Amanda Wang

Introduction

In March 2018, Bilibili submitted an IPO to the SEC, and within a month the company was successfully listed (NASDAQ: BILI). On that day the CEO of the company, Yi Xu, did not attend the spot to ring the bell, which is typical of him—only do things that are necessary.

The website itself was founded in June 2009. Bilibili (www.bilibili.com) is a China-based video sharing website, where users can submit and view real-time commentary subtitles (‘danmaku’) on videos while watching. Through its tagline ‘A unique online entertainment world’, Bilibili describes its mission as to build an entertaining community for Chinese Generation Z (the young generations born in year 1990-2009). This iconic brand provides its users a wide range of high-quality media formats and genres including videos, live broadcasting and games. It is now the biggest video sharing community in China, with over 150 million active users in the world.

Figure 1: Danmaku on a popular anime series, ONE PIECE

Invention: A Desire and A Detour

Bilibili was founded by Yi Xu a decade ago. Yi was a genius in computer science and gained admission to Beijing University of Posts and Telecommunications at the age of sixteen. During his undergraduate years, Yi was a heavy user of Acfun.tv, which was then the dominating animation video sharing website in China. Yi and his friends formed several online chatrooms and forums to discuss the videos on Acfun. Nevertheless, the operation and service of the website was quite unstable, and it went out of service from time to time. As a result, the user experience of Acfun was disappointing.

Yi sensed the problem, but he did not just complain about the situation with his friends. He quickly formed the idea of developing an alternative website for Acfun users, so that they could not only continue to watch fun videos during the time when Acfun was not functioning, but also have a platform to comment on and discuss those videos while playing them. In just three days, Yi developed a prototypical website named Mikufans.cn and immediately posted the URL to chatrooms and forums. The new website soon got its name well-spread, and thanks to the real-time commenting feature, Yi received piles of comments and suggestions for Mikufans.  Since then, Yi has been improving his website inside a lean system by applying continuous fast-paced iterations and limiting the expansion budget.

Core of Business: Emotional Connection

Bilibili focused its business and operation on Chinese Generation Z and came up with the idea that ‘We are the users’—the company should utilize empathy and stand in users’ shoes.

Half a year later after its founding of the website, the brand name Mikufans was changed into Bilibili. This new name comes from Yi’s favorite Japanese animation character, which is also the favorite of many other animation lovers. The new name sounds delightful and energetic in Chinese, building an even stronger emotional attachment with the website’s users. In addition, ‘Bilibili’ is very easy to remember, and therefore it adds to the word-of-mouth propagation channel. Yi also made the website more user-friendly by showing more video screenshots instead of words and hyperlinks. Users could easily grasp the feeling of a certain video and then decide whether to watch it or not.

Next year, Yi Xu was no longer satisfied with the role of an amateur website architect. He founded a startup company to further expand and operate the business of Bilibili.com. In its growth period, Bilibili strengthened its business by providing outstanding user experience, rich video resources as well as popular vloggers. The company built a strong emotional connection with its Generation Z users. According to the prospectus of Bilibili, most of the Generation Z users are well-educated, have strong demand for online entertainment and are willing to pay a premium for it. In addition, this generation has a strong need to express themselves more directly.

A comment column below the video is simply not enough exposure to the viewers. Based on such a thorough understanding of its target users, Bilibili developed its core feature, danmaku, to differentiate itself with other existing domestic mainstream video websites. The danmaku, which was originally developed by a Japanese animation video website Niconico, is an optional wall of comments scrolling at the top or the bottom of the video played. Young people can find resonance while watching certain videos, and they can express their thoughts as well. The more people post comments to Bilibili through danmaku, the more users will be committed to the website, and the higher switch cost will be for its users. These three factors reinforce each other, and within this loop there comes not only a successful website but also a sustainable community of Bilibili, where young people can gain new social relationships and higher self-esteem.

A Promising Business

According to the prospectus application of Bilibili, the 2017 annual revenue of the company was US$3.55 billion. Bilibili generate revenues from three major businesses – mobile games (84%), live broadcasting and value-added services (VAS) (7%), as well as advertising (7%). The company believes that the live broadcasting and VAS revenue has a great potential in growth with its multi-faceted commercialization. Embedded in this major revenue stream is Bilibili’s unfair advantage, which is a deep pool of talented hosts that adds to the strong emotional connection fostered by its community, as well as the premium membership which provides access to exclusive high quality content that can attract users to pay and stick to the website. The total number of active users in the fourth quarter of 2017 reached 71.8 million, which is 2.5 times of that of the first quarter of 2016. As the only website in China who has a strict user registration policy, the retention rate of the registered users is over 79%, and the average time that a user spend on the website is 76.3 minutes. This long time together with the high retention rate render the revenue highly liquidized, and most of website traffic is internalized.

