BAT (Baidu, Alibaba, Tencent) + ByteDance – Tech- Giants in China (Part 1)

BAT (Baidu, Alibaba, Tencent) might be the three best-known tech companies in China from the perspective of the Western world. Three to four years ago, most of us believed that no one could challenge BAT in China and that BAT’s dominance would continue for a very long time. Who could have imagined that ByteDance would emerge as the number-three tech company in China? In this post, I’d like to compare the business model of BAT and delve deeper into ByteDance’s business model.

Market Cap

It’s pretty clear that Baidu is lagging behind the two other BAT giants. At the end of 2018, Baidu’s market cap was around $100bn. Many other tech companies have a higher market cap than Baidu, including ByteDance. Why did Baidu lose its competitiveness against the other two?

Business Model

It’s very interesting to see that both Tencent and Alibaba don’t rely much on ad revenue. The most successful tech companies in the US, such as Google and Facebook, derive over 95% of their revenue from advertising.


Baidu’s core business is very similar to that of Google. For a very long time in China, Baidu has had the number-one share in the search business. As a result, most of Baidu’s revenue comes from search ads and display ads. Baidu owns the majority of iQIYI, which is like Hulu in the US. In addition, Baidu has business units working on AI (the most famous one is called Apollo – Autonomous Driving Tech) and Baidu Cloud.

Google has an undeniably dominant presence as a tech company. How can Baidu’s decline in recent years be explained? There might be a few reasons.

  • The large amount of internet traffic did not start with search in China. Similar to the situation with Amazon in the US, most Chinese internet users start their shopping activity directly from Taobao or other e-commerce websites. This behavior is pretty common for news, video, games, and other categories as well. As a result, the relative importance of search in China is low.
  • Baidu had multiple very bad PR crises over the course of the year. Baidu has a very strong sales culture which led them to advertise something they shouldn’t have advertised. At one point, over half of its advertising revenue was from questionable private clinics and hospitals. In addition, Baidu is notorious for changing the search rank based on the ad revenue from each client. This significantly impacts consumers’ trust in Baidu.
  • Baidu’s business model has not changed much over the last 10 years. Lots of people blame Robin Li (CEO/Founder of Baidu) for this matter. In the last 10 years, Tencent grew WeChat into the biggest social platform in China. Both Alibaba and Tencent have a very large presence in the payment space. Tencent is making a good effort to grow its revenue internationally.


Tencent is best-known for WeChat, its flagship communication tool in China. However, its business is far more complex and well positioned than that of Facebook.

Tencent started its business by launching a PC app called QQ. It was a direct copy of ICQ, a popular PC chat application at that time. QQ quickly became the number-one PC chat app in China. Interestingly, Tencent let Allen Zhang create WeChat and disrupt its own QQ. Allen Zhang joined Tencent from the acquisition of Foxmail.

Social platforms come and go. Tencent tries hard to reduce its dependence on the social platform business. It grew its gaming business to become the biggest in the industry. It’s far bigger than Microsoft, Sony, and Nintendo. Over 30% of the gaming business comes from markets other than China. In China, Tencent also operates the largest platform to play and download games in the absence of Google Playstore. Tencent charges the average game developer a 70% to 90% fee for publication of their game on the Tencent platform.

Tencent is also a very sophisticated strategic investor. It is the first big tech company in China to set up a formal fund and team to invest in start-ups across the globe. By the end of 2019, Tencent had invested in more than 700 companies, including 122 unicorns. Many successful tech companies (JD, Dianpin, PinDuoDuo, Nio, etc.) in China are partially owned by Tencent. It certainly helped Tencent to develop strong partnerships with these companies and reinforce its Tencent ecosystem.

By leveraging WeChat, Tencent has also built a huge Fintech business—as big as Alipay of Alibaba in China now. In China these days, it’s very rare to see anyone uses cash to make a payment. Almost all payment transactions are handle by either Alipay or WeChat Pay. 


Alibaba’s business is the most similar to Amazon. The majority of its business is e-commerce. The biggest difference is that Alibaba is mainly a platform for third-party sellers. The third-party ratio has been increasing on Amazon, though it’s still only about 50% of Amazon’s business.  

Alibaba also doesn’t have its own logistics service. Alibaba built a company called Cainiao, of which Alibaba owns 63%. The rest is owned by the major logistic companies in China. At this point, most of the logistics players are part of Cainiao. Alibaba accounts for over 80% of all packages in China. As a logistics company, it has no option but to join Cainiao. Alibaba helped Cainiao introduce an automated warehouse (similar to Kiva) and a data platform to manage all transactions. Cainiao’s goal is to deliver any packages within 24 hours in China.

Similar to AWS, Alibaba Cloud is the leading cloud computing service in China (close to 50% of the market share).

Another interesting similarity between Amazon and Alibaba is their culture. Both Amazon’s and Alibaba’s core management team members have over 20 years of tenure and are very loyal to the company. Jack Ma built a Wuxia (Chinese martial heroes)-oriented culture, which is very challenging from a Western investor’s point of view. For people who want to learn more about Alibaba’s culture, I recommend watching “Crocodile in the Yangtze”. Director Porter Erisman was a VP at Alibaba from 2000 to 2008. Jack Ma had 18 co-founders. None of them had any impressive professional and academic background—including Jack Ma himself. It’s very impressive that, to date, some of them are still leading Alibaba.

In the next blog post, I will do a deep-dive into ByteDance.

“996” – Is There Any Work-Life Balance in China?

I started my professional life as an investment banking analyst at JP Morgan in Tokyo. My boss told me that a junior banker should see the sunrise before going back home. Initially, I thought that was a bad joke. Then I found that, every morning, he really did come to my desk for a check-in meeting.

