Zhang Yiming
TikTok’s revenue-generating potential may be seen in the transformation of an ordinary user. Alyssa McKay used to work part-time at a frozen yogurt shop in Portland, Ore., to pay her college tuition on minimum wage. Now, the 22-year-old makes more than $100,000 a year on TikTok. Brands including fashion brand Coach, streaming video giant Netflix and Amazon Prime Video have invested heavily to reach her nine million followers. McKay’s fans are mostly teens or girls nearing puberty who simply don’t want to be on Facebook.
“TikTok has absolutely completely changed my life,” said McKay, who recently moved into her first apartment with her dog.
McKay is now a TikTok influencer
As the most downloaded app in 2021, TikTok has more than 1 billion users worldwide. Its algorithms are constantly pushing users short videos that they might be interested in. While the platform has long helped creators like McKay get into the center of the “attention economy,” the company is only now starting to cash in on that popularity.
Annual income will triple
Data from market research firm eMarketer shows that TikTok will generate nearly $4 billion in revenue in 2021, most of which comes from advertising. But this year, TikTok revenue is expected to triple to $12 billion, more than Twitter and Snap combined. It was only three years ago that TikTok started accepting ads on the platform.
“It absolutely threatens Google and Facebook,” said Pieter-Jan de Kroon, CEO of online advertising firm Entravision MediaDonuts. “TikTok is starting to take a proportion of the media budget that is more in line with its audience size.”
At present, Google and Facebook parent company Meta are the two giants in the online advertising field and have formed a duopoly competition pattern. Their monopoly is so strong that they have been hit with antitrust lawsuits in the US, UK and EU. The two companies have cemented their dominance in the advertising market over the past two decades, but TikTok and its parent company ByteDance are emerging as the most serious threat to that dominance.
TikTok is America’s most addictive social app
Despite already having 1 billion monthly active users, TikTok is still smaller than Meta’s two social platforms, Facebook (2.9 billion) and Instagram (2 billion). But TikTok’s content has proven to be particularly engaging. The average U.S. user currently spends about 29 hours a month on TikTok, more than Facebook (16 hours) and Instagram (8 hours) combined, according to mobile research firm Data.ai. Scott Galloway, a professor at New York University’s Stern School of Business, likens the level of addiction to TikTok to “opium.”
Learn from the Douyin business model
TikTok’s success has a track record. Since Zhang Yiming founded ByteDance a decade ago, the company has been developing algorithm-driven apps designed to recommend suitable video clips or news stories to users. ByteDance, which has launched TikTok’s sister app Douyin in China, now has more than 600 million users and has a tried-and-true business model. ByteDance’s revenue last year was expected to hit $58 billion, growing faster than any other major social network.
TikTok is beginning to show its earning potential in countries such as the United States. TikTok is currently charging as much as $2.6 million a day for TopView super-first ads, about four times what it was a year ago, according to a filing. The TopView ad is the first ad that pops up in the feed when the user opens the app. A 30-second Super Bowl ad costs about $6.5 million, but TikTok can charge for that every day.
TikTok will catch up with YouTube in ad revenue by 2024
ByteDance has also applied its business model beyond advertising. TikTok is now expanding into music distribution, game distribution and subscriptions like Twitch, a live-streaming platform, and its gradual foray into e-commerce, blurring the lines between social media and online shopping, could pose a challenge to Amazon.com Inc. TikTok now lets merchants open digital stores in countries like the UK, Indonesia and Thailand, allowing millions of users to buy products directly within the app without any traditional e-commerce involvement.
“TikTok is for Gen Ztelevision,” said Jo Cronk, president of the marketing firm Whalar. “If you want your brand, products and services to get the attention of Gen Z, go straight to TikTok, there’s no room for negotiation right now. “
Zuckerberg’s malicious attack
Zuckerberg was starting to get a little worried. He first attacked TikTok’s censorship in 2019, and later he told the U.S. Congress that hindering American innovation would only help Chinese companies like TikTok. He may have said this to undercut the antitrust scrutiny Facebook faced at the time.
In February, Meta reported disastrous earnings that wiped $230 billion off its market value. On the conference call that followed, Zuckerberg mentioned TikTok by name at least five times. He said the top priority for restoring the company’s performance is to invest more resources in short-video app Reels. Reels is basically a knock-off of TikTok.
“It’s pretty telling. Zuckerberg called out a competitor multiple times on a conference call for the first time,” said Avi Ben-Zvi, vice president of advertising agency Tinuiti, “from TikTok. Competition was his number one challenge.”
