[중국 창업 부자] Born in the mountains without electricity, creating a video empire that sees 300 million people every day

Input 2021.02.12 09:05 | Revision 2021.02.12 10:27

Chinese video sharing platform Qaishou (English name Kuaishou) was listed on the Hong Kong Stock Exchange on the 5th, adding millennial billionaires to the Chinese window industry. Qi-Shou has been pushed to the second place ever after being pushed by the later byte dance’s Douin (the international version is TikTok), but first completed the IPO.

Every day, more than 300 million Chinese people share their daily lives by watching videos with the Quaisou app. Co-founders Xu Hua (38), Chief Executive Officer (CEO) and Cheng Yi Xiao (程一笑, 37) Chief Product Officer (CPO), are evaluated as having properly climbed into the Chinese tech boom in the 2000s.

Kwai Sou Kwai, the operator of Kwai Sou, was listed on the Hong Kong Stock Exchange on the 5th and raised HK$4.18 billion (about 5.9 trillion won). Since Uber, an American vehicle calling service company, listed on the New York Stock Exchange in May 2019 and raised $8.1 billion (about 9 trillion won), it is the largest among the world’s Internet companies IPOs. On the day of the stock market debut, the stock price ended at HK$300, up 160% from the public offering price (HK 115).

Based on the closing price (398 Hong Kong dollars) on the 11th, the market capitalization of Qaishou was HK$ 1.655.2 billion (about 236 trillion won), ranking 6th after Microsoft, Tencent, Alibaba Group, Maytu, and Intel among listed companies on the Hong Kong Exchange.

◇ Avid engineers create a video platform that 300 million people view every day

Qiu is a mobile app that takes short videos. As the company name “Quick Hand,” users can take short videos with their smartphones and share them directly on the Quaisou app. Among the Chinese video platforms, Qi-Shou has the second largest number of users after TikTok’s Chinese version of Dooin. According to the investment prospectus submitted to the Hong Kong Stock Exchange, as of November last year, the number of monthly active users of Quaissou was 766 million, and the number of daily active users was 36 million. One in five Chinese people open the Quaysau app every day and watch videos. As of August of last year, the number of daily active users of Dooin was 600 million, twice that of QiSou.

Kwai Shou is a company co-founded by computer engineer, CEO Xuhua, and CPO Qing Yi Xiao. In 2011, Qing Yi Xiao created an app for creating and sharing GIFs (moving photo files), creating the predecessor of Qiu Shou. Qing Yi Xiao worked as a software engineer at Hewlett Packard (HP 2007-2009) and Chinese social media company Run Run (2009-2011) after earning a bachelor’s degree in software engineering in 2007 from Northeast University in Shenyang, Liaoning Province in northeastern China. In 2011, he jumped into startups amidst the tech startup craze in Silicon Valley and China.

At the time, social media such as Facebook, Twitter, and Instagram were already in pandemic in the United States. It was not enough to grow into the mainstream of the internet industry with only GIF sharing services. In 2013, when Xuhua joined Qingyi Xiao’s company, Qiu Shou transformed into a video platform.

Xuhua came from a minority ethnic investment group in Hunan Province in southern China, and was raised in a mountainous village where electricity is not available. In his book about the founding period of Quaissou, he said, “I lived on a flashlight when I was a child, but the batteries were too expensive to turn on often.” Xuhua was a student who was good at studying. He attended Tsinghua University in Beijing and received a Bachelor’s Degree in Computer Software in 2005. “Programming is the coolest way to express people’s thoughts and inspiration,” he said. It is said that he decided to start a business while working as an engineer at Google China (2006~2008) and Baidu (2010~2011). Xuhua even started a video advertising company in 2008, but the global financial crisis erupted and had to quit immediately.

Qing Yi Xiao and Xuhua first met through investors in 2011. After Xuhua joined in 2013, Kwai Shou switched to a video sharing service. The two agreed, “Let’s create an online space where ordinary people can take pictures of their daily lives.” Xuhua served as the CEO in charge of the company’s management and chairman of the board of directors, and Qing Yi Xiao was the CPO responsible for product development and discovery of new businesses. Qing Yi Xiao gave Xuhua more shares. In the Chinese tech industry, it is said that it is an unusual stake structure.

According to the prospectus and Bloomberg data of the Hong Kong Stock Exchange, Xuhua owns about 14%. Based on the closing price on the 11th, the valuation of Xuhua’s stake amounted to $21.9 billion (about KRW 24 trillion). When Xuhua worked at Google, his annual salary was 150,000 yuan (about 25 million won).

Qing Yi Xiao’s ownership ratio is about 10%, and his equity valuation is 17.4 billion dollars (about 19 trillion won). Major investors such as Chinese internet company Tencent (about 17.8%), Morningside China TTM Fund, DCM Ventures, Baidu, and Sequoia Capital, which are the largest shareholders of Quaissou, also saw a surge in equity gains.

◇ “I can’t even sleep because of my worries”… Monetization Challenge

In a letter to the employees in June 219, the two co-founders complained that they were unsatisfied with the current company and couldn’t sleep at night because of anxiety. The two said, “In the process of growth, our strength has lost, our reaction has slowed, and our interaction with users has weakened. We are no longer the fastest team, and we have become a slower team.”

QiShou users and sales continue to increase, but they are not making any profits yet. From January to September last year, the sales of Quaissou amounted to 40.7 billion yuan (about 7 trillion won), up 50% from the same period in 219. Like other Internet companies, the coronavirus pandemic has been an opportunity to increase users. Annual sales in 2019 (391 billion yuan, about 6.6 trillion won) were similar to 2019 sales of Korean internet company Naver (6,593.4 billion won). However, in January-November last year, Qi Shou lost 9.4 billion yuan.

In the prospectus, CEO Xuhua said, “The profitability is still uncertain. We are looking for a way to effectively monetize our products and services based on our huge users.”

The key source of revenue for Quaissou is live streaming (online live broadcasting), which started in 2016. Viewers purchase virtual items from the app and present them to the livestreaming host. The company makes money by receiving commissions. Live streaming sales in the first half of last year were 17.3 billion yuan (about 3 trillion won), accounting for 68% of the total sales. Live streaming e-commerce is also on the rise. It is a structure in which the broadcast host broadcasts live, sells the product, and receives a fee for the quiz. Online marketing services based on advertising also accounted for 28.3% of sales in the first half of last year. It is also expanding its scope to online games with high margins.

The competition in video sharing and live streaming is fierce. In the Yanggang landscape between The Woo-in and Quaissou, the main investor of Quaissou, Tencent, also joined the competition by adding a video sharing function to WeChat on social media.

Until now, Qiu Shou has targeted users in small and medium-sized cities and rural areas in China rather than large cities. In a lecture in 2018, Qing Yi Xiao said, “Qui Shou is a platform where ordinary people can show their talents and record their daily lives, not for stars or celebrities.” However, in recent years, Taiwanese singer Ju Gol-ryun is used as an advertising model and Wang Hong is in the foreground, expanding the user base.

The recent tightening of regulations on live streaming by the Chinese government is acting as an obstacle to the monetization of Qiu Shou. In November of last year, the Chinese government instructed each platform to set a limit on the purchase amount of items by ordinary users, preventing users from spending excessively. Minors cannot purchase virtual items, and both the host and the person giving the virtual item are required to register their real names.