Life in Chinese tech companies is not that bad, but it’s not marginally better either. Most of them follow a work schedule called “996”—working 9 a.m. to 9 p.m., six days a week. This isn’t only for engineers. It’s typically for all employees, including those in the back office. On weekdays, typically they work to 10-11 p.m. easily.

10 p.m. at Tencent HQ (btw, this was shot on a Sunday)
10:33 p.m. at Alibaba HQ

Why? Why are tech workers in China working so hard? There are two main reasons.

First, it’s because the compensation level in these tech companies is significantly higher than the compensation in other industries in China. The average annual comp at Huawei was about $155K in 2018. That’s about 10X higher than the average comp in Shenzhen. $155K is not a crazy compensation for folks who work at Google or Facebook in the US. However, the average comp in a big city like New York or San Francisco is around $50-60K, not $15K.

Another big reason is that execution is extremely important for the tech industry in China. I will write a separate blog post about this point. If creativity doesn’t matter that much and if it’s all about execution, it makes sense for the company to heavily incentivize very long work hours.

In his podcast series, Reid Hoffman says that LinkedIn China asked a few hundred engineers to stay in a hotel for a few months to develop a localized version of LinkedIn. The result was a big surprise to him because the work was completed within three months; his initial estimates were that it would take at least a year.

As the tech community grows, this “996” work schedule clearly becomes an issue. It requires the entire family to support one tech worker. It also creates lots of mental health issues. Jack Ma faced lots of negative PR due to his public endorsement of “996”. However, as long as the tech companies can offer very attractive comp packages in China, I believe they can continue to enforce “996” throughout the near future.

One important implication for US start-ups is this: Don’t try to compete with Chinese start-ups in a business in which the only key success factor is execution.

How Big is the Tech/Start-Up Ecosystem in China?

There are lots of conversations about the Tech/Start-Up Ecosystem in China. At a high level, everyone knows it’s big. The question is: How big?

Let me break it down into three figures that are critical to the growth of the Tech/Start-Up Ecosystem: Number of Internet Users, Amount of VC Funding, and Number of Engineers.

Internet Users

CountryInternet Users 2020 Q1% of PopulationInternet Growth 2000 – 2020Internet Growth 2015 – 2020

The massive Internet user base is essentially a Tech/Start-Up Ecosystem. China has about three times more Internet users than the US—and even 50% more than India. Assume that the number of Internet users in China will eventually catch up to the US in terms of % of population. The number of Internet users in China would be around 4.5 times larger than that in the US. Based on the current growth rate, most likely this will happen in the next 10 years.

We can argue that ad spending per user in China is still very low. In another blog post, I will focus on the media/advertising industry and consumer behavior in China. However, this massive user base alone is enough to make China one of the biggest tech markets in the world. Another important point is that most of these internet users in China are mobile-first.

VC Funding

VC funding is critical for the Tech/Start-Up Ecosystem, especially for one that may change the world.

In the US, VC deals have been fairly stable over the years ($25-30bn per quarter). Back in 2017/2018, at one point, China’s VC funding was as big as that in the US. However, it started to shrink significantly in the following years. In 2019, VC funding was about $9bn per quarter, which is about one-third the US level.

Of course, in China, lots of capital comes from government grants and contracts. However, most likely, the total funding to the Tech/Start-Up Ecosystem in China is 50% less than that of the US. Given that China had a small bubble in 2017/2018 and that the entire VC industry has only about 20 years of history, it will take a while for China to again reach the level of the US market.

Interestingly, China has almost half of the world’s unicorns—three more unicorns than the US in 2019. Four out of the 10 highest valued start-ups in the world are from China. I believe this is driven mainly by the “winner-takes-it-all” market dynamics in China.

Engineer Talent Pool

The tech industry needs lots of engineers to write code and build hardware. A massive engineer talent pool is the key to success.

China is definitely leading the league in this one. The World Economic Forum reported that China had 4.7 million recent STEM graduates in 2016, and that India had 2.6 million new STEM graduates. The United States had only 568,000.

Among those 568,000 graduates, foreign nationals accounted for 81 percent of the full-time graduate students in electrical engineering, 79 percent in computer science, and 75 percent in industrial engineering. Sixty-nine percent of STEM graduates came from China and India.

To be honest, this gap is much wider than I thought it would be, and is quite alarming for the US.


At this point, the US is leading the total VC funding or total valuation of start-ups. However, if we believe that the engineer talent pool and internet users are leading indicators, the gap between the US and China may close fairly soon. In upcoming blog posts, I will share my perspectives on each element of the Tech/Start-Up Ecosystem in China.

Tech Start-Up in China

I don’t know many people who have run start-ups in both the US and China. I’m fortunate to have first-hand experience with tech/start-up spaces in both counties. Lots of people have asked me various questions about the tech/start-up ecosystem in China, which leads me to think that it might be of value for me to write a series of articles that share what I know.

Following are topics that I plan to cover. Feel free to propose other topics by adding your comments.

  • How Big Is the Tech/Start-Up Ecosystem in China?
  • 996 – Is There Any Work-Life Balance in China?
  • BAT (Baidu, Alibaba, Tencent) + ByteDance – Tech-Giants in China
  • Personal Guarantee Required for Venture Debt!? Legal, Accounting, and Finance for Start-Ups in China
  • Execution Is Everything
  • Role of Government in Start-Ups in China
  • Media Time Spent – US vs China
  • What Should I Do if I Want to Learn More? News Sources, Podcasts, etc.