#277: ByteDance’s Next Initiative Is TikTok-as-a-Service, & More

ByteDance, the company behind TikTok, has launched a new division called BytePlus to sell platform services based on TikTok’s features. Of the six services offered, the most striking to us is ‘BytePlus Recommend,’ the artificial intelligence (AI) recommendation algorithm responsible for TikTok’s meteoric rise to the top of the social media digital entertainment landscape.

Unlike most social platforms with follow-and-feed content models, TikTok focuses on serendipitous discovery powered by its AI recommendation engine. After a user uploads a video, TikTok tests it on a small number of users and, depending on engagement statistics such as time watched, likes, comments, shares, and downloads, decides whether or not to push it to a broader audience. It repeats that cycle with larger groups until engagement peaks. As a result, in just five years, TikTok’s app has scaled to more than 1 billion users globally.

With BytePlus Recommend, entrepreneurs now will have access to this potent recommendation engine, the adoption of which could impact business success globally. According to the BytePlus website, after implementing BytePlus Recommend, for example, Singapore-based travel app Wego enjoyed a 40% increase in conversions.

For more on ByteDance, please check out our Podcast and Blog on the company.

Recently, a strawberry-picking robot company, Traptic, raised $8.4 million. Agriculture has been no stranger to automation. The tractor, for example, reduced the labor hours required to produce 100 pounds of lint cotton more than 15-fold from 42 hours to 2.5 hours, but left significant room for improvement. According to Traptic, more than $200 billion worth of fruits and vegetables still are picked by hand each year and  27% of the global population works in agriculture.

ARK’s research suggests that retraining will increase in importance as automation continues to reshape farming and the global economy. Recently, a leading online education company, 2U, acquired edX, an open online course provider created by MIT and Harvard, a combination that could play a critical role in retraining those in industries that are automating. Importantly, 79% of edX’s traffic is international. The resulting entity could train more than 50 million learners and 230 educational and 1,200 corporate partners with 3,500 course offerings. In our view, given the dramatic advances in automation now possible with artificial intelligence, the number of 2U’s learners could grow by an order of magnitude during the next five to ten years.

In the next few months, ARK aims to open-source its SpaceX Starlink models, illustrating that the provision of satellite internet is a long-term business proposition. Because the satellites will de-orbit every five years on average, the first global constellation probably will be underutilized in the early days of attracting users. Indeed, we believe the net present value of cash flows during the first eight years in this business model would be negative, deterring most companies from pursuing the opportunity.

According to ARK’s research, however, if it were to survive the first constellation launch and user ramp, SpaceX’s satellite business could generate more than $20 billion of cash flow annually on a constellation that costs roughly $10 billion to launch, as replacement satellites would launch at much higher utilization rates. If we are correct, Starlink then would be able to acquire a terrestrial internet provider and minimize latency by routing internet traffic, gaining another competitive edge.

In the last few weeks, PayPal launched its Zettle point-of-sale (POS) solution in the US. In 2018, PayPal acquired European POS provider iZettle and rebranded it Zettle. In the US, Zettle POS devices now accept debit and credit cards as well as Venmo QR codes, integrating them with PayPal’s online payment solutions catering to omnichannel commerce. Zettle US also has integrated with BigCommerce, SalesVu, WooCommerce, and Lightspeed. We believe this partner selection is important but not particularly impressive.

According to ARK’s research, because competitor Square offers integrations with all of Zettle’s partners except Lightspeed, not to mention hundreds of other partners in its app marketplace, Paypal seems to be playing catch up. Competitor Shopify also offers hundreds of third-party integrations through its app marketplace.

Zettle’s main differentiator seems to be its introductory low pricing, at least for now. PayPal announced card processing fees of 2.29% + $0.09 “at launch”, including a footnote that fees are subject to change. Square and FISERV’s Clover price card transactions at 2.7% + $0.10 while Stripe Terminal charges 2.7% +$0.05 and Shopify 2.4%-2.9% + $0.3. Despite its lower product value proposition, PayPal probably will increase its pricing over time.

This year, the popularity of non-fungible tokens (NFTs) has increased dramatically, hitting peak media attention in March when digital artist Beeple sold an NFT-based digital art piece in a Christie’s auction for $69 million. Since then, NFT pricing has collapsed in response to Beeple’s own comments, environmental concerns, and the broader crypto market sell-off, begging the question whether or not the NFT market is drying up.

As crypto research firm Messari points out, on-chain and other adoption data are suggesting quite the opposite. In June, for example, the volume on NFT marketplace OpenSea hit $150 million, which topped the previous $148 million record in March. Mobile-first collectible game marketplace, Axie Infinity, also is breaking records, having hosted more than $170 million during the past month. Additionally, CryptoPunks, a collection of 10,000 unique pixel art renderings representing digital personae is burgeoning. Even Jay-Z has designated a CryptoPunk as his profile picture on Twitter ahead of a Sotheby’s auction of an NFT based on his debut album Reasonable Doubt.

NFTs hold the promise of disrupting not only the digital art scene but also property rights and supply chains. Recently, for example, the founder of TechCrunch sold physical real estate via an NFT. Meanwhile, in an effort to take power from record labels in the music industry, artists are exploring the possibilities associated with NFTs. In other words, it appears that NFTs are in the early days of challenging intellectual and other property laws.

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