Figure 2: Talented hosts of live broadcasting, BILIBILI

Ambition never stops

As the mobile devices became popular, Yi thought users may be disappointed if they cannot watch videos from Bilibili when there are no computers around. In the mobile era, people are busier with their work, hence they want to do something on their mobile devices to kill time when commuting or waiting. Meanwhile, reading can be frustrating because people would rather take a mind rest instead of thinking too much in a short escape time. Based on this logic, Bilibili released the mobile applications for both the IOS and Android systems. This user-centric effort also paid off. According to a recent QuestMobile report, Bilibili is ranked the highest among the favorite applications of young Chinese users.

In June 2018, iClick Interactive Asia Group Limited (“iClick”, NASDAQ: ICLK), a leading independent online marketing technology platform in China, announced a strategic partnership with Bilibili. This partnership will support data collaboration and exchange between the parties. As a result, Bilibili will benefit from their advertising partners beings able to release more targeted ads to their users, and therefore increase its ads revenue. The collaboration is not only a win-win solution shared by the two partners, but also a beneficial step for international and local brands to more effectively target the large Generation Z userbase of Bilibili.

In October 2018, Tencent Holdings Limited (“Tencent”, 00700.HK), a leading provider of internet VAS in China, announced that it will invest approximately US$317.6 million in cash in Bilibili to gain a foothold with Generation Z users, many of whom are shifting away from Tencent’s QQ and Wechat chatting ecosystem to other social media platforms. With the help of this large amount of cash investment, Bilibili make the decision that its main revenue stream will gradually pivot away from gaming to live broadcasting and VAS as well as digital ads, since the gaming industry in China is suffering from a suspension recently due to tighter regulations on new video approvals.

The user-centric feature of Bilibili is what B2C startups should learn from this story to survive in this digital era. Also, a clear customer segmentation and targeting will effectively boost the revenue growth. What is more, a high sensitivity to trends and grasping every chance to iterate and adapt is essential for a company’s growth. Bilibili is a good leader in Generation Z business, as its success will motivate more ambitious and talented individuals to tackle the unsolved problems in their life, start their own company to satisfied the unmet needs, and eventually make a better world through their joint effort in various fields.

Nowadays, Bilibili still insists that no advertisement should be added to the videos (See Figure below for its unique but effective ads styles), because users will feel very annoyed and forced to watch ads. Undeniably, advertisement can definitely generate large amount of extra revenues, but it will hurt customers deeply and may result in user shrinkage, and at the same time it is not yet necessary for Bilibili to do so as it can generate advertisement revenue through ads placed outside the streaming videos. No one knows this golden rule better than the CEO of Bilibili.

Figure 3: Two forms of ads on Bilibili: App loading page and ads blocks among video listing, BILIBILI

References

Baidu baike contributors. (2018, September 24). Bilibili. In Baidu baike. Retrieved 08:24, September 24, 2018, from https://baike.baidu.com/item/bilibili/7056160?fr=aladdin#reference-%5B41%5D-3180585-wrap

Bilibili. (2018, August). Investor Prensentation.

Bilibili. (2018, September 22). About Us. Retrieved 12:57, September 22, 2018, from https://www.bilibili.com/blackboard/aboutUs.html

Nexis Uni. (June 21, 2018 Thursday). iClick Interactive Partners with Bilibili to Help Brands Target Gen Z and Millennials in China. China Business News.

QuestMobile: 2017 China Mobile Internet Report. Retrieved from https://www.questmobile.com.cn/blog/en/blog_130.html

Wikipedia contributors. (2018, September 24). Bilibili. In Wikipedia, The Free Encyclopedia. Retrieved 08:24, September 24, 2018, from https://en.wikipedia.org/w/index.php?title=Bilibili&oldid=861099301

Wemedia. (2017, July 14). Yi Xu: Follow Your Gut Feelings. Fenghuang. Retrieved from http://wemedia.ifeng.com/22362313/wemedia.shtml