How ByteDance Should Respond to OpenAI’s Sora – and Text-to-Video GenAI (1 of 2) ( Tech Strategy – Daily Article)

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Success in digital is a strange experience. You can go from a position of strength to being on your back foot very quickly. And vice-versa.

That is what is happening to many of the digital leaders in China with the emergence of generative AI.

  • Baidu, which had somewhat fallen to the second tier, is suddenly in the leading position for GenAI.
  • iQIYI (owned by Baidu) has also found itself as an innovation leader in applying GenAI to long-form video entertainment.

And ByteDance, which has been dominating in short form video and has emerged as the first major challenger to Tencent in the attention business, is now rushing to respond.

In 2023, ByteDance launched lots of GenAI initiatives. They have been hiring GenAI people like crazy. And the senior leadership has pulled the alarm. The founder has been calling for a faster more aggressive response. 

And that was before OpenAI released text-to-video Sora, which shocked everyone with its ability to make high quality short videos from text prompts. Everyone knew text-to-video was the next frontier of GenAI. But it really emerged fast. And it will have direct impact on short videos, which is main engine of ByteDance.

***

ByteDance has always been an AI company. It used algorithms to successfully match users with the content they most wanted to see. And the algorithms are so good, it doesn’t need you to follow or subscribe. It doesn’t need to know who your friends are. And it doesn’t need you to search. It was a major jump forward in how humans access the information on the Internet.

And over the past ten years, ByteDance did something no other Chinese B2C app had done. It expanded outside of China and beat the digital giants of the West in their own markets. It became the global leader in short video. Beating Facebook, Google and everyone else.

It did this with the four things:

  • As mentioned, ByteDance is the AI leader for matching users and content, especially video.
  • ByteDance created great creator tools like CapCut. And provided extensive support to its creator community, who are the ones who make their addictive videos.
  • They have a fantastic user interface that people just love to use.
  • They created a highly innovative culture and organization. ByteDance product teams are very good at rapid innovation in both apps and the user experience.

That’s a simplification of course. But it’s a solid explanation for how ByteDance stays on the frontier of constantly changing consumer interests and attention.

And yet, somehow they missed generative AI.

No foundation models like GPT, Wenxin, and Qianwen. No B2C and B2B apps like ChatGPT and ErnieBot. No big new internal divisions in doing frontier LLM research. They are missing a major tech capability.

And, unfortunately, short form video entertainment will get disrupted by GenAI first. Well, that and animation. Think Sora and Pika Labs.

ByteDance founder Zhang Yiming has said AI is a battle that the company cannot afford to lose. According to Coco Feng at SCMP, CEO Liang Rubo has set out three objectives for GenAI this quarter: “strengthen the recruitment of AI talent, enhance the organizational structure, and improve fundamental research”.

Ok. fine. So, what should ByteDance do?

I do digital strategy for a living. And I would recommend 4 actions.

Step 1: Use this Tech Disruption to Reinvigorate and Re-Energize the ByteDance Culture.

Getting people’s attention online is a constantly changing game.

  • The popular content keeps changing (dancing videos vs. jokes).
  • The media format keeps changing (podcast, short videos, etc.).
  • And the technology itself keep changing (virtual reality, metaverse).

Entertainment-based attention is the fastest changing digital terrain.

To succeed in this game, you need to constantly experiment, innovate, and adapt. And that is about people and culture. People and culture have always been ByteDance’s secret weapon. They have long operated with a decentralized, agile, and highly innovative culture and structure.

But unique and highly innovative cultures are hard to sustain. Especially when you get big and successful. When the executives all become wealthy. When you no longer have competitors you are afraid of.

I visited the headquarters last year and wrote these questions after my visit:

“My biggest take-away was that ByteDance is facing a really interesting organizational question. The company is both more innovative and more decentralized than I had realized. And it was increasingly operating this way as a multinational at global scale. That’s an interesting question.

  • Can a company do rapid decentralized innovation once it becomes very large, very multinational, and very successful?
  • Can it continue to be highly decentralized and innovative at this phase of its existence?”

Much of ByteDance’s speed and agility in the past came from being a much smaller organization. It was the underdog. And it had deeply involved founders. If scale is the biggest advantage of dominant organizations, speed is usually the biggest advantage of smaller ones.

