Why Chinese apps are the favorites of young Americans

Just as during China’s rise to manufacturing dominance a few decades ago, Chinese tech companies have leveraged a labor pool of affordable talent to continually refine product features.

The non-stop drive to get better even has a term in China’s technology industry: “embroidery”.

“Everyone is working to improve their craft, stitch by stitch,” said Fan Lu, a venture capital investor who invested in TikTok’s predecessor Musical.ly.

The seven-month-old Temu was the most downloaded app in US app stores during the first three weeks of March, according to market research firm Sensor Tower. It was followed by TikTok’s video editing partner app CapCut and TikTok itself. Fast fashion retailer Shein came fourth. Then came Facebook,

the only non-Chinese app in the top five.

Apple app store rankings of four popular Chinese apps, monthly

An illustration of how immersed American consumers are in an app ecosystem created by Chinese companies: Under the hashtags #temuhaul or #sheinhaul, Gen-Z shoppers have featured the outcome of their shopping sprees in TikTok videos with captions like “$ 50 worth of very RANDOM items on TEMU.”

The apps come from companies founded by a younger generation of tech entrepreneurs looking to grow globally as the Chinese market becomes saturated with firewalls. They’re backed by China’s vast pool of tech talent: Although Temu is a shopping site, more than half of its workforce are engineers focused on getting people to swipe and buy.

The organizational efficiency of Chinese internet companies is being overlooked by their US competitors, investors, engineers and analysts say. The Chinese companies are spending lavishly to push their apps in the US. They tap into China’s one billion internet users to test user preferences and optimize their AI models at home, then export the technology abroad.

“They’re completely killing it in markets where they constantly have to iterate products to meet user demands,” said Guo Yu, a former senior chief engineer at ByteDance Ltd., TikTok’s parent company, who joined the company between 2014 and 2020. worked.

TikTok, ByteDance, Murder, the parent company PDD Holdings Inc.,

and Shein did not respond to requests for comment.

The popularity of the apps has caught them in the crossfire of geopolitical tensions between the US and China, especially TikTok. The Biden administration has threatened a possible ban on the app if ByteDance does not sell its stake in TikTok, citing national security concerns. On Thursday, US lawmakers attacked TikTok’s Chief Executive Shou Zi Chew over Beijing’s potential influence over the app.

Beijing has opposed a TikTok sale, saying it would never force companies to illegally collect data from abroad. Meanwhile, a bill gaining momentum in Washington would result in a blanket ban on broad categories of Chinese tech, including American teens’ favorite apps, if passed.

Both Shein and Temu have tried to avoid the kind of scrutiny TikTok has been subjected to by trying to distance themselves from their Chinese roots. In 2021, Shein changed parent company from a Hong Kong registered company to a Singapore based entity. Temu is based in Boston and runs its US operations through a Delaware based company.

Shein, with a supply chain rooted in the southern Chinese province of Guangdong, was until recently the top-rated shopping app in the US, according to Sensor Tower. Temu arrived in the US just in time for last year’s holiday shopping season and racked up 13 million downloads in the fourth quarter, more than double that of Shein. Like Shein, Temu connects US bargain hunters with Chinese manufacturers and offers lower prices by cutting out the middleman.

The companies use data to drive every decision.

Former ByteDance engineers say ByteDance is one of the most aggressive in executing a strategy known in the industry as “horse racing,” where multiple teams are assigned to build the same product or feature with minor variations. Once it becomes clear which version performs better, the winning team gets more resources while the other versions are scrapped, these people say.

“People sometimes said that the company was heartless because no one had full control over a product design from start to finish,” said Mr. Guo.

ByteDance product managers and engineers also say the company has standardized protocols, systems and detailed metrics for assessing what users like, allowing it to roll out new updates within days. TikTok’s signature one-column scroll, for example, was a design it settled on after creating several UIs, including a two-column version similar to Instagram’s Explore tab, current and former ByteDance employees say.

Behind the relentless testing, iterations, and user feedback surveys, tech workers go on to work long hours, who can earn several additional months of salary in bonuses based on their performance and output. In particular, Temu’s parent PDD is known in the industry for its demanding hours.

PDD has said its investment in research and development is up 15% in 2022 from a year earlier, with a large portion of it going towards attracting talent.

PDD’s quarterly sales and marketing expenses often exceeded revenue between 2017 and 2020, when active buyers on Temu’s Chinese sister platform Pinduoduo more than tripled from 244.8 million buyers to 788.4 million. The company, which mainly makes money from advertising, made a profit for the first time after going public in the second quarter of 2021.

Temu, like Pinduoduo and Shein, is generously handing out coupons and other incentives for downloading his app, in hopes that users will engage the apps on their social networks. Marketing campaigns for Temu try to reach potential buyers through almost every channel, from Facebook banners to targeted emails. In February, Temu aired its first Super Bowl commercial.

Market players say that attempting to dominate advertising is standard practice in China to win over customers. “When Chinese companies see an opportunity, they are more willing to buy traffic at a much earlier stage and on a much larger scale than their American counterparts,” said Ivy Yang, a Chinese technology analyst who formerly worked for e-commerce giant Alibaba Group. Ltd.

Chinese companies’ attempts to expand internationally have not always met with resounding success. Alibaba’s international online marketplace, AliExpress, has been around for 13 years but is far from a household name in the US. The first product ByteDance tried to push abroad, TopBuzz, a news aggregator, was a flop. The company later liquidated the company.

For Temu, the current rapid growth is not only received with praise; it has generated consumer complaints about delayed shipping and poor product quality.

For now, Temu’s wired earbuds or dog leashes that sell for less than $2 are having a moment to grab the attention of inflation-weary Americans.

“The 2008 financial crisis spurred Chinese manufacturers to sell on Amazon,

said Mr. Fan, the venture capital investor. “It’s Temu’s time to shine now.”

Write to Shen Lu at shen.lu@wsj.com, Karen Hao at karen.hao@wsj.com, and Raffaele Huang at raffaele.huang@wsj.com