.”
This reference holds profound meaning: Britain reversed its trade deficit with China in the 19th century by selling opium harvested in British-controlled India to Chinese merchants in Canton, the only Chinese port open to foreign trade at the time. This led to a punishing epidemic of opium addiction throughout Chinese society, to which the Chinese government responded with increasingly forceful remedies, culminating in the seizure and destruction of 1,000 tons of opium from British vessels. This act incited the First Opium War between Britain and China, fought from 1839 to 1842. As terms of China’s defeat in the war, the British were granted control of Hong Kong island, and five additional Chinese ports were opened to foreign trade. The Second Opium War was fought between Britain and France against China and led to further trade concessions. Needless to say, when the Chinese government disparages something by invoking the spectre of opium addiction, its sanction is resolute.
Regulatory interventions have wiped out billions of dollars of value for China’s largest technology firms. But against the backdrop of these government-imposed constraints, something interesting is happening in the West: Chinese companies are thriving. ByteDance’s TikTok, which was under threat of being broken up or outright banned by the Trump administration, is consistently a Top 1 Downloaded app in the US on both iOS and Android, having vacillated across the Top 10 just a year ago. And a recent report by the BBC revealed that TikTok’s average watch time is higher than that of YouTube in the US and the UK (although the number of its users in those geographies is much smaller).
Likewise, SHEIN, a fashion shopping app, consistently sits in a Top 5 Downloaded rank in the Shopping category in the US, occasionally surpassing Amazon and in league with the likes of Walmart, Shopify’s Shop app, and Nike. And the Top Grossing chart for the Games category is particularly dense with Chinese titles: at the time of this writing, according to data sourced from Sensortower, 24 of the 100 Top Grossing games on iOS in the US are published by Chinese developers.
And as the operating landscape for consumer tech companies in China grows more restrictive, regulatory and competitive pressures, along with a form of privacy warfare, are eroding the dominance that the hardware platforms enjoy in the US. As I’ve written about previously, Apple’s recently-introduced App Tracking Transparency (ATT) privacy policy creates an incentive for large companies to form content fortresses that absorb content interactions and insulate them from privacy controls (because all data utilized for ads targeting and personalization is first party to a content fortress).
Likewise, the grip that large content platforms have on distribution will almost assuredly be loosened by forthcoming regulation in the US. Apple was recently dealt a blow when the judge in the Epic v. Apple case issued a permanent injunction that forces the company to allow developers to link to alternative payment methods from within their apps. This is merely the latest domino to fall in a chain of decisions that have chipped away at Apple’s exclusive right to process payments on iOS.
These fissures and fractures present opportunity for new platforms to aggregate market share. Surely, Chinese companies recognize this: as the domestic environment becomes antagonistic, the US consumer technology ecosystem looks ripe for new entrants. And barring future protectionist measures (similar to those that Trump’s administration pantomimed), TikTok serves as a perfect prototype for how the largest Chinese technology companies can reach dominant positioning in the US. And it has nothing to do with market awareness, cultural mastery, or algorithmic sophistication. It’s more straightforward than that: money. ByteDance spent $1MM per day in advertising to grow its user base in the US in 2018, becoming Snapchat’s largest advertiser. And in 2019, it tripled its advertising budget to $3MM per day.
Photo by Bruce Röttgers on Unsplash