“Really, you guys are awesome!”
It was the last tweet from the official account of Vine. The pioneer of the short video mobile apps was discontinued after only 4 years under the roof of Twitter. At its prime time, Vine had more than 200 million monthly active users producing viral videos every day, and record labels were scraping the site trying to find the next Justin Bieber.
Everything looked so perfect until it all stopped. We can’t help but wonder: what happened?
Vine was doomed from the beginning. Although it had 200 million users on its platform, it had no way to make them stay. The barrier for entry into the short video mobile app market is extremely low. Once other social media platforms started to see the potentials of this market, they quickly entered and lured users away. At the time of Vine’s acquisition by Twitter, Instagram launched its short video feature and Snapchat followed suit. Both successfully gained traction because of their vast user base. In December 2015, although Vine had more than 200 million MAU Instagram’s exceeded 400 million. While Snapchat lagged in MAU data at the time, the number of its daily video posted exceeded 6 billion, posing significant threat to Vine.
When the user base of Vine started to get lured away, content providers had no problem abandoning ship and taking their fans with them. Advertisers and sponsors realized this situation very quickly and turned to its rivals. Without a defense mechanism, Vine disintegrated. Without a good business model, Vine failed to bring Twitter back to life, instead exacerbated its financial burden.
History seems have repeated itself on Musical.ly.
Musical.ly was co-founded by Jun Zhu and Luyu Yang, who were transformed after their first venture failed. Before founding Musical.ly, Zhu and Yang had just quit their jobs, and two good friends decided to start a company together. In 2014 when the MOOC industry began to take off, Mr. Zhu and Mr. Yang decided to make an app that shows three-to-five-minute educational videos and they received $250,000 in seed funding from another friend. Six months later, the App failed. So they decided to pivot towards entertainment and target North American teenagers with their leftover funding.
The idea for Musical.ly came to Mr. Zhu during a trip. On the train, a group of feisty teenagers drew Mr. Zhu’s attention, some of whom were listening to music, while the other half posted the photos and video on social networking sites while taking selfies or recording dance video. That scene inspired Zhu to combine music, video and social media to attract teenagers. Thirty days later, his team made this idea come to life.
Musical.ly was formally launched in July 2014. It didn’t take long for the team to see gratifying user growth. More importantly, those who signed up on Musical.ly keep coming back. Unlike Vine’s 6-second duration, Musical.ly’s 15 second length is just perfect. The user can just tell a short story in 15 seconds. This is especially attractive for teenagers who have short attention span. In the next 10 months, Musical.ly continued to grow.
In April 2015, Zhu and Yang Luyu made a very important decision to add the Logo of the App as a watermark to all of its videos. This provides additional exposure and accelerated user growth when users share Musical.ly content on other social media. On July 6, Musical.ly charted on Apple’s App Store for the first time as the most downloaded App in more than 30 countries and regions. Since then, the App has never fallen outside of top 40.
After the failure of the first short video sharing App, Zhu Jun and Yang Luyu had only 6 percent of the funds left. After some twists and turns and attractive user growth data, the became a hot shot in the venture capital market.
In August, Musical.ly announced the completion of a series B round of $16.6 million financing from a group of investors including SIG Hai Na international group, Greylock Partners, CGV geosource capital and cheetah mobile. Nine months later, Musical.ly announced in May 2016 that it had received a $100 million series C round, valuing the company at $500 million. At that point, Musical.ly had more than 70 million users globally and 10 million new videos daily.
“Musical.ly could even be the next MTV”, said Josh Elman, a partner of Giyuan capital, “it’s going to influence an entire generation.” Baby Ariel, a Musical.ly star with 20 million followers, Musical.ly inspires her creativity and gives everyone courage to break through. Many ordinary people became famous on Musical.ly and outside, launching their own product lines and TV shows, making a lot of money.
Even for those who already have a solid fan base promote themselves on Musical.ly. Selena Gomez promoted her new song on Musical.ly. Major record labels, including Warner’s Music Group, also praised its reach and effectiveness.
Just like what the Musical.ly name has become, the problems are big too.
During the South by Southwest Conference in March, Ted Suh, vice president of digital music of Musical.ly, acknowledged that although Musical.ly created a lot of value for up and coming celebrities and brought a lot of exposure to brands, it has yet to find a viable revenue model for itself, not to mention the fact that it has huge licensing costs for the music. In September last year, digital marketing magazine Digiday reported that although advertisers are willing to advertise on Musical.ly, they are deterred by the high price
On the other hand, the competitive landscape was ever more crowded.
In February 2017, toutiao.com announced the acquisition of Musical.ly’s rival Flipagram for US$50 million. Before it was acquired, the founder of Flipagram said that the number of active users of the app in March 2016 was around 36 million. After joining the toutiao family, its user data increased by 30 times. In July of the same year, the Volcano Video’s international version, Hypstar was launched, followed by the international version of Tik Tok a month later. Facing toutiao.com’s superior algorithm and operational expertise, Musical.ly met considerable resistance globally. In addition, Instagram and Snapchat are also posing threats to its growth.
ΔStar content creators on Musical.ly
User retention is most crucial for the success of any short video apps. Vine had a big dispute with the content creators on its platform. In the fall of 2015, 18 Vine celebrity representatives negotiated with the company asking for higher compensation. In exchange, the creators say they will make more videos. Vine didn’t give in. As a result, they moved to rival platforms such as YouTube, Instagram and Snapchat with their fans.
Musical.ly’s mastery of the teenage demographics back fired, after making it into a billion-dollar company. There’s no way to stop the celebrity-worshiping teenagers following their favorite Musical.ly star to other platforms.
In fact, social media that targets the teenage demographics inevitably encounters bottlenecks due to saturated demand. Instagram, for example, originally just a photo social App aimed at young users, added a lot of features expanding its functionality to accommodate a larger user base after being acquired by Facebook, and subsequently grew its active user to 800 million.
At the same time, Musical.ly was having a hard time getting users in its home market, China. In June 2017, Musical.ly launched Muse, its Chinese version, hoping to recreate their international success. But, it’s already too late.
Tik Tok wasn’t a hit from the very beginning. It took off slow but by May 2017, according to IResearch, the video played per day has reached 100 million, 1 billion in August. In September, three months after Musical.ly entered the Chinese market, Tik Tok has already amassed a MAU of 35 million. Muse, by contrast, only had hundreds of thousands of active users on its peak day.
Wrong timing is just the tip of an iceberg. The actual competition of Muse is not the Tik Tok, but toutiao.com with its the vast operational expertise and proven effective recommendation algorithm. Globally, Musical.ly not only competes with Flipagram, but also other toutiao.com apps such as the Indian content aggregation platform DailyHunt and the Indonesian news recommendation platform BABE.
According to data from iResearch, toutiao.com had 120 million monthly active users in 2017, and 55.65 million active users daily, only slightly less than Tencent News. Toutiao.com directed a lot of traffic towards Tik Tok, spent a lot of money advertising it in many popular variety shows such as Rap of China. Toutiao.com also invested heavily promoting the app internationally.
It’s obvious that Musical.ly can’t compete with toutiao.com. Getting acquired by might be the best thing it could have hoped for under the competitive pressure, but hardly a happy ending. Initially planning to continue to operate Musical.ly after the acquisition, toutiao.com changed its mind and made an announcement that it has decided to combine the users and contents of the Tik Tok and Musical.ly but continue using the “Tik Tok” name on August 2nd this year. Another legend of the short video industry is coming to an end.
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