Zuckerberg
Meta is stepping up its fight back, and the company allegedly hired political advisers to run a campaign against TikTok in the U.S., including op-eds and letters against TikTok in regional news outlets. For example, Meta paid a company to spread rumors to local media that TikTok had launched a “teacher challenge”, even though no such thing actually existed.
Meta executives are now trying to quickly learn from and capitalize on TikTok’s success in hopes of reinvigorating their growth, especially among younger user bases. Both Facebook and Instagram are aggressively pushing users to use Reels, heavily promoting videos in their feeds, even when people don’t click on relevant content.
The road to commercialization begins with Trump
The road to commercialization of TikTok really started during the Trump administration. The 45th U.S. president has threatened to ban TikTok, saying it poses a security risk. At the height of the conflict in 2020, ByteDance agreed to sell a majority stake in TikTok to Oracle Corp and Walmart Inc and pledged to create 25,000 U.S. jobs.
In the end, TikTok won the battle against Trump, scrapping the fire sale. With ByteDance retaining 100% ownership, TikTok’s business model is starting to make real progress. Leading the effort is Blake Chandlee, TikTok’s Texas-based president of global business solutions.
Trump wanted to ban TikTok
Chandley, who worked at Facebook for 10 years, switched to TikTok in 2019. He believes traditional advertising is dying, and if businesses keep pouring money into the same old TV shows or social networks, they will die.
“When people think of brands, they still think of TV. I think that’s wrong,” Chandley said in an interview at the Cannes Lions International Festival of Creativity, a five-day advertising festival, “We should Consciously subverting TV.”
Chandley’s team, which includes engineers, data analysts and sales reps in thousands of cities from Shanghai and Austin to Warsaw, works with brands and influencers like McKay to create challenges that go viral online. Funny camera effects and immersive full-screen video. “Don’t advertise, do TikTok videos.” That’s their motto.
Advertisers are now making TikTok a necessary part of their media strategies and budgets. “Two years ago, before the political winds changed, they were really in beta mode,” said Ryan Detert, CEO of influencer marketing firm influence. It’s how much money we should put into this platform.”
Richard Henne, co-founder of clothing store Ivory Ella, said his company uses TikTok to reach middle-school and Gen Z girls, key target customers they can’t get from the old-fashioned social network. While the company already devotes a quarter of its social marketing budget to Facebook and Instagram, he is now trying to “reduce that number as quickly as possible, as they (referring to Facebook) are clearly losing control of the market. “.
apple help
With Apple’s help, TikTok has cemented its dominance over Meta. Last year, Apple updatediPhoneoperating system. When users use other software on their iPhones, users must choose whether to have apps like Facebook track their activities, and most users choose not to have apps track them. Zuckerberg blamed the adjustment for causing the company to get into financial trouble, as it reported in February.
In contrast, TikTok is less reliant on this kind of data tracking. Its AI algorithms identify user preferences primarily through activity on the platform, such as how long you watch cat videos, skate videos or lip-synching. TikTok’s algorithms not only match users with content, but also with ads.
Take Oanh Nguyen, 31, of Los Angeles, who has built a 13 million TikTok fan base since Covid-19 shut down her hair salon, making short comedy videos on her account “Moontellthat” . In one of its sponsored videos, she hastily washed her hair and dressed for a big family gathering, only to find her boyfriend teasing her. According to her, Procter & Gamble paid them $20,000 to feature Pantene shampoo in a 30-second video that was viewed 5 million times.
Apple privacy tweaks prevent Facebook from tracking users
It’s a product placement for Gen Z that’s been around for decades, like the Nike sneaker ad in the movie Back to the Future, the FedEx ad in Desert Island. TikTok set up a $200 million fund in 2020 to provide financial backing to new influencers and pledged to expand the U.S. pool to $1 billion over the next three years.
YouTube, Instagram and Snapchat followed suit. These big social networks are now experimenting with short videos on their main platforms, driving the competition to a fever pitch. At Meta, engineers are rewriting Facebook and Instagram’s algorithms to surprise and delight people with videos they didn’t know they wanted to watch, the core appeal of TikTok.
These measures taken by Meta are risky but considered necessary. Meta’s most profitable platform, Facebook, is suffering from an aging user population and lower-than-expected advertiser demand. Meta believes that the lower-than-expected demand from advertisers is due to pressures such as inflation, tight supply and the war in Ukraine, but that doesn’t seem to have affected TikTok much as it has just turned on its money-making machine. To fund Zuckerberg’s Metaverse, Meta needs to continue to experience strong revenue growth. Zuckerberg said it was an effort that would lose “a lot” of money in the short term.
