Text | There is Niu Finance, the author | Spades and longswords
Among the many Internet companies that started with tool software in China, TouchPal (NYSE:CTK) may be the most resolute in its transformation. When touchpal phones, input methods and other tools and software were questioned by investors because of commercial difficulties, it decisively plunged into the rapidly growing pan-entertainment industry and obtained enough increments to support it. However, the hasty transformation of TouchPal is still not comparable to the major Internet giants, facing the competition of byteDance, Tencent, Baidu and other big manufacturers, it has to flash around, while turning its eyes to the overseas market where the potential is not fully developed, intending to find opportunities to overtake in curves.
For now, the two-year continuous implementation of the content overseas strategy has indeed improved TouchPal's financial situation, but it has also paid a lot of costs, which is vividly reflected in several financial reports released this year. On the other hand, the competitive environment in overseas markets is becoming increasingly complex, and touchpal still needs to overcome many challenges in order to maintain its position as a first-mover.
The "pain" of transformation has never faded
On December 8, TouchPal announced its financial results for the third quarter ended September 30 this year.
In its earnings report, TouchPal highlighted its "excellent" profitability — a net loss of just $400,000 in the third quarter, compared to a net loss of $22 million in the same period last year, a sharply narrower year-on-year. But in terms of revenue, TouchPal's performance is not so good. It generated revenue of $51.1 million in the third quarter, down 52 percent from $105.7 million in the year-ago quarter, and down 39 percent from $83.2 million in the second quarter, the data showed the data.
The situation of increasing profits without increasing income is not the first time that it has appeared in TouchPal's financial report. From the perspective of quarterly financial reports, TouchPal's net profit from the third quarter of last year to the third quarter of this year was -22 million US dollars, -18.78 million US dollars, -12.4 million US dollars, 300,000 US dollars and -400,000 US dollars, and the narrowing trend of losses was relatively obvious; the revenue data was 105.7 million US dollars, 102.4 million US dollars, 81.6 million US dollars, 83.2 million US dollars and 51.1 million US dollars, showing a very obvious decline. Among the many Internet startups that have exchanged losses for rapid revenue growth, TouchPal's performance can be described as abnormal.
In fact, this is the "price" that TouchPal has to pay to execute its content strategy.
TouchPal's revenue has been driven by advertising for a long time, but this year, its mobile advertising revenue has repeatedly declined, from $104.8 million in the third quarter of last year to $82.08 million in the second quarter of this year, and further to $49.77 million in the third quarter. TouchPal also stressed in its earnings report that the reason for the year-on-year decline in revenue is the decline in mobile advertising revenue, and the decline in advertising revenue is related to its restructuring of domestic product categories.
This "reorganization" is undoubtedly the actual embodiment of TouchPal's content strategy - looking at the financial report, TouchPal's product portfolio is mainly divided into three types: online literature, mobile games, and scene-based content applications. In the first quarter of this year, scenario-based content applications accounted for 14% of the product portfolio, and by the third quarter there were only 4%; on the other hand, the proportion of mobile games increased from 45% in the first quarter to 56% in the third quarter, which can be seen in TouchPal's increase in the field.
In addition, the proportion of online literature products in the third quarter was 39%, down slightly from 40% in the first quarter, but rebounded from 35% in the second quarter. This hesitant posture is not commensurate with TouchPal's repeatedly mentioned strategy of "actively entering the online text market", and perhaps it is still considering the various feasibility of this market.
Overall, TouchPal's content strategy is still in the power stage, and the negative impact cannot be completely offset by positive factors, which has led to its continuous increase in revenue and no profit. As for whether it can successfully run through the survival road of content in the future, it is also necessary to observe it in combination with its actual strategic direction and the overall market situation.
Content strategy "shifting": monetization replaces growth
In TouchPal's strategic planning, the word "ecology" is always placed in the first place, and online texts and games are the pillars that build this ecology. Initially, TouchPal's expectation for them was to create synergies that would drive rapid growth throughout the ecosystem. However, under the influence of various factors, it has recently begun to adjust the two major business directions, changing the main theme from "growth" to more stable "realization".
Netwen is one of TouchPal's first content businesses, and in China, it launched the Crazy Reading Novel App in 2019 and continued to cultivate the business in the following years. With many original content and a unique long-content AI recommendation mechanism, it has successfully stood out from free reading apps such as Seven Cats, Lian Shang, Mi Reading, and Book Chasing. Combined with the third-party data agency QuestMobile's "China Mobile Internet 2020 Semi-annual Report", the crazy reading novel reached 24.88 million at one point in 2020's MAU (monthly active users), second only to the first tomato and the second seven cats.
But this year, the pace of expansion of crazy reading novels has not only slowed down significantly, but even shown signs of regression. From the financial report, the MAU data of TouchPal's online reading plate in the three quarters of this year was 20.1 million, 18.1 million and 13.5 million, which was far less than the average MAU of 28 million to 29 million last year, and the gap between it and competitors was getting wider and wider. One object to refer to is that byteDance's Tomato Free Fiction MAU was only 51.21 million in June last year, and it has increased to 90.75 million by September this year.
