In May, Chinese short-video company Kuaishou quietly launched Zynn, a new app that looks and functions like ByteDance-owned TikTok.
In less than a month, the app topped the charts in US app stores, surpassing TikTok thanks to an aggressive reward scheme that uses cash to draw in new users. While the customer acquisition tactic is uniquely Chinese, it’s now making its way to other markets as Chinese apps gain more ground overseas.
Kuaishou, China’s second-largest social-video app with 300 million daily active users, has followed rival ByteDance’s footsteps to the US market with the dramatic launch of Zynn.
Developed by Kuaishou-owned 3D imaging company Owlii, the app and its release show that Chinese social media companies are prepared to spend big as they bring their rivalry to the West.
There are three ways that users can earn rewards on Zynn: signing up, referring friends, and simply watching content.
The platform’s referral program, for instance, rewards US$20 to users who invite a friend to use the app, with an additional US$10 for every five friends they recruit thereafter. This means that if users can get 50 people to sign up, they receive a cash reward of up to US$1,100.
On top of that, the app has a reward system that gives out points to users for viewing content, which they can then exchange for cash or gift cards. With no limit to how much they can earn, some users have reportedly pocketed thousands of dollars from the app in just a few weeks.
While such systems are common in other apps, these tend to reward credits that can only be spent on the platform. China’s twist on this concept is that users get to cash out and spend the money however they like.
A slew of short-video platforms in China already employ similar user acquisition schemes. For example, Tencent’s short-video app Weishi offers up to 88 yuan (US$12) if a user watches videos for seven consecutive days, while Baidu’s short-video app Haokan also has a gamified cash reward system.
It can be cheaper to pay people to join the app than pay for media placements.
This approach is steeped in Chinese culture – giving friends and family members bright red envelopes stuffed with money is a tradition that often symbolizes good luck. In China, giving out virtual red packets is a common feature in mobile payments, food delivery, bike-sharing, and social media apps as well.
Tech behemoths like Tencent and Alibaba, for instance, have digitized and gamified this experience in apps like WeChat and Alipay.
Indeed, paying users has proven to be an effective tactic to make a splash in a new market like the US not only because “free” money is irresistible, but also because companies rewarding users with cash is a novelty. This undoubtedly helps Zynn stand out and proves that localization is not always the go-to strategy when it comes to international expansion.
“It may seem counterintuitive to pay people to use an app. However, user acquisition costs via paid media can be incredibly expensive,” Brendan Gahan, partner and chief social officer at San Francisco-based advertising agency Mekanism, tells Tech in Asia. “It can be cheaper to pay people to join the app than pay for media placements.”
Take TikTok for example. In 2018, it reportedly burned around US$1 billion to run ads on popular sites like YouTube and Facebook.
One of the criticisms of this tactic is that, in most cases, paying users for referrals and usage only works short term.
Apps in the first flush of growth like Zynn can effectively tap new users to recruit their circle of friends with financial incentives. But the system doesn’t address challenges like retaining its newly acquired users, creating usage habits, and generating buzz when the money tap turns off.
As the app reaches certain growth milestones, the rewards are likely to become less generous and more targeted, Jamie MacEwan, an analyst at UK research firm Enders Analysis, tells Tech in Asia. “In the long term, the attractiveness of the product itself will need to do more of the heavy lifting in reducing churn and boosting engagement, while the cash rewards can be calibrated to effectively support this effort and bring in new users,” he says.
Case in point, Kwai, another short video app developed by Kuaishou, gained traction in a handful of markets a few years ago by employing aggressive promotional strategies. But not long after, its momentum fizzled.
Taking a closer look at the strategy, there are also other caveats. With huge cash incentives, Zynn’s users may have joined the app with the intention of making easy money and not because they were interested in its premise, says Alessandro Bogliari, co-founder and CEO of marketing agency Influencer Marketing Factory.
In fact, users have pointed out that Zynn is a less sophisticated version of TikTok and that most of the videos uploaded to the platform are content that’s been ripped off from platforms like TikTok and Instagram and posted by pseudonymous accounts.
Zynn has been removed from Google Play Store since Tuesday over accusations of stealing content from other social platforms. The app is still live on Apple’s iOS app store.
To succeed in the social media space, especially in the US, it generally comes down to cultivating and supporting the content creator community. Without creators to produce and share original content, the user experience would be ruined, Bogliari explains.
If Zynn wants to make further inroads in the US, it can’t rely heavily on its current cash-burning strategy. Technology capabilities like algorithms that know what viewers want to watch is also crucial.
“We believe quality and rich content is the key to user retention. Our algorithms can also help us take on this challenge,” a Kuaishou spokesperson tells Tech in Asia. “We are currently working with a large group of creators to help us enrich the content on our platform.”
Cash outs, cashbacks, and subsidies
Rather than subsidies, cashback, rewards, and cash-out programs can be more attractive for users, as they are a more visible form of reward and are more likely to generate feelings of gratification. They’re also extremely flexible from a business point of view because they can be applied to any user action on any app, says MacEwan.
For instance, companies can tie rewards to specific growth and engagement targets while easily tweaking the level of investment, he explains.
Furthermore, cash and reward incentives coupled with gamification can help cultivate repeat behavior as users attempt to reach certain goals.
WeChat and Alipay are already doing this, giving out cash and rewards points to their mobile wallet users to boost usage. The two apps also ramp up efforts during holidays and festivals like the Chinese New Year, when they compete to roll out new schemes and games for users to earn virtual red packets worth hundreds of millions of dollars in total.
But aggressive cash-out schemes may still cause a company to bleed out. US-listed Chinese news aggregator Qutoutiao, which is backed by big investors like Tencent, uses a loyalty program to boost new sign-ups and encourage referrals on top of hefty spending on media placements. One of the platform’s top users reportedly received over 250,000 yuan (US$35,000) just by reading news and inviting friends to join. As a result of these measures, the company posted skyrocketing losses – US$386.3 million – in the fiscal year of 2019.
Lean and mean upstarts like US-based news aggregator BuzzBreak have seemingly found a way to employ cash-out tactics while remaining profitable. The company, founded by a former ByteDance employee, rewards users with small payouts of US$0.10 per click. And it can afford to do so thanks to its revenue-generating ads business and by keeping costs down.
On the other hand, ecommerce, ride-hailing, and delivery apps still commonly use subsidies as a way to attract users, which often take the form of discounts on products and services. This, however, can lead to significant losses on low-value orders, as delivery fees are effectively fixed costs.
Many ride-hailing companies like Uber depended heavily on passenger and driver subsidies for growth but were forced to scale back in order to curb losses.
The US is still a pay-to-win market.
While Uber never went so far as to hand out cash to users, it employed generous financial incentives and subsidies to drive up usage, ending up with a loss of over US$5 billion in the second quarter of 2019.
In the wake of Uber’s losses, Grab, which relied on large subsidies for growth, scaled back on its driver subsidies and food delivery promotion efforts. The ride-hailing firm then shifted to a point-based reward system where users can redeem vouchers and discounts for its services.
For new apps like Zynn, the US is still a pay-to-win market. Even dominant players like TikTok, which achieved its massive growth thanks to big spending in advertising and promotions, quietly started exploring rewards schemes last year.
With the support of Kuaishou and the backing of Tencent, there is nothing stopping Zynn from gaining a foothold in the Western short-video boom. But to compete in the increasingly crowded market, it needs to do more than splurge on cash-out programs.
Currency converted from Chinese yuan to US dollar: US$1 = 7.06 yuan.