Musical.ly's Alex Zhu on Igniting Viral Growth and Building a User Community | #ProductSF

At Product sf, Greylock's Josh Elman chats with Musical Ly co founder and co CEO Alex Zhu about his journey. Alex talks about the distribution hacks they use to spark viral growth and how they think about fostering their user community. This presentation was recorded at Product sf, an event hosted by Greylock Partners that brings together founders, PMs and product leaders to talk about the challenges of building new and innovative products that change lives and create habits. For more podcasts, please visit news.greylock.com you.

Know, I'm really thrilled with our next talk to bring up Alex Zhu, who's the founder of Musical Ly. I first met Alex more than a year ago now as I was watching this app in this community that, like all the young kids that I was talking to about what apps they use started using and turning the camera on their faces and performing and doing motions like this and, and doing it all the time. And I was like, what is this product? And I reached out to Alex, found his email address and said, hey, we'd love to talk to you about your product. And they were close to a fundraising round, so I managed to finagle my way into that. But what really surprised me was when he sent his note back, I was like, oh, I'd love to meet up. Are you in San Francisco, maybe la? He was like, no, I'm in Shanghai, China. And that's where the entire team was based and where they were building it out. And so I think he just has this incredible perspective of building this company from China that American teenagers are using kind of more than anything right now. So with that, I'd love to bring up Alex Zhu.

Thanks to Josh.

Thank you so much for coming to join us. We're really lucky. He told me he was going to be in town right at the week of this event and I was like, can you please stay till Thursday so we can do this? So I'm thrilled to do this. I know you spent actually a lot of time before you went back to Shanghai in the US building enterprise software. You're working at SAP and, and now you're leading one of the coolest and fastest growing consumer companies that's hit, probably the neatest one that's really hit and become a movement since Snapchat. How did you, as an enterprise software guy, become the leader of Musical Ly and where did that come from?

I spent a lot of years doing enterprise software for SAP. Enterprise is a good business, but it's not sexy enough. And I want to be a sexy man. So my Passion was always in consumer business, right? So doing design and using the consumerized approach to deal with enterprise design. In 2013 I was a futurist of education in SAP trying to do some research on how education industry is is going to be transformed by new technologies. It was all about research and writing blogs and articles. But I want to have something concrete delivered to the market, to the hands of end users. And at that time I got an idea. It was a one billion dollar idea I thought, which is to transform education and combine the idea of Coursera and the idea of Twitter into one product. Making educational contents first on mobile and bit size, short form. So we reduce the barrier to content creation as well as content consumption for education, right? So in the end of the day we hope everyone can post educational contents, share the knowledge and everyone can learn on this platform. It became a multiple billion dollar business, but it turned to be completely failure. You know, we analyzed what are the lessons learned from this failure. We must learn from the failure and try to find a new direction. The failure is first thing, if you want to build a new UGC platform or social network, the content has to be extremely light, meaning the content creation and content consumption have to be within seconds rather than minutes or hours. The second thing is education is something a little bit against human nature. If you look at how people use the mobile phone today on the public transportation, on Kiatra, on subway, majority of the people use a mobile phone to communicate, to entertain, play games, using Facebook, send a message. They don't learn. So it's pretty hard for a new start to try to change the human nature, to fight against the human nature. It's better to follow the human nature. So let's do something more entertaining, let's switch to entertainment. And last lesson learned is for a new social platform, a new social media to take off. It's better to have young people as an early adopter, especially the teenagers in the U.S. why? They got a lot of time and they are creative. And today in school the schools are already using like YouTube for education purpose. So everybody is professional in video making and editing, right? And also if your application, your product can attract a small group of these users and get them talk in the school, right? And on social media you don't need money to do the promotion, right? Zero cost of distribution. So until today we haven't spent even one penny to do distribution. It's zero cost.

So look, that's an amazing pivot from the educational platform into musical ly. But you still had to start from zero users and you guys have done this great job building, building this incredible community. How'd you do that? How'd you just launch it and have it work?