Almost at the same time that the online text section MAU shrank, TouchPal also began to implement its monetization plan. In the domestic market, it adapted its first IP short drama based on the crazy reading novel hit online article "The Unbearable Su Evening", with the intention of enhancing the willingness of fans to pay based on this; in foreign markets, TouchPal took the online text App Readict launched in February last year as the main battlefield, introducing elements such as recharge and virtual gold coins on the basis of advertising to further strengthen the ability to liquidate.
TouchPal's exploration of the game field also began in 2019, but unlike the parallel playing style at home and abroad in the online text market, its game products are mainly concentrated in foreign markets, and most of them are mainly casual games. In the first quarter of this year, TouchPal also invested in a game studio called Smillage, further expanding the number of casual mobile games under its umbrella.
The main monetization method of casual mobile games has always been advertising, but TouchPal's desire to monetize has also prompted it to change its leisure mobile games. In its blockbuster casual games launched this year - "Catwalk Beauty", "Truth Runner", "Love Fantasy" and other works, the proportion of in-app purchase elements is more, and advertising basically only appears when players want "white prostitution" special currencies (such as diamonds in "Love Fantasy"), and the advertising pop-ups that used to be everywhere have disappeared.
For most players, a game with a clean interface and few ads is naturally more attractive than a game that pops up from time to time, and TouchPal clearly knows this. Combined with its deep cultivation of game plots, gameplay and other elements, there will undoubtedly be more casual games under its in-app purchase + advertising model in the future, and this measure can improve the shortcomings of the short life of casual games to some extent, and lay a good foundation for it to enhance its monetization ability and even follow-up into medium and heavy games.
"We will explore more monetization models in 2021." On a conference call at the beginning of the year, TouchPal chairman Zhang Guan said so. Today, his remarks have indeed been verified, but on the other hand, the overseas markets that TouchPal focuses on have also ushered in many players competing together, and it will take time to verify how much positive impact these strategic actions can have on TouchPal's performance.
The war at sea is in full swing, who can get the lead?
When TouchPal launched the Readict App in early 2020 to enter the overseas online text market, the power of the epidemic has not yet been fully revealed, and the format of online text going to the sea is mostly regarded as a "new story" released by domestic companies to speculate on stock prices. But after the epidemic, everything has changed - according to a statistical report by iResearch Consulting, the size of China's online text overseas market reached 1.13 billion yuan in 2020, and the growth rate was as high as 145%; the user side was 83.161 million people, with a growth rate of 160.4%.
The huge development potential of the overseas online text market has attracted many domestic enterprises to come to the injection. After TouchPal, Anyue, Tweet, New Reading, Dianzhong, Chinese Online have launched corresponding reading apps to join the battle, and their grandeur has exceeded every previous year; in 2021, byteDance and Xiaomi, the two giants have also launched Fictum and Wonderfic to explore this market.
In fact, the two domestic online literary circles have entered the overseas market earlier, but at first they only inherited the consistent routine of the early years of novels such as "Jie Xian" and "Ghost Blowing Lights", and have long been committed to exporting domestic online texts overseas after translation. When domestic startups such as Xinyue and Infinite System came in the name of cultivating local original authors and increasing localized works, they consciously adjusted their strategic direction with hindsight. Today, with the huge annual advertising efforts, Reading and Palm Reading temporarily occupy a leading position in scale, but startups still have strong competitiveness, and new players such as New Reading and Unlimited System can even sit on an equal footing with giants such as Reading in terms of income.
The examples of reading and palm reading reflect a clear trend: whoever can seize enough localized works and original authors will have the opportunity to take advantage of the overseas online literature market. And this is also the object of foreign enterprises' efforts.
At present, the layout of foreign companies in the field of online text is accelerating, a typical example is Amazon, in July this year, the e-commerce giant launched a new platform called Kindle Vella. Amazon not only allows users to spontaneously upload novels and stories on the new platform, but also invests heavily in recruiting online authors from other platforms, even traditional best-selling authors. There is no doubt that Amazon's prestige in the field of traditional literature and its well-established ecology can provide Kindle Vella with extraordinary competitiveness.
Earlier, South Korean Internet giant Naver, which has been working in the North American webcom market for a long time, also spent $600 million to win the e-reading platform Wattpad. According to the Canadian reading platform, there are more than 1 billion stories on its platform today, and users read as many as 22 billion minutes a month. It is conceivable that the acquired Wattpad will welcome Naver's various IP adaptations, which can further consolidate its long-established position.
In the field of games, TouchPal has to face many enemies at home and abroad.
In this batch of roadblocks, ByteDance is still an opponent that TouchPal cannot escape. From the data point of view, from 2019 to the end of 2020, There are as many as 28 game companies associated with ByteDance. Its casual game platform Ohayoo has released more than 150 games, with a maximum turnover of more than 600 million for a single casual game and 40 million products. In addition to ByteDance, several major overseas casual game manufacturers - Voodoo, Playrix, etc. are also worthy of TouchPal's attention.
Another important point to note is that with the official landing of Apple's IDFA New Deal, most of the casual game manufacturers have abandoned the previous single advertising revenue model and turned to the in-app purchase + advertising model such as TouchPal. This means that the internal volume competition situation with serious homogenization of casual games in the past will be completely changed, and there will be greater differences in creativity and gameplay of major manufacturers. This is good for the long-term development of TouchPal's game business, but it also tests its innovation ability and long-term operation ability, and whether it can grasp the balance between player experience and monetization speed may be the key to TouchPal's future performance.