Zhihu vs. Silicon Valley: Lessons from China's Q&A Platform

Zhihu's US Market Debut and Growth

The prominent Chinese question and answer platform, Zhihu, commenced trading on the New York Stock Exchange at $9.50 per share.

This initial price represents the lower boundary of its previously established IPO range, resulting in a company valuation of approximately $5.3 billion.

IPO Details and Company Valuation

The total capital raised through Zhihu’s IPO and associated private placements amounts to $772.5 million.

This figure is contingent upon underwriters not exercising their option to acquire additional American Depositary Shares (ADSs).

Zhihu’s substantial public offering is anticipated to attract increased attention from Silicon Valley leaders and investors.

The company, established a decade ago, was initially perceived as the Chinese equivalent of Quora.

Zhihu's Evolution Beyond Q&A

While question and answer functionality remains central to Zhihu – its name translates to “do you know” in classical Chinese – the platform has significantly expanded its services.

It has evolved into a more comprehensive platform than its American counterpart, founded two years prior.

Comparison with Quora

Kai-Fu Lee, a seed investor in Zhihu through Sinovation Ventures, highlighted the differences between the two platforms.

“Quora, in my opinion, remains largely unchanged from its inception ten years ago,” Lee stated.

He further explained that Zhihu is actively developing into a multifaceted super app focused on knowledge sharing.

Lee, an expert in artificial intelligence and a frequent Zhihu user, contrasted this with Quora’s continued focus as a question and answer website with an accompanying app.

Diversification of Services

Beyond its core Q&A features, Zhihu has explored various avenues for knowledge dissemination.

These include premium content offerings, live video and audio streams, and online educational resources.

Revenue Streams and Monetization

Currently, Zhihu derives approximately 70-80% of its revenue from advertising, as detailed in its prospectus.

However, revenue from membership subscriptions and e-commerce is steadily increasing.

This indicates a successful effort to diversify its monetization strategies.

Chinese Startups and Reinvention

Lee observed that Chinese startups demonstrate a greater willingness to “reinvent themselves and even disrupt their own established successes.”

This proactive approach distinguishes them from many American companies.

Chinese companies are driven by the ambition to create super apps, anticipating challenges from competitors.

Cultural Differences in Entrepreneurship

Lee, formerly the president of Google China, noted that American entrepreneurs often prioritize building focused, high-quality products.

They tend to collaborate with other companies and remain within their areas of expertise.

“I believe Silicon Valley and U.S. entrepreneurs should look to China for innovative ideas and inspiration,” Lee concluded.

Conflict of Interest on Zhihu

Between 2019 and 2020, Zhihu experienced growth in its monthly active users, rising from 48 million to 68.5 million. This demonstrates the platform’s expansion beyond its initial user base of Chinese technology professionals, investors, and academics.

Currently, a diverse range of individuals utilizes Zhihu, including new mothers seeking postnatal advice and Foxconn employees sharing their experiences.

Zhihu’s revenue saw a substantial increase, moving from 670.5 million yuan ($102 million) in 2019 to 1.4 billion yuan in 2020. Simultaneously, its net loss decreased from 1 billion yuan to 517.6 million yuan.

Initially, it might appear that increasing commercialization clashes with Zhihu’s foundational principle of open user collaboration. Many contributors participate for enjoyment rather than financial gain.

However, Zhihu has always operated as a for-profit entity and requires revenue generation to sustain itself.

Balancing a product’s commercial objectives with user interests is consistently challenging. Careful consideration is crucial when determining the types of advertisements or sponsored content permitted on the platform.

While exercising restraint may result in lower advertising revenue, the 2016 advertising scandal involving Baidu, a major Chinese search engine, highlighted the potential for rapid erosion of user trust.

Conversely, well-integrated and ethically responsible advertisements can yield increased returns for both advertisers and the platform itself.

Innovation and User Reception

Zhihu has recently focused on incorporating short-form videos, a format gaining popularity among Chinese internet users due to increased affordability and the influence of platforms like Douyin and Kuaishou.

However, some users contend that the nature of short videos leans towards entertainment and disrupts the more serious, text-based environment of Zhihu.

Shareholder Influence and Independence

Zhihu’s shareholder base includes prominent “super apps” – Tencent, Baidu, and Kuaishou – each offering a wide array of services.

These companies maintain traffic agreements with Zhihu, such as the inclusion of Zhihu content within WeChat’s search results.

While partnerships with large corporations can stimulate user growth, over-reliance on external entities can hinder a startup’s progress.

This dependence may necessitate premature relinquishment of equity and the management of potentially conflicting interests among multiple partners.

Lee, a representative of Zhihu, refrained from commenting on specific partner relationships but affirmed that the company does not currently exhibit an “overreliance” on them.

He further stated that Zhihu maintains “natural working business relationships” with its partners.

“This also reflects the dedication and ambition of the Zhihu team to preserve its independence through fostering broader connections,” Lee explained.