What Happened To Musical.ly? Why Was It Shut Down?

Executive Summary:

Musical.ly is a social media platform that enables its users to create, share, and discover video-based content.

Musical.ly was shut down because its owner, ByteDance, wanted to merge its technology and userbase into another app.

What Is Musical.ly?

Musical.ly is a social media platform that enables its users to create, share, and discover video-based content.

The main draw of the app is its utilization of music. More specifically, the content users create normally includes lip-syncing to other music. Members can pick from thousands of different songs.

To that extent, Musical.ly itself puts a lot of emphasis on promoting content. Apart from category sections, it also highlights trending videos and has dedicated song charts as well as a leader board.  

On top of that, Musical.ly provides various video editing features such as cropping, adding filters, or enhancing colours, among others.

The social aspect of the platform comes from being able to follow other accounts. Users can like, comment, as well as share content and even directly message other members.

Content can be shared within the platform or to other platforms such as Instagram or Facebook. There, a video will include a Musical.ly watermark.

Musical.ly, in order to ensure authenticity, manually verifies users. Every verified member account includes a crown emoji.

The Musical.ly platform can only be accessed by downloading its mobile app, which is available on either Android or iOS devices.

Musical.ly was shut down in mid-2018 after being sold to ByteDance. How it came to be, who is behind it, as well as the reasons for its closure will be covered in the next few chapters.

What Happened To Musical.ly?

Musical.ly, formerly headquartered in Shanghai, China, was founded in 2014 by Alex Zhu and Luyu Yang.

Zhu himself grew up in China where he attended Zhejiang University, one of the country’s most prestigious institutions. In 2000, he graduated with a bachelor’s degree in civil engineering.

Not long after, he entered the world of tech, first by joining WebEx (2002) and then Germany software giant SAP (2004).

He would ultimately stay on at SAP for the coming five years and work in various design-related roles in both China as well as the United States.

Zhu then joined digital solutions provider eBaoTech but eventually decided to return to SAP. Back at SAP, Zhu took a particular interest in education while earning himself the title of “education futurist.”

At the turn of the decade, massive open online courses, or MOOCs, were picking up steam and attracting millions in funding. However, many people taking those courses would often end up not finishing them.

Zhu figured that there must be a better way to get people to learn and actually complete courses. He, therefore, decided to team up with Luyu Yang, a serial entrepreneur himself who Zhu met at eBaoTech.   

Zhu’s idea was to create short-form video platform, called Cicada, that would include educational content that is between three to five minutes long. The founders, to get the business off the ground, raised $250,000 from China Rock Capital Management.

Unfortunately, the idea never really struck a chord with both its intended audience as well as educators. Content creators struggled with the content format and complained that creating a video was simply too long.

After his failure, Zhu returned to SAP to do some soul searching – and ultimately find the inspiration for his next endeavour.

During one of his daily commutes to SAP’s San Francisco office (Zhu had been relocated to the United States for his second stint), he saw young people recording themselves using their front-facing camera while lip-syncing to the music they played.

That was when Zhu realized he could combine music, videos, and social networking to attract the early-teen demographic in one single platform.

While the short-form video format was still in its nascent stages, others had already given him enough of a proof that it could potentially work. Most notably, Vine had managed to amass tens of millions of users months after being launched.

With 8 percent of the initial seed funding left, Zhu turned to his team, which was mostly based in China, to get creative. And that’s exactly what they did. Within 30 days, they managed to create what is now known as Musical.ly and subsequently release it in July 2014.

Although a few thousand people downloaded the app within its first week, Musical.ly struggled to take off. China, in particular, proved to be a tough market due to vastly different browsing patterns. The Chinese market is dominated by so-called super apps like WeChat, which offer anything from food delivery to booking hotels.

Co-founder Zhu, in an interview with the New York Times, furthermore thought that Chinese youth simply wasn’t aligning well with the app’s purpose.

“Teenagers in the U.S. are a golden audience,” he emphasized in the interview. “If you look at China, the teenage culture doesn’t exist — the teens are super busy in school studying for tests, so they don’t have the time and luxury to play social media apps.”

To make matters worse, the company began to run out of cash. However, scarcity often leads to added creativity. In the case of Musical.ly, the team made a few key changes that completely altered its growth trajectory.

One key realization that the team had was the Musical.ly logo (known as the watermark) was automatically cropped out every time a user shared his or her content on other social platforms. As a result, they repositioned the logo, vastly increasing the reach that each video had. Flipagram, which ironically has the same owner as Musical.ly now (more on that later), utilized a similar strategy to grow to millions of users.

Another key to its success was to pivot to lip syncing type of content. Zhu noticed that Musical.ly saw an uptick in downloads every Thursday. He soon discovered that this trend was a direct result of the Lip Sync Battle TV show.

After the show, people would search the app store for tools to create similar videos, which more often than not prompted them to Musical.ly. The team decided to double down on that use case by heavily promoting lip syncing related features within the app.

Additionally, the team revamped the app’s home screen and made the whole platform easier to navigate. Usage, as a result, literally exploded. By the summer of 2015, a year after launching, Musical.ly hit the number one spot in the App Store.

The exponential growth was rewarded with another round of funding. In August, Musical.ly raised a whopping $16.6 million in funding from prestigious investors such as Greylock, GGV Capital, and others.

