How an Editor’s Career Crisis Led to a $500 Million Dollar Startup

A story about new media and China’s middle class

Xu Husheng and “Yitiao”

Recently, a YouTube channel and Facebook page caught my eye. It’s called Yitiao — meaning “One Article” or “One Piece” in Chinese — and for the past three years it has been publishing one or two highly produced short videos every day, showcasing well-designed homes, architecture, crafts, photography, and art. These videos are mostly narrated in Mandarin, though subjects range from local to international.

I was intrigued. It was clear to me that these videos were made deliberately for the web, and more specifically for mobile, as their length ranged from 3 to 5 minutes. I knew this was an expensive operation to maintain, based on the consistent production quality and release schedule. There had to be a disciplined full-time team dedicated to sourcing stories, travelling to sites, shooting the footage, and doing post-production. These are not trivial tasks. And given the production value, they definitely weren’t the work of amateurs.

Two questions gnawed at me as I watched more videos. Who was behind this company? How did they make money? These questions led me on a path to discovering a new business model and the untold story of Yitiao — a startup currently valued at $500 million.

The more I researched, the more fascinating I found that story to be.

It Began in 2013

Xu Husheng sat in his office, located in the former French Concession neighbourhood of Shanghai. As he gazed at the plane tree leaves just below his fifth-floor window, he felt an unfamiliar sense of anxiety.

Xu’s job was stable, his salary was good, and every day he pedalled his vintage bike to work in a mere 15 minutes — a real luxury for most Shanghainese. At 40, he’d become the editor of a popular magazine, a dream job that afforded him abundant time to be with his five-year-old daughter, read books, and play with the family cat.

The last real anxiety he felt was eight years prior. Back in 2005, he had taken over as the acting chief editor of The Bund magazine. His ascension was a last-ditch effort by the executives and board of directors to save the company — it was quickly losing subscribers and hemorrhaging money.

According to many, Xu was able to turn things around through a series of timely pivots. Before his arrival, the magazine focused on social issues and current events. While this angle had its audience, Xu realized that for most young city-dwelling Chinese professionals — an audience that was rapidly growing in size and affluence — these subjects were utterly uninteresting.

To them, the world of entertainment, fashion, and culture held much more interest. Xu tapped into this insight and revised The Bund to be more international, while working hard to land timely interviews with big name celebrities. With a dash of glamour and clean graphic design, the magazine pulled ahead of the pack. Within a few years, The Bund became one of China’s most circulated periodicals. In 2013 alone, it raked in close to 200 million yuan ($30 million) in advertising revenue.

Then, on this warm spring day in 2013, Xu noticed a sharp decline in sales. His anxiety peaked. Though he didn’t know it yet, 2013 would become one of the worst years in history for China’s magazine and newspaper industry. Magazine and newspaper booths in most cities would generate less than $20 a day in sales. Even in the best locations with the heaviest foot traffic, daily revenue hovered at only around $50 by the end of 2013.

In hindsight, the reason for this couldn’t be more obvious: 2013 marked an inflection point in China’s adoption of the smartphone. The number of Chinese smartphone users had surpassed that of the U.S. At the same time, WeChat announced it had reached 300 million monthly active users.

Xu had always considered himself a traditional media person. He did not use WeChat, nor did he dabble in desktop social apps such as QQ or Renren, both of which had gained popularity among China’s youth years before the smartphone’s arrival. However as 2013 progressed from spring to summer, he couldn’t help but notice the correlation between a rising smartphone market and a plummeting print industry.

WeChat Public Accounts

Xu decided to see what was up. He replaced his feature phone with a smartphone. First order of business: install WeChat. On WeChat, he took note of public accounts, which any individual, business, or organization can set up. Public accounts publish content and communicate with followers, similar to Facebook pages.

When WeChat first launched public accounts in 2012, mainstream media ignored it. However, as WeChat grew and its functionality improved, public accounts became the main way news spread in China.

Xu’s office also caught the public accounts bug. By mid-2013, every department had created its own public account. But in time, it became apparent to Xu that traditional media simply couldn’t move fast enough to come out on top of this storm.

In November of that same year, Xu found himself talking with a new media executive at Southern Weekend, arguably the most popular weekly newspaper in China. They conversed for hours. Xu came out feeling dazed. But he was not confused.

That night, Xu downloaded several hundred media and information apps on his iPhone. He followed several hundred public accounts on WeChat, staying up until 4 a.m. browsing, clicking, and reading. Before finally falling asleep, he lamented that “my rice bowl is really going to be broken” — a Chinese idiom meaning that one’s livelihood is in danger. He decided to make a move.