Very initially we had a lot of hacks at that time. There is a secret on App Store you can make the application name really, really long. And the search engine on App Store actually give more weight to the application name rather than the keywords defined. So we put a really long application in, make awesome music videos with all kinds of effects for Instagram, for Facebook messenger. And then, you know, traffic just came from the search engine. Right. So that's how we initially get started. And initially we have to focus on utility aspect. Like the first user of Instagram 1.0, they didn't use Instagram for the feeds, for likes, for the comments. They use Instagram because of the amazing filters and they post on other social media.

Right.

So before you have the critical mass of the users and accountants, you have to focus on utility. And then once you have enough users, you start building a community around it. And I think community is something we did pretty well to get the application, you know, into the mainstream.

And, and can you talk a little bit more about, you know, you're this team in China, you've been building this, this whole thing in China, right. You're talking to high school, college age kids, teenagers here in the United States. Like, how are you able to stay so close to them and listen to them in both on the user side and, and on the community side? Because I think it's been so critical to your growth.

That's right. I think Zoras, several aspects I want to talk about. The first thing is actually a lot of Chinese people, they know the American culture very well. Like today, if you go to social media in China, many people talk about the presidential election, the debates.

Really?

Yeah. People talk about the US Presidential debate more than the Chinese one because there is no Chinese one. The second thing is for young people, a lot of young people, they study in the U.S. they probably spend some years working for U.S. companies, for companies in the U.S. for Facebook, for Google, and then they look for opportunity to come back to China. So there are a lot of people who bring this Silicon Valley knowledge and insights and techniques back to China. So that's the second thing. The third thing is very importantly, we have to stay really close to our users, different kinds of users. We call this participatory design, involve the end users in the design process from the very beginning. So actually we have hundreds of users on WeChat. Are you familiar with wechat the. That's a Chinese messenger app. They don't have a lot of users in the US but we got a lot of musical users on WeChat. And we have daily conversations. Not only conversations about the product and the ideas, but also just talk, understand what they think, making jokes, be immersed into the American team culture. That's very important. So for every design, especially important major feature design, we always first present the ideals, have a conversation with users, and share the mockups and wireframes and get the feedback before we do any coding. So that's the key.

Wow. And then talk a little about the user community. I mean, now there's people. I don't know if you guys have heard of Baby Ariel, who has five or more million followers. You know, how have you been able to foster this in a world where there's Instagram stars and Snapchat stars and YouTube stars, and they're getting recruited by every platform. How have you built this unique community yourselves?

The way I look at it, building a community is very similar to running a country, running an economy. So there are a lot of economic, you know, policies you can learn in order to run the community in the early stage. Building a community from scratch is like you just discovered a new land, you give it a name, America, and you want to build economy, you want to build population, and you want people from Europe to migrate to your country, right? And Instagram is Europe, Facebook is Europe. How can you do it? You know, economy in Europe is already very developed, and in your country, there is no population. You know, there is not so many things going on. There is no economy. How can you attract those people to come in? The problem with Europe is the social class is already stabilized for average citizen of Germany, of France, they have almost zero opportunity to go up in the social class, right? So now you have a new land. A very important thing is in the beginning, you have to build a centralized economy, meaning that from wealth distribution point of view, you make sure majority of the wealth is distributed to a small percent of people to make sure these people get rich first, okay? And then these people became role model for other people living in Europe. And they say, hey, this is a normal guy, and he just went to America and he became super rich. I can do the same, right? And then lots of people came to your country, and then you grow population, you grow economy. But very importantly, you have to do decentralization in the same time. Having an American dream is good, but if it's only a dream, people will wake up eventually, right? They know they don't have the chance. They came here, you know, they want to be rich, but after several weeks, several months, they can't be rich. So you have to decentralize your traffic model. You have to give the opportunity to average people and make sure they got satisfaction, make sure there are middle class coming up.

Wow. I've never thought about managing an influencer community like the economies.

That's right.

That's actually really important and I think a huge tribute to the success and actually like talking about centralized economies and more capitalist economies like you're, you have this really unique vantage point and that you live in China, you understand the mobile ecosystem of WeChat, you understand what's happening with live video there, you understand, you know, companies like Tencent, Alibaba, you know, a lot of virtual goods businesses rather than advertising businesses. And then you see, you know, us in the US and things work very differently. What are some of the things that you see and have learned in the Chinese mobile ecosystem that you think like really are about to come here and are really things or what are things that just will always fundamentally be different? Because, you know, I don't know how many people have studied the Chinese mobile ecosystem, but it's as big, if not bigger in some ways than, than what we have here in the U.S. yeah.

