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Showdown brewing: With lessons learned in China, a rival is taking on Facebook, Snapchat and YouTube

Chinese live-streaming company YY has been profiting on a revenue model that Silicon Valley once lambasted, but now its global spin-off is aiming to take on U.S. rivals live Facebook, Snapchat, YouTube and Amazon's Twitch.

YY, founded in 2005, is a major Chinese-language social media platform that boasts more than 122 million monthly active users. That's not yet a world-beating number — for comparison, Facebook's Instagram reportedly has more than 700 million monthly active users — but company founder David Li says he's aiming for the top.

"When we pitched our model to American investors a few years ago, all of them disagreed," Li told CNBC in Mandarin. "They think that advertisement is the best revenue model and still refuse to admit that there's actually a better model besides that."

Started as an online gaming web portal, YY has transformed itself into an entertainment platform featuring music, live game broadcasting, online dating and education. But what makes YY a leading player in China is its live-streaming feature, which helped set off a sensation in the world's second largest economy.

On paper, the platform naturally competes with other live-video providers like Facebook, YouTube, Twitch and Twitter's Periscope, but its robust social element has also led to comparisons with apps less focused on live like Instagram and Snapchat.

YY's live-streaming app stands out because of its virtual-gifting function: To show their appreciation, audience members can purchase and send pictographs to broadcasters that can be converted into real-world cash. So, for broadcasting activities such as singing, dancing or even eating a pizza, a live-streamer can earn cash-convertible flowers, hearts or Lamborghinis.

That may seem like a small feature, but YY's revenue is mostly derived from the sale of virtual gifts: The company takes a cut of the proceeds, and that's fueled rapid growth for the past few years.

The company said its 2016 net revenue increased by 39 percent year-over-year to $1.18 billion, while the company's net profit reached $219 million for a 47.5 percent on-year jump.

Statistics from BigOne Lab, a Chinese alternative data firm, show that the top 10,000 active streamers tracked by the firm contributed approximately 44 percent of YY's second-quarter revenue guidance for 2017.

"[The 10,000 streamers] collectively generated around RMB 12 million (about $1.78 million) in revenue per day from virtual gifts through May and June 2017," Mu Chen, CEO of BigOne Lab, wrote to CNBC in a note.

The data firm also found that the top...