Article below, and can also be found here.
At just 10 years old, ByteDance, the most valuable startup in the world, has shattered records for growth. In 2021, with 1.9 billion monthly active users in 150 countries, and an employee base of over 110,000, the company recorded an astonishing $58 billion in revenues. Most users know the company only by its hit short-video app TikTok, which has been downloaded over 3 billion times globally, a feat only exceeded by Meta and its family of apps. But ByteDance has actually churned out one wildly successful product after another — among them its initial hit, Toutiao, the most popular news app in China, which today has 320 million monthly active users, and Douyin, a short-video app that preceded TikTok. Respectively, Toutiao and Douyin account for 20% and 60% of the company’s total advertising revenues.
How has ByteDance managed to be so consistently successful? An important contributing factor, we argue, is its innovation strategy, which relies on a shared-service platform, or SSP.
Bytedance uses its SSP platform differently from most companies. The company’s product teams or units don’t control their own operating resources. Instead, many common business, technology, and operating functions (among them HR and legal) are centralized and organized into corresponding teams. The teams are highly specialized, so that the right people can be found and flexibly deployed as needed to each new venture. Cloud and shared operational tools, some of which have been developed in house, allow ByteDance to maintain this seemingly complex organizational setup. Product and related teams still focus on serving customer needs, but they rely on different SSP teams to accelerate development and growth. For example, when ByteDance tasks a new venture team with investigating user needs and market opportunities, the team can go to the user-research specialists at the SSP for data support, saving time on market analysis. In other companies, these tasks are undertaken by the product team, which is rarely best equipped for such information gathering. Subsequently, when a use case has been identified that justifies developing a new app or product feature, the product team is paired with engineers at the SSP level to develop the new product or feature.
In some cases, product teams customize existing technologies that have already been developed by the SSP. Algorithms are a case in point. Product teams at ByteDance work with SSP algorithm engineers to fine-tune their enormously powerful recommendation engines. The SSP has also brought together other important teams: user-growth teams, which help identify and acquire desired users; content teams, which establish partnerships to acquire new content; analytics teams, which help to develop deeper user insights; and sales teams, which drive monetization.
As expected, because so many capabilities have been centralized into this large SSP, the actual product teams tend to be small and focused, especially in the exploration stage. Douyin, for example, began with just a handful of employees, and the education team began with just two. Importantly, the relationship between the SSP and market-facing teams is symbiotic and mutually beneficial. It’s this virtuous loop of continued discovery and improvement that has enabled ByteDance’s success.
Relying on its SSP, ByteDance has developed unique innovation and growth strategies. These strategies have five main characteristics:
Since its earliest days, ByteDance has searched broadly for new product opportunities and does not hesitate to send multiple teams into the same segment. It famously launched 12 entertainment content apps in its first few months as a company, and 20 apps to test foreign-market opportunities in 2015. It also had two other teams incubating short-video products at the same time as it was running Douyin. Between 2018 and 2020, the company had at least 140 apps across 11 different verticals available in app stores.
ByteDance is also renowned for its speed of development and getting products to market, much of which is enabled by its SSP. It only took the company four months to launch an education app that, according to one employee, might have taken competitors 18 months to launch. Just as quickly as it launches new products, though, ByteDance terminates nonperforming products and dissolves or reconfigures the product teams involved. Unlike other companies, ByteDance employees can cycle through a handful of projects every year, some of which never make it to launch.
ByteDance’s broad exploration does not mean a lack of focus, however. The company allocates key resources to a few select priorities for a few years at a time. Its first three years were dominated by text- and photo-content experiments relating to the success of Toutiao, its news app, while 2016 marked a pivot to short video. After three years of experimentation, ByteDance made growing its education business a priority, launching no fewer than 11 different products in seven market segments. While this effort was stalled in 2021 by unfavorable government regulations, it demonstrates the company’s strategy of experimenting broadly within selected focus areas.
ByteDance’s SSP also allows for new product teams to easily integrate best-in-class technologies and features, saving precious time and resources. When one team was exploring HR opportunities, for example, it was able to incorporate AI technologies that had been built by the SSP algorithm team, including interview transcription and resume scanning. The company’s smart education devices, among them a smart assignment lamp, which can record, evaluate, and analyze students and allow parents and tutors to remotely supervise children’s homework, also leveraged SSP capabilities, including voice recognition, visual recognition, and search.
Productizing platform services.
Shared services often begin as new functions but are elevated to the SSP level if use, actual or projected, increases across multiple products — as happened with live streaming. Some of the company’s shared services, including many of its algorithmic offerings, are sold as external cloud products. For example, Lark, its work-collaboration tool, was originally developed for internal needs.
ByteDance’s SSP strategy — accelerate new projects by providing instant access to best in class technology and operations — has been so successful that one would expect many other companies to have embraced it. Yet few companies have managed to replicate ByteDance’s success with the strategy. Why? Because they have not put in the organizational enablers that helped ByteDance overcome fiefdom mindsets, which inhibit collaboration.
Three of these organizational enablers are particularly important:
Inspired by Google, ByteDance’s strategy and operations are driven by a transparent, bi-monthly Objectives and Key Results (OKR) system that flows from the very top, aligning the priorities and actions of SSP and product teams. Everyone’s OKRs are visible to everybody else, including the CEO’s. Fulfilling OKRs, which typically involve multiple teams, rather than individual team achievements, accounts for the bulk of one’s performance at ByteDance. This helps to eliminate siloed thinking.
Explicitly flattened hierarchy.
To induce collaboration and sharing, ByteDance uses a 360-degree performance-evaluation system. Also, unlike most other Chinese companies, it has abolished the use of titles and deliberately flattened its hierarchy to just a few layers, so that employees can focus on their responsibilities instead of worrying about status. Employees report that higher-ups are easily accessible and very helpful, facilitated by shared OKRs and lack of worries about title differentials. Mentorship is also prevalent in the organization and is common amongst peers, who generally see each other not as competitors but as collaborators toward a common goal.
ByteDance’s founder, Zhang Yiming, believes that the company’s most fundamental competitive advantage is its data-driven organizational culture. Its foray into short video, for example, was driven by one executive noting that time spent viewing videos had increased sharply on Toutiao. Carefully planned marketing based on data-driven insights has also helped TikTok grow steadily from its teen-dancing user base to the much broader audience it enjoys today.
ByteDance’s SSP-based innovation strategy has clearly played a key role in its first decade of explosive growth. It has allowed the company to incubate rapidly and broadly and to scale efficiently, by using centralized but flexibly deployed technical and operational stacks. This strategy has served the company well in part because of the similarity among its various algorithm-driven products. ByteDance is now exploring other product categories and is refining its strategy to be more suitable for its evolving organizational model and processes, but no matter how the company evolves, its SSP-based innovation strategy is sure to play an important role.