Musical.ly’s rampant growth also brought on other competitors. Startups like Dubsmash were riding the lip-syncing concept to millions of users themselves. Over the coming months, the platform simply by word of mouth and due to the viral videos that users would post.

Some of Musical.ly’s creators, such as Ariel Martin (known as Baby Ariel), even reached international fame and amassed millions of followers in the process. By the end of 2015, Musical.ly had grown to more than 40 million users.

The exponential growth allowed the team to raise yet another round of funding. In May 2016, Musical.ly announced another round of $133.5 million, valuing the company at more than $550 million.

That same month, it launched a second app called live.ly, which enabled users to launch livestreams. The app would compete against the likes of Facebook Live and Periscope, which had been acquired by Twitter years prior.

Raising funding from the world’s most prominent investors, furthermore, aided the talks that the team had with potential partners. In June, while at more than 80 million registered members now, Musical.ly announced a licensing deal with Warner Music, allowing content creators to legally use the music in their videos. Another content distribution deal with MTV was signed just weeks later.

The platform’s focus on teenagers would cause some problems as well. More and more examples emerged of children below the age of 13 using the app.

“We could collect ages, but those kids will say anyway they are 13 so that doesn’t change the conversation,” CEO and co-founder Zhu told TechCrunch’s Josh Constine during its Disrupt event in London. “We have to make sure the environment is safe.”

Its rather lax stance on age monitoring led to some hefty public backlash – all while user numbers kept rising. By the end of 2016, Musical.ly had 130 million registered members of which 40 million were logging in every month.

Its continuous success prompted the company to continue experimenting with new video-related concepts. In February 2017, it launched Ping Pong, a video group chat app that mimicked the likes of Houseparty.

Two months later, Musical.ly entered a partnership with Apple Music, which began to power its music catalogue. Now that its registered member base had grown to over 200 million, it pivoted away from lip-syncing only to surfacing any form of video content.

Musical.ly, to support the tactical shift, inked a deal with Viacom, NBCU, and Hearst to create short-form and original content on its platform. Examples included Nick Cannon’s Wild ‘N Out comedy show or Greatest Party Story Ever.

Additionally, the team unveiled a major redesign of the app in August 2017 with an increased emphasis on personalization and recommendations. This included dedicated ‘Featured’ and ‘What To Watch Next’ sections, among others.

It, however, was still a major surprise when, in November, Musical.ly announced that it had just been acquired by China’s Toutiao, a sub-organization of technology giant ByteDance, for a whopping $800 million. Nine months prior, Toutiao had just purchased Flipagram for an undisclosed amount.

Business was first continued as usual, though. A month after the acquisition, Musical.ly unveiled a $50 million creator fund which included things such as college scholarships or getting influencers in touch with big brands. Lack of content creator support was one of the main reasons for the failure of Vine.

Over the coming months, Musical.ly was primarily surrounded with speculation about what Toutiao planned to do with it. Some speculated that it could enter the live trivia space by creating a knockoff version of HQ Trivia (which, ironically, was created by the founders of Vine).

Competition also continued to ramp up. Facebook, for example, began to test lip syncing features and, in November, would launch a competing product called Lasso. Musical.ly, in the meantime, merged its standalone Live.ly app into its core app. It had contractually agreed to do that as part of its acquisition.

Nevertheless, it still came as a big surprise when, on August 2nd, 2018, ByteDance announced that it would merge Musical.ly into another app it had launched: TikTok. The change was made immediately, causing some Musical.ly’s influencer to lash out at the Chinese owner for a lack of preparation.

Luckily, the merger went as smooth as it could get. Within a few months, TikTok had already surpassed the likes of Facebook, Instagram, or Snapchat. By the end of 2018, it became the most-downloaded app in the United States – and never looked back.

Co-founders Yang and Zhu have both stayed on at ByteDance to help it explore further strategic opportunities.

Why Did Musical.ly Shut Down?

Musical.ly was shut down because its owner, ByteDance, wanted to port its technology and userbase into another app it owned.

As previously stated, the joint app that ByteDance ended up creating is now known as TikTok, one of the world’s most popular social networks.

ByteDance had originally launched a Chinese version in September 2016 called Douyin, which was able to amass millions of users in its home market. However, ByteDance struggled to establish the app in foreign markets.

Musical.ly, despite being headquartered in China, had achieved the opposite. Its app struck a chord with American youth while failing to the same in China.

Just nine months prior, ByteDance had made a similar acquisition when it purchased Flipagram, which was also known for video-based content, for an undisclosed amount.

Musical.ly as well as Flipagram, which both boasted hundreds of millions of registered members at the time of acquisition, were therefore able to give ByteDance a significant head start.  

Additionally, both companies had been able to negotiate licensing deals with all four major labels. As we know today, creating content based on (viral) music became one of the cornerstones of TikTok’s success strategy.

Given that ByteDance has billions on its balance sheet, it could afford to pay a hefty price to acquire those users. Over the coming months, it spent even more to advertise TikTok and establish it as one of the world’s most popular social media platforms.

Who Owns Musical.ly?

Musical.ly is currently owned by ByteDance. In November 2017, Toutiao, a sub-organization of ByteDance, paid $800 million to acquire Musical.ly.

The purchase price, at the time, was believed to be ranging between $800 million to even $1 billion. ByteDance then merged Musical.ly into its existing TikTok app.

These days, investors peg the value of TikTok at around $50 billion (ByteDance itself is valued at $425 billion, for reference).

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.