Small developers sinking as super apps splash the cash

It’s become egregiously expensive to acquire new users, and harder than ever to sell ads or goods.

Photo by Kuang Da

Photo by Kuang Da

By XIAO Fang


When app store Wandoujia sold itself to Alibaba in 2016, it was priced much lower than its peak. Mobile internet was cooling after the early frenzy, so it was no surprise that valuation was less frothy. But few realized then that apps and thus app stores were already on a downward trajectory. And the situation was only to get worse.

Rule of the super app

A marketing manager who worked on a campaign for Wandoujia in 2013 said he was able to get 400,000 new users with a 300,000-yuan budget, 75 cents per head. By the time he left the tech industry for good earlier this year, the cost had skyrocketed to 1400 yuan per new user. He was working for ByteDance then, which has a humongous amount of money, manpower and web traffic at its disposal. Just imagine what it is like for a smaller app.

Total web traffic on the Chinese internet was up 33 percent last year, but the number of apps dropped 27 percent. It was not just small, independent apps that went dark. NetEase, and Tencent all shut down a number of once popular apps in their portfolios. Those remaining either saw their user numbers decline, such ByteDance’s Toutiao and Xigua, or are struggling to make money.

A handful of super apps, most notably Douyin and WeChat, are dominating. In Q2, 53 percent of phone use time was spent on short videos and instant messaging. Games, news and long video apps, each took less than 5 percent. Game developers are making apps for WeChat mini programs, another win for the super app.

Within ByteDance, a common joke is that even its headline-spinning, attention-sucking news app Toutiao is being slowly killed by Douyin.

Only two paths to glory

In the app economy, users are both raw material and final product. For many founders, the mantra was “get users first and worry about making money later.”

All want to be the next Qutoutiao: the content aggregator had gained only 10 million daily users a year and a half after it was founded in 2016, using methods that have often been called disrupting, or even shameless. Users were awarded cash upon registration and points that can be converted to cash when referring friends. They also got points for spending time on the app. Qutoutiao was one of the first apps that charged advertisers not only for clicks but also for “engagement.”

But when it comes to making money, there are only two ways to do it – selling ads or selling goods. Neither is easy. Users either treat ads as distractions, if not obnoxious, or ignore them altogether. Advertisers, knowing better than sinking money on banner ads that no one even looks at, are increasingly asking to pay only for click-throughs (so-called cost per action) or even realized sales (cost per sale).

Big and getting bigger

This means apps must have better and smarter algorithms to find more users at a lower cost, and make sure they react to ads by showing each user only what interests them. A small app with a slim workforce has no chance against the armies of algorithm engineers at ByteDance or Tencent.

Selling goods requires a firm grasp of everything from marketing to supply chain and is thus even more prone to failure. Fitness app Keep, after dabbling in content subscriptions, fitness accessories, health food, and even retail stores, eventually decided that it still needs to sell ads to supplement its income. Sales were up 38 percent last year, but it has not made a profit after seven years, despite having 13 million users.

Nevertheless, selling goods can be far more profitable than ads. An Everbright Securities report from 2020 estimated that Alibaba and Meituan, both offering goods and services directly to users, generated up to four times as much revenue from each user as Tencent and Baidu, which are first and foremost ad sellers. Within Tencent, which has many e-commerce and marketplace apps including Meituan, and Pinduoduo under its umbrella, ads contributed about a third of total revenue. In 2021, the percentage has bulged to 65 percent of overall profits.

But Tencent may be forced to cut its holdings in Meituan and Pinduoduo for antitrust reasons. Sellers are quitting Alibaba for platforms that offer better terms, such as ByteDance, who makes no secret of its e-commerce ambitions. At user acquisition costs of 1400 yuan per head, even the most successful app has to find new ways of making money.