But now ByteDance has +115,000 employees and is spread across 30 countries. They certainly now have lots of advantages from their large scale. But they also have the disadvantages of scale. Large organizations are prone to bureaucracy. Large organizations struggle with the increasing complexity of their product mix and operations. Large organizations are more vulnerable to more specialized companies.

What’s more, ByteDance is also now a multinational. TikTok in the US is building its own products. Lark is building in SE Asia. And so on. Being a multinational is harder organizationally than being a single country company. There are more cultural, political, and organizational complexities.

I think this is why ByteDance has been late to generative AI. Fortunately, there is a way to respond to this.

***

Huawei, circa 2018, was the global winner in telecommunications equipment and smartphones. It no longer had any serious competitors, having long since caught and surpassed Nokia and Ericsson. It was months away from becoming the world’s #1 smartphone company.

And, like ByteDance, its secret weapon had always been a highly innovative hard charging and innovative culture. In attention, you need to innovate because what gets people’s attention is always changing. In telecommunications, you need to innovate because all your products become obsolete in about 5-7 years. You must constantly create new products to survive.

Circa 2018, founder Ren Zhengfei was openly saying that Huawei’s biggest problem was complacency and a lack of urgency. That the senior managers and decision-makers were all wealthy. That the company was no longer the scrappy underdog. And it wasn’t under any type of competitor threat. Plus, the company had reached +190,000 employees. It was, by definition, much more bureaucratic.

And then the US government hit Huawei with sanctions in 2019. It suddenly found itself in the center of a geopolitical storm, not really of its own making.

How Huawei responded was really interesting.

They leaned into the crisis. Management openly talked about how they were in a fight for survival. Management used the crisis to re-invigorate and re-energize their leadership and culture.

Founder Ren Zhengfei started doing his first ever press interviews and talked about how Huawei was going into “battle mode” – and how the company was facing a “live or die moment”.

The battle language they used is sort of specific to Huawei’s culture. They focus on the idea of perseverance and fighting through difficult times. The company has long used words and phrases like “persevere”, “dedication”, “willingness to suffer”, and a “fight for the future”.  When the founder talks about going into battle mode, he is calling on the company’s culture and history.

And at the press conference a few months after the sanctions, Chairman Liang Hua gave a talk with a picture of a damaged bomber behind him. It was a bomber that been shot up but was still flying. That became the symbol for the company.

Basically, Huawei embraced the geopolitical crisis and used it to re-invigorate and re-energize the organization.

And it worked.

Huawei’s 2022 financials revealed the company had weathered the storm and was back in growth mode.

  • In 2022, revenue had stabilized at 642B RMB. This was in contrast to 2021 when revenue had a big 29% decrease.
  • Operating profits fell to 6.6% in 2022. However, Huawei’s baseline operating profitability is typically 8-10% so it wasn’t that big of a decrease.
  • R&D spending increased (yet again), reaching 161B RMB. This was 25% of revenue, a very big increase from their typical 15% of revenue. This fact will become important in Step 2.

Overall, the financials were a picture of a restructured Huawei operating under its “new normal”.

***

Now that is a story of political disruption, while ByteDance is facing a technological disruption. Obviously these are completely different. But the lesson is the same.

Step 1: Use this Tech Disruption to Reinvigorate and Re-Energize the ByteDance Culture.

And doesn’t this sound like CEO Liang Rubo’s second objective for GenAI – to “enhance the organizational structure”.

In fact, we can see Alibaba doing something similar situation due to a competitive attack. The rise of Pinduoduo and Douyin Shop has given senior management a sense of urgency (after years of somewhat complacency). In early 2023, they did a major re-organization of the company. They replaced many of the leaders of the most important business units. And founders Joe Tsai and Eddie Wu returned to take the reins.

***

In Part 2, I’ll do Steps 2-4.

Cheers, jeff

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Related articles:

From the Concept Library, concepts for this article are:

  • Generative AI: Text to Video

From the Company Library, companies for this article are:

  • ByteDance
  • OpenAI: Sora

Photo by Alexander Shatov on Unsplash

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

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