Finding That ‘Something’

It was obvious that videos were eating the web. How could he build the next great video business? Xu looked to YouTube for inspiration.

Hopping over the Great Firewall with VPN, he watched the most-viewed videos on YouTube. Due to faulty VPN connections, however, he had to first download the videos, then watch them offline. In a few months, he’d amassed over 6,000 clips with a combined size of 60 GB.

On YouTube, as Xu put it, “over half of the most popular videos are about lifestyle; there are many popular videos about teaching how to make clothes, how to cook, how to fix things.” In China, the overwhelming majority of content was still about entertainment, memes, and celebrity gossip.

Michelle Phan, for example, is a YouTuber with millions of subscribers. Her videos are mostly just her, facing the camera, standing next to a mirror, and giving fashion, cosmetics, and lifestyle tips. Xu noted that she was eventually able to spin her success into a million-dollar cosmetics company.

Xu believed there was no reason why lifestyle videos couldn’t succeed in China.

Armed with this discovery, he returned to work. His initial proposal was to set up a video team at The Bund. He immediately met with strong resistance. His superiors insisted that they were in the magazine business, not the video production business. Video, they claimed, was best left to Shanghai’s TV networks.

But Xu felt a dire need to capture the opportunity and redefine what a media company should be. He later described that period like this:

It was very difficult to transform from within. I felt as if a huge tsunami was about to overtake a village, yet the villagers were still talking about how to fix the broken windows.

Xu handed in his resignation letter two months later.

Convincing Investors

Drawing from his previous life as a leading editor, he was able to secure meetings with many angel investors. But the pitch didn’t work; few were interested in investing. The proposal didn’t have a clear path to revenue, and the media business in China has chronic baggage (given the political environment).

Despite the long odds, one VC firm, Whales Capital, did invest — with a final test. In the last round of negotiations, the investors at Whales asked Xu to commit $160,000 of his personal money into the business as a sign of conviction. Xu agreed without hesitation, despite it being a sizable chunk of his savings.

The deal closed quickly. With the money in the bank, Xu hired a group of six, then 10, mostly fresh-out-of-school college graduates. They began learning to make videos together.

YouTube Copycats?

They initially tried to create videos just like those that were most popular on YouTube. They adopted similar speaking, lighting, and editing styles. The resulting videos were lively and fast-paced, and in many ways indistinguishable from those of the YouTubers who inspired them.

Yet something didn’t feel right.

It was costly to source experts in topics such as fashion, makeup, or cooking. Those experts also wanted to be in front of the camera, essentially as actors. It didn’t make much sense for them to work with Yitiao, as they could simply work directly with the video platforms, and shoot less highly produced but still engaging videos on their own. Making matters worse, China didn’t have a de facto video-distribution-and-subscription platform like YouTube. The country’s video audience was scattered across sites like Youku, iQiYi, Sohu, and Tencent Videos. It was impossible to gather all these viewers in one place.

Xu and his team realized they had to make breakthroughs in both content and distribution in order to succeed. But they didn’t know how.

Still, they decided to learn the craft of video-making regardless of which direction they eventually pursued. The team worked 12-hours days for 100 days straight. In the end, they shot and edited a few dozen videos that were never released.

It Should Feel Like a Magazine

Those 100 days were the team’s learning curve. Their “10,000 hours,” if you will. In the process, they found a direction.

China’s internet already had plenty of amateurish, comedic content, so they avoided that route. What was interesting to them were videos shot in a magazine style. Videos that showed interesting stories and lifestyles.

The category felt fresh and interesting. Seeing the beginning of something exciting, they quickly ditched lifestyle tutorials to focus on stories, with topics ranging from architecture and design to art and craft — subjects with which Xu was already familiar. On September 8, 2014, Yitiao released its first public video on several video platforms: a four-minute clip about a Shanghai antique shop named Brocantic.

A shop owner, Camille, stood in front of an old neighbourhood alley as a long-exposure shot captured cars passing by in a blur. Her narration accompanied the images, documenting items in the shop. The video ended with a still frame of the shop’s address and hours.