More ad sharing attempts
For creators like Maria Luisa Van Zwieten, this tough competition is a chance to make a fortune. The 29-year-old Dutch cosplayer makes TikTok videos for brands and earns $10,000 a month in good times. Now, she can post the same video on Reels and make the same amount of money.
“My workload was reduced, but my income was doubled, so I thought everything was fine,” Zwitten said.
Chandley and his team are still experimenting. In May, TikTok began allowing top creators to earn a share of revenue from ads between their video content, a move that mimicked YouTube’s longstanding share program with vloggers. TikTok has also started selling TopView ads by clicks and impressions, moving away from just one-day bundling, a move to give customers more targeting and budgeting options who have adapted to Facebook-like ad options.
Marketers and ad agencies say Meta still offers a better product in media shopping, a good and old ad placement that translates directly into purchases or app installs. Fabian Ouwehand, founder of Munich-based Many Creators, said many companies just don’t accept the idea of replacing ads with TikTok.
“I’m still talking to big companies about this, and they say, ‘Yeah, but we want to create something like a TV ad.’ And then the TikTok team is always frustrated,” Ovihand said, “because a lot of people still don’t Know how to make TikTok videos.” He is now the head of the company’s social e-commerce division after German home shopping network HSE bought his company.
The next big breakthrough: e-commerce
Zhang Yiming has said that the fusion of entertainment and shopping is his “next big breakthrough”. In 2020, in its first year of offering shopping, Douyin completed $26 billion in e-commerce transactions. The business has tripled in size in the past 12 months. Douyin’s philosophy is to take care of as many purchase steps as possible with an in-app store, customer support, and built-in payment capabilities.
TikTok has partnered with Canadian e-commerce platform Shopify to let merchants embed their web stores into videos on the platform. These transactions are handled by third-party websites, similar to Facebook Shops. But more recently, TikTok has gone one step further to imitate Douyin. Since mid-2021, it has launched in-app stores in countries including the UK, Indonesia, Singapore and Thailand, offering a smoother shopping experience.
“The shopping process is very, very simple, like one click,” said Fauza Istighfareva, manager of digital agency Leverate Media in Jakarta.
TikTok plans to increase its total e-commerce merchandise transaction value to $2 billion this year and another $23 billion by 2023, according to people familiar with the matter. Among them, Indonesia, one of the most populous markets, will account for a large portion of this target.
“In terms of commercialization, Douyin is usually two to three years ahead of TikTok, including in e-commerce,” said Zheng Yi, a partner at All-Things Capital, a Chinese venture capital firm that invests in technology. He added that TikTok’s foray into e-commerce “could be a major game-changing event.”
All of this puts ByteDance on track for a blockbuster initial public offering (IPO), a prospect it held until about a year ago. ByteDance was valued at more than $350 billion in private transactions last year, surpassing SpaceX and Stripe as the world’s most valuable startup. But that bright outlook has been hit hard by a global rout in tech stocks and regulatory measures.
US risk
Politics remains a huge risk in the United States. While the Biden administration has abandoned efforts to ban TikTok, China hawks still see it as a potential security threat. News aggregation website Buzzfeed reported that employees of ByteDance’s Chinese company also repeatedly accessed the non-public data of TikTok users in the United States in January this year. On the same day that this story was published, TikTok announced that “all U.S. user traffic” had been moved to Oracle servers in Texas.
ByteDance has now turned more attention to TikTok. Last year, ByteDanceMilletThe group poached Zhou Shouzi and promoted him as TikTok CEO. In addition, other key executives transferred from ByteDance to TikTok include Zhu Wenjia, the coding wizard behind the Douyin algorithm, and Kang Zeyu, the head of Douyin’s live broadcast business business. Twitter said that ByteDance may consider spinning off TikTok to make it a non-Chinese company, despite the huge political risk involved in such a move.
Influencers on TikTok basically don’t care. Creators like McKay are more concerned not with who is calling the shots in Beijing or Washington, but about making a proper short video that goes viral. After graduating this summer, she began experimenting with acting and starred in a film called “Cake (Town),” a “modern Rust Belt version of Romeo and Juliet.”
“I’m still going to keep making short videos even as my acting career takes off,” McKay said. “I just love sharing my life, so I’ll do it no matter what.”