I think the technology ecosystem in China is super interesting, especially in these days. There are actually a lot of innovations, innovations that are different with the US Most innovations in China are not around technology, but around service and commercial. There are some very interesting examples like WeChat. They are very successful in payment integration in these days and how they make sure the consumers are binding the bank accounts. On WeChat, they did something very interesting. You know, Chinese tradition, the spring festival, right? During the spring festival there is a tradition to send red envelope with the money as a gift. So they do this online game on WeChat, making sure during the spring festival, many of the users are sending the red envelope with money, small amount of money to their friends. Okay? It became a super popular game during that time. And by doing this, lots of people have to associate the bank accounts and they all of a sudden got all the bank accounts and then, you know, support, you know, retail payment became much easier. Some other interesting example recently is live streaming, right? Those live streaming platforms like Inca, like yy, they did such an amazing job in monetization, right? Using the virtual gifting concept to do monetization. Actually, YY was the first company to do scalable monetization using the gifts. And then companies in the US like you now adopt the concept and turns to be also feasible in the US So I think that's a advantage of having the company in China. So looking at all these service innovations in China and think about some other interesting ideas in the US and combine both.

It'S really impressive to think about kind of how that will migrate over and the live video from what I've heard is over a billion dollars in virtual gifts now are spent through live video in China. Do you think we're going to see that happen here in the next year or two? Like you said, you're starting to see it with you now. Do you think that with musical you think we're going to start seeing more of a virtual goods business or you know, in the US most of our businesses become advertising businesses pretty quickly. Instagram, YouTube, Snapchat, Facebook all look like ads businesses, right? How do you see that balance happening and how do you think about it for your company?

So first of all, I think ads business is great business, right? Once you have the scale, you have the time spent over the users. Integrating ads based on user preference data in a organic way, that's the best model. It's scalable, you don't have to do a lot of human sales. It's automatic and it doesn't hurt the user experience much. So as business is definitely something we want to support in the future. But in the meantime, one of the key power of musical ly is the influence, the social media influencers. We generate new social media influencers and we attract other social media influencers to augment their influence on musically. Right. So we can monetize this influence or monetize the love using the virtual gifts. But the purpose is not to make money for the company. The purpose is to build a monetization ecosystem, giving enough incentive to the creators to the social media influencers. Similar to how YouTube did, right. I think YouTube became so successful partially because of the partnership program. A lot of our users, they still produce lots of content on YouTube. Why? Because that's money. So for users, typically when they go to a social media platform, the first thing they're looking for is fare. But once they have the fare, it's not enough. They have to monetize. So if the platform is a platform that can generate most revenue stream for influencer, they will definitely stick around on this platform.

That's great. And the last question, if you guys have questions, although I have quite a few more, is you're working with the music industry. You know, musically it's about music. It feels like it's about music videos. Obviously music is, you know, the music industry has been notoriously considered hard to work with, you know, and that's at least what people say about it. Although I think they're changing that a lot too as I look at my friend Carlos back there. But how have you guys figured out how to really work and see the music industry as partners? And kind of did that scare you going into this space or did that seem like opportunity?

Definitely an opportunity. I think something unique about Musical Ly, you know, in comparison to other music business like Spotify is on Musical Ly, we only use music as a raw material. Music is not the end product. It's a raw material on Spotify, on Pandora, music is the end product. So the good thing about using music as a raw material is it doesn't compete with other revenue stream of the labels, of the publishers. People still buy music, people still stream on Spotify. And musically is something in addition, it doesn't hurt other revenue streams. So that's one thing. Second thing is having the music on Musical Ly actually help them to generate revenue. Right. So like Jason Darulo publish a song on musical ly and we run a campaign for Jason Darulo. Within four days there was more than 1 million videos created by our users using the song clip. And those videos are also shared on other social media which generates even more impressions. So before that song is officially available on itunes, there are already so much consumption on Musical Ly and on other social media platform. And people talk about it, the song became very popular. Right. So another interesting fact is we have an influencer on the platform. He's just a 13 year old boy named Jacob Saktorius. And several months ago he released his first song. Okay. And that song hits number seven on iTunes.