Before releasing the video publicly, Xu showed it to investors. They liked the videos, but thought they wouldn’t get any traction. This was the typical response Xu got when he showed these videos to people. Their experience gave them the impression that this was niche content, suitable for only a small audience. They were right in that these videos were not going to go viral, but Xu knew two things they didn’t:

1People who enjoy magazines like them for their content, not their form factor. Fundamentally the shift was not in people’s taste but in their preferred medium — from paper to mobile and digital. The type of content that people liked remained largely the same. So if an audience existed for The Bund on paper, it should also exist online.

What was clear to Xu was that the techniques of arranging imagery and text on paper (aka graphic design), no longer engaged audiences on WeChat and other social media apps. The magazine spread simply could not exist on a small screen. The hunch that Xu had was that video was the form factor that could capture attention on digital and mobile. Compared with text and images, videos would be much harder to create — good video skills were not as proliferate as good graphic design skills.

2 What the critics overlooked was the size of China’s population. Even a niche audience could be in the tens of millions. People who would be interested in Yitiao’s content were among China’s growing middle class — same as the customers of The Bund magazine. When a reporter later asked about the size of China’s middle class, Xu smiled and said simply:

I think Jack Ma said it was 300 million.

“It’s actually very difficult to discuss the middle class of China,” he continued. “What are the differences between China’s middle class and those of Japan, the U.S., and Europe? I’d like to simply think of the middle class as a group of people with higher education, with more disposable incomes, and perhaps an aspiration to a higher quality of living. This is what I would define as the target audience of Yitiao.”

1 Million Followers in 15 Days

By fall 2014, WeChat had emerged as the messaging platform for China. Many WeChat public accounts gained tens of millions of followers. Riding these two waves, Yitiao decided to focus growing its audience on WeChat.

The company decided to act on this new product called GuangDianTong (GDT or 广点通). It’s a targeted advertising platform developed by WeChat’s parent company, Tencent. Like the advertising platforms from Google and Facebook, GDT also advertised based on bids for a specific audience.

Yitiao only had 1.25 million dollars available, yet it still put in $315,000 into GDT in the first week. This was a calculated gamble by Xu.

The company had planned to release a dozen videos in the first two weeks of launching on WeChat. If it was possible to gain 1 million followers within that time, that news in itself would become a spectacle. The effect of such an event would be a long-tail of new followers weeks and months down the road, based on the media coverage alone.

Xu reflected on that decision: “Based on the metrics we were seeing (from GDT), it was probable to assume that the money would translate into exposure as well as followers. We just didn’t know how many. What we were confident in was that even if we only captured a small audience based on the wide exposure, we can still survive on native advertising, and overtime the money can be recuperated. So despite the decision being risky, the risks were actually calculated.”

Spending big on GDT proved to be an effective strategy — in two weeks, Yitiao gained nearly 1 million followers on WeChat. Xu later compared to his decision-making process to crossing a deep crevasse:

If you look down, it is very scary, and few dare to make that leap. But if you ignore the depth and just look across it, you’ll realize it could be less than a meter wide — a distance that you can easily jump over.

Aside from GDT, influencers also provided valuable fuel for subscriber growth in the first two weeks. First, because of Xu’s connections, several celebrities shared Yitiao videos on their own social feeds. Second, despite none of the dozen videos going viral, each was niche enough to turn heads on its own, appealing to influencers within specific industries and enticing them enough to share among their own followers.

For example, the video titled “Architectures’ New Wave” circulated in the architecture enthusiasts scene. Another video about tea was viewed among the fans and lovers of tea. The one about a boutique hotel was widely shared among hotel industry.

The reason for this was that not only were the videos highly produced, the protagonists in each video were all individuals who were doing very interesting work in a particular industry. Xu’s decades of editorials work showed its strength in the effective sourcing of these stories.

What became clear was that most of China’s top sites aimed for the mass public audience. Audiences who preferred editorial and highly produced content, although perhaps only 10 percent of the population, were always overlooked. But given the scale of China, that audience alone could be in the tens, if not hundreds of millions.

Mobile Video Growth

Yitiao grew to 6 million followers in seven months. In three years, China’s mobile video audience as a whole would grow from 56 million to 353 million.

This ability to pinpoint social, economic, and population trends before they hit mainstream was what had led to the pivot at The Bund nine years earlier. And it seemed that Xu managed to pull off the same transformation once again. His former colleague Dai Guo Feng noted, “In terms of positioning and taste, there is none other like Xu in China.”

How to Retain Followers

To retain followers, the videos’ quality and release schedule both needed to be maintained. Xu thought that the best way to do that was to codify the production process.

They key is to make the sourcing of story, shooting, editing, and distributing of content repeatable and efficient. The team analyzed its previous work and iterated on a template.

