News App, VNOs In Start-Up Setbacks

Today’s Headlines assaulted for copyright violations

It’s not easy being a high-flying start-up, and the burden becomes even heavier when a company builds up huge expectations for itself through excessive hype. Smartphone sensation Xiaomi was in the headlines last week when it launched a big price cut, leading some to speculate the company was struggling to meet its aggressive sales targets. Now in the latest setbacks for other start-ups, media are reporting that a fast-rising news app called Today’s Headlines is being assaulted on several fronts for copyright infringement. Separately, a newly launched group of mobile service providers called virtual network operators (VNOs) has also received a setback after experiencing widespread technical glitches.

It’s natural for bosses to hype their new products, and usually most such hype falls on deaf ears from a skeptical media. But the developer of Today’s Headlines caught everyone’s attention earlier this month when it announced that it had just raised a hefty $100 million in new funding less than 2 years after its founding. (previous post)

Fundings of that size are rare for software developers, which don’t typically need as much money as more capital intensive manufacturers and gadget makers. The youth of the app’s developer, a company called ByteDance, made the size of the fund raising that much more surprising, and even drew comments from executives at other older tech companies who spoke with hints of jealousy. (previous post)

But in the last week, the headlines have turned decidedly negative for Today’s Headlines, which has suddenly become a magnet for complaints from news site who say the app violates their copyrights. Guangzhou Daily and web portal Sohu (Nasdaq: SOHU) are just 2 companies that have sued ByteDance, though the former reportedly has settled its complaint. (Chinese article) All the companies are upset about the way Today’s Headlines packages its news, which directs users to its own sites rather than to the sites of the actual news providers.

Now media are reporting that China’s copyright regulator has stepped into the matter, and is formally investigating ByteDance for infringements. (Chinese article) Reports are speculating about the size of the fine that ByteDance could receive, which won’t be determined for a while.

But far more damaging will be changes that ByteDance will have to make to its business model, which could cause it to lose millions of user clicks on its own sites as it’s forced to direct traffic to original news sites instead. ByteDance was almost certainly depending on such clicks as one of the biggest sources for its future advertising revenue, and may now lose much of that traffic.

I do find this particular action just a bit ironic, since many of China’s other major websites are also known for illegally using other media’s news stories. But clearly ByteDance has drawn the ire of China’s older media establishment, who were probably upset at least partly by the young company’s hubris.

Meantime in other start-up setbacks, media are reporting that the recently launched new group of VNOs are discovering a wide range of glitches in their service. (Chinese article) VNOs allow companies to offer mobile services under their own brand through leasing arrangements with China’s big 3 state-run telcos, which provide the actual network capacity to make calls.

Big names like Alibaba, Suning (Shenzhen: 002024) and JD.com (Nasdaq: JD) have all recently launched VNO services, whose phone numbers all start with the “170″ prefix. Now media are reporting that calls on all the services are experiencing frequent glitches due to technical issues.

Such teething problems for new services aren’t uncommon, and the reports indicate the issues could be fixed by August. (Chinese article) Still, the issue is likely to cool early enthusiasm and limit sales for the new VNO services, which isn’t too surprising due to the huge publicity and hype they have received in the Chinese media in the run-up to their recent launch.

Bottom line: The Today’s Headline news app may have to rethink its business model following a series of copyright complaints, while glitches at new VNOs are likely to cool enthusiasm for the services.

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