Wow.

That's the power of the distribution on Musical Ly. Right. And today we are doing more and more this kind of promotion or distribution not only for music, but also for brands.

Well, that's great. Do folks have any questions for Alex over here?

First off, congrats on an awesome product. So we may or may not have been stalking your Twitter from the last couple years last night. And it was really interesting because the early Musical Ly videos we saw were like you at Burning man holding it up or you at like the beach like holding out video and like that kind of jumping around. So it was really interesting to see. I'm curious how you got the initial idea for Musical Ly and how the product evolved from what it looked like. It Was more like a video clipping joining service to what it is now.

Yeah. So if you look at App Annie, go to App Annie and look at the musical growth curve in the first six months that was growth, but it was pretty slow. And the function and feature of musical ly was pretty similar to today's function and features. And there was a huge turning point in the beginning of 2015.

But it was the same product.

It's pretty much the same product. And why there was a huge turning point, I think the primary reason is we shifted the value proposition or we shifted the language. Right. Initially we were thinking, hey, people probably will upload their videos from camera roll and put the music as a background. So actually at that time, 50% of the videos are from camera roll uploading. So there is a solid use case. But the problem with that approach is the frequency is not good enough. People don't do it on daily basis. There is no habit. Right. People do it on weekly basis. If there is no habit, you can't grow. So we were thinking, how can we make video production a habit? Think about most of users. They open a video app in the evening at home. How can you make sure these people in that environment can upload a video? Right. That's the issue with a lot of video platforms because there is no good scenario for video posting. So in the end of 2014, we noticed something mysterious on the platform. At that time it was pretty tough. We. We run out of cash pretty much every Thursday evening. There was a spike in downloads every Thursday evening. So we tried to figure out what's the reason. And we did a lot of Google research. And finally we realized at that time there was a very popular show in America. Lip Sync Battle. The show was on Thursday evening. And after the show the audience will go to app store and search Lip Sync. Right. And then musically got a lot of downloads at that time. So this gave us the idea in order to make an unsuccessful park successful. Adding features doesn't help. One product can become successful because there is one core feature. Right. Became a killer feature. So you have to change the value proposition in order to change your growth curve. And we have to change the value proposition from a general music video maker to lip sync at that time. Okay. So what we did in that release in the beginning of 2015 is before the user sign up, we first present some onboarding videos. Make sure user gets the most important use case. Lip sync use case even before they start using. Okay. Change the perception. The second thing is we make sure the user when they Land on Musical Ly, they see the best ever contents. So we put a human curated list of contents on top of the feeds for new users. So that's the best content we have to impress users and we make sure people invest. Invest basically means posting. So we send a notification for new users. Post your first musically. And that dramatically changed the retention.

Awesome. I think we have time for one more question.

Hi.

You talked about understanding American culture and the tight feedback loop you've created with participant oriented design. But I am really curious about how you were able to get those first initial 10 users. Because especially in America, it's like other side of the world.

Right.

Teenage kids, it's not like you could just reach out to them and like send them an email and try to get them on your platform. So how.

Right. I think this involves a lot of experimentation. Right. Initially we didn't get a lot of traction. We have to test the different scenarios, test the different designs. One thing we did right was make sure there is a very visible link on your product that allow the early adopters to send you feedback and ideas. So we have a link on the app which is my ideas. Okay. And every day we got hundreds of emails from our users. These are the top things I like about Musical Ly and these are the top three things I hate about musically. So based on these ideals we quickly iterate. So that's one thing. The second thing is we have to spend a lot of time observing users behavior in the application. Not by looking at data, but by looking at the contents generated by user. And then I personally register a lot of fake accounts. Right. And use this fake identity to talk with the users on the platform, comment on their videos and see why they post these videos and just try to understand the. Try to get the empathy.

That's awesome. Well, I just want to say thank you to Alex for extending his trip and being able to stick around for this. What a fantastic story. Thank you.