The level of detail that ended up in the final template was extremely meticulous. For example, for cinematography alone, the number of long, tracking, panning, and dolly shots were spelled out.

For narration, a 950-word template was created to establish a logical order of storytelling. It could be used to tell any story in no more than 10 points. In terms of timing, every minute and half, as the audience got bored, a new thread of points were revealed to refresh viewer attention. Another example was to show the most interesting footage at the beginning, because if the first 5–10 seconds weren’t interesting, many viewers would churn immediately.

As a result, the quality of the videos was kept consistent despite not having directors, producers, or scripts. But this method did create some tensions among the team. Xu spoke candidly about how there is a constant struggle between artistic freedom and product discipline.

“Often I have to remind people that they are not here to create art, they are here to build a product. If their goal is to to create art, which is a noble goal, they should pursue that, but not at Yitiao.”

What is the Product?

Revenue soon became the elephant in the room as the audience grew. Naturally, advertising seemed to be the obvious answer.

Given the coarse and ineffective styles of pop-up advertising and blocker videos, the team decided against that early on. They initially focused on native advertising.

Xu pointed out that content and marketing have always been intertwined. He gave the example of Michelin, a tire manufacturer that publishes the renowned restaurant guides. The guides were initially created to helped drive demand for automobiles, back at a time when the auto industry was still at is infancy.

That model seemed to be a perfect match for Yitiao. Through videos, Yitiao had attracted a group of viewers who had, by pressing the follow button, informed Yitiao of their desire to keep up with content that showcased more ways of living with quality.

In this sense Yitiao could be the “Michelin Guide” of lifestyle products — a media platform that connects people with products and brands that match their tastes. In order to do that, Yitiao must first discover products, then present them and connect the audience to them.

The team began working on this idea after reach 6 million followers in mid-2015. However, Xu soon realized that just connecting the audience with products wasn’t enough — many of these shops had little to no experience selling products online. Some shops didn’t even have websites or WeChat pages. This meant that there was no way for them to expand beyond one city.

Yitiao Pivots to E-Commerce

The need to for Yitiao to venture into e-commerce was apparent.

Rather than linking videos to shops and websites, Yitiao could integrate both the marketing and selling portions of the experience and allow suppliers to focus on creating great products. This way customers could truly enjoy the benefit of buying directly on Yitiao.

As the team pondered this idea, they soon reached 10 million subscribers. It was clear by then that they had to dream bigger, because there existed a much bigger opportunity than advertising. The hypothesis they came up with was this: “Users love our content, because we showcase interesting products, designers, and independent brands. Why don’t we allow user to place orders right here on Yitiao?”

In late 2015, the team created a lean test. The first item available for sale on Yitiao’s WeChat public account was a series of reprinted vintage textbooks from the Republic of China era (1912–1949). This is a niche item with a relatively high price tag of $120, but it tapped into the buzz around retro books and furniture.

From a business perspective, the risk was minimal. Having these orders placed in advance would help book publishers budget their prints and eliminate stockpiled inventory. To test the profitability of this model, Yitiao even charged a hefty commission — 30 percent of the sale price. As Xu later put it, “this would be the cost to access the aggregated high-intent audience that individual Taobao shops would not able to find or target on their own.”

The experiment was a surprise to everyone involved. In a mere two days, over 430 copies were sold, grossing $47,000. A week later, the publisher not only cleared its inventory, it had to add more prints to match the influx of new orders. By mid-2016, this book series alone would gross over $300,000 in sales.

This proved Yitiao’s hypothesis to be true and gave the team the confidence to proceed. In addition to making videos, Yitiao began selling products.

Don’t Sell Products, Sell Stories

With the newly hired technical staff, Yitiao built up a robust shopping experience inside its WeChat public account by early 2016. Two weeks after its launch, the account, “Living Hall,” would gross over $1.5 million.

The team continued the technical efforts and launched a stand alone iOS app seven months later. The app and the public account had the same interface so that users could access Yitiao wherever they preferred.

The difference between Yitiao’s approach and traditional e-commerce is that Yitiao treated e-commerce content like media content. Instead of showcasing a product’s specifications and features, Yitiao focused on the story behind the object.

The company typically chose well-designed products, and told stories about the inspirations and the craft behind those designs. “We called this adding warmth to cold objects. The value was not just in the products, the value was in how people used the products. A lot of that can be conveyed through storytelling — by revealing the inspirations, problems and successes behind each object,” Xu explained later.

One of the team’s most interesting cases was the novel “S.” It had an innovative format for a novel. The printed text formed its own complete story, but added to it were scribbles in the book margins from two people. These marks and annotations by these two voices were done throughout the book. Included in the book package were also photos, maps, and documents. Altogether these artifacts added another story on top of the original text.

This book sold only 20,000 copies in the United States. Yitiao contacted the publisher and secured presale rights for 25,000 copies in China. Again the results astonished everyone. In two days, all presale copies were gone. Over the subsequent years, the book grossed over $656,000. As someone who came from the publishing industry, Xu realized that this was unprecedented.

Screenshots from Yitiao’s video on Mao Wang Radios

The next case even further solidified Yitiao’s belief in this model.

Mao Wang Radio was a brand that designed and manufactured retro style radios. It had many sales channels, but its Yitiao presence was the fastest growing. By the end of 2016, the brand had grossed over $1.1 million dollars on the Yitiao platform.

Reflecting on Growth

In 2016, Yitiao was growing at a rate of 2 million followers per month. By 2017, it had 30 million followers. Yitiao also raised three more rounds of financing and amassed a war chest of hundreds of millions. Through this process the company’s valuation grew north of $500 million.

Xu reflected on why business grew so quickly.

“If you look at our videos, they are all about people, whether they are designers, artists, authors or just someone with an unique perspective. It is very natural to discuss their lifestyles, objects in their lives, and their products. This is something that audiences feel acceptable. When a story’s angle is about a person, how that person tells their story, and their challenges, the details of their lives become much closer. The objects, spaces, and products behind that person become much more interconnected with us.”

“Many of the small yet beautiful brands struggle to survive because they cannot reach their audience, and many of the larger and more banal platforms such as Taobao and cannot easily sell good products that match the tastes of the middle class. I think Yitiao has created a path in the middle. That’s why we’ve been successful.”

“For people who don’t mind spending a little extra, the cost of searching and browsing is actually very high. It is almost impossible to compare the various items on their functions and utilities. Yitiao aims to be that trusted platform where quality has been vetted and where shopping is more about feeling right than comparing right.”

Challenges Ahead

The effect of Yitiao’s success has reshaped China’s media and ecommerce landscape. More and more startups are creating videos; some are directly copying Yitiao’s model.

“Content to e-commerce” has become the new buzz phrase. Also, as the proliferation of content and e-commerce ramps up, Yitiao’s user growth has plateaued.

Indeed, there are many challenges ahead. The current bottleneck revolves around the need to vet tens of thousands of products as they enter the platform. Judging from user feedback, the process is somewhat flawed and has not been able to scale well, now that the company’s SKU is in the tens of thousands.

Perhaps another Achilles’ heel is Yitiao’s inconsistent customer experience, which is indicative of a bigger challenge: Aside from product curation, a fantastic e-commerce experience requires quality assurance, operational excellence, efficiency in logistics, and above-and-beyond customer support — a whole slew of efforts that Yitiao’s model doesn’t account for currently.

One user wrote about her experience and went on to speculate that the product she bought was not in fact an original import, as claimed on Yitiao. This was a serious accusation for a platform that prides itself on quality and trustworthiness.

Another user claimed that of three dozen products she ordered on Yitiao, only about a dozen were satisfactory. She explained that it was impossible to return most of those items, because they were labeled as “rare” and “sourced with great difficulty,” which are euphemisms for “no returns.”

Aside from these reviews, there has also been pushback on Yitiao’s content. This Weibo post illustrates that sentiment:

The protagonists in ‘Yitiao’ videos, either own hotels, or built houses by hand for their loved ones, or bought islands, or spent $400k renovating rented residences in the center of Beijing. Rather than calling it Yitiao, it should be called The Rich.

— BaoZhaTaiZi, (V — verified Weibo)

Xu has admitted that the content and format of the videos cannot stay the same forever. There is a need to refresh and redesign that is much faster than magazines.

However, despite these challenges, Yitiao strives forward. Similar to how Michelin created content to expand the appeal of the entire auto industry, and how IKEA created meticulous showrooms to bring lifestyle and interior design education to customers, Yitiao is combining content, lifestyle, and e-commerce in new and interesting ways.

Interested in learning more about Product Design?

I’ve expanded my Medium article titled Hacking Product Design into my first book which shares the same title, which you can find on Google Books (ebook), and on Amazon (paperback).

Below are some of my other articles on Tech in China:

My observations. Nothing more, nothing less.

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