The overseas version of Douyin currently has more than 1 billion users worldwide, and the surge in popularity is making it a “money-making machine”. But that’s not a good thing for online advertising giants such as Google and Meta, with TikTok seen as the biggest threat to the duopoly in more than 20 years.
Revenue could reach $12 billion in 2022
Alyssa McKay worked part-time at a frozen yogurt shop in Portland, Ore., earning the minimum wage to pay for her college tuition. McKay, 22, now earns more than $100,000 a year on the short-video platform TikTok.
Brands such as Coach, Netflix and Amazon Prime Video have paid exorbitant fees to reach her 9 million followers. Most of these fans are teenagers who are reluctant to use Facebook. “TikTok has completely changed my life,” said McKay, who recently moved into her first apartment with her dachshund.
As the most downloaded app in 2021, TikTok has more than 1 billion global users, who consume unlimited short videos instantly sent by algorithms. While the platform has long helped creators like McKay get into the center of the so-called “attention economy,” the company is now starting to cash in on the surge in popularity.
TikTok earned nearly $4 billion in 2021, mostly from advertising, and is expected to hit $12 billion this year, according to market research firm eMarketer. That would be more than Twitter and Snap combined, with TikTok only starting advertising three years ago.
Pieter-Jan de Kroon, chief executive of online advertising firm Entravision MediaDonuts, said: “It’s definitely a threat to Google and Facebook. TikTok is starting to take a more appropriate audience size in the media budget. Proportion.”
Both Google and Facebook’s parent company Meta Platform is online advertising giants, and the duopoly is so powerful that it has faced antitrust complaints in the US, UK and EU. TikTok and its parent company ByteDance are emerging as the most serious threat since the two companies took over in more than 20 years.
TikTok has 1 billion monthly active users, still lower than Facebook (2.9 billion) and Instagram (2 billion). However, the appeal of TikTok is undeniable. According to mobile research firm Data.ai, the average TikTok US user spends about 29 hours a month on TikTok, more than Facebook (16 hours) and Instagram (8 hours) combined.
Diversified business income sources
It’s certainly not all luck. Since Zhang Yiming founded TikTok 10 years ago, its parent company, ByteDance, has been developing algorithms that recommend suitable short videos or news stories. The company has also launched Douyin, a platform that already has more than 600 million users and has a proven business model. ByteDance’s revenue last year reached an estimated $58 billion, growing faster than any other large social network.
TikTok is starting to show profit potential in countries like the US. The company now charges as much as $2.6 million a day for TopView ads, about four times what it was a year ago, research shows. TopView ads are the first content that pops up when a user opens an app. A 30-second “Super Bowl” ad costs about $6.5 million, a level that TikTok can charge per day.
ByteDance’s revenue is no longer limited to advertising. TikTok is diversifying into music distribution, game publishing and Twitch-style subscription services. It’s also making inroads into e-commerce, blurring the lines between social media and online shopping, which could challenge Amazon. TikTok now allows merchants to set up digital stores in countries such as the UK, Indonesia and Thailand. In these countries, millions of users purchase products directly within the app.
Jo Cronk, president of the marketing firm Whalar, said: “TikTok is like Gen Z TV . If you want your brand, products and services to get Gen Z attention, you have to turn to TikTok.” (Note: Generation Z is similar to China’s post-95+ post-00)
FB fully imitates to attract young users
Meta co-founder Mark Zuckerberg appears to be starting to worry. In February, Meta posted disastrous earnings that wiped $230 billion off its market value. In the post-earnings conference call, Zuckerberg mentioned TikTok by name at least five times. He noted that the top priority in dealing with the threat of TikTok is to spend more resources on Reels, which are basically TikTok copycats.
Avi Ben-Zvi, vice president of advertising agency Tinuiti, said: “It’s very telling, it’s the first time Zuckerberg has blamed a competitor several times in a conversation. Obviously, from TikTok Competition has become the biggest challenge for Meta.”
Meta allegedly hired political advisers to campaign against TikTok in the United States, including writing op-eds and letters directed at the app. Meta executives are now trying to quickly learn and apply lessons from TikTok’s success, hoping to help revive growth, especially by attracting a younger user base. Both Facebook and Instagram are aggressively pushing users to use Reels, heavily promoting videos in their feeds, even if people don’t choose to connect to the content.
TikTok’s path to monetization really started during the Donald Trump era. The 45th US president had threatened to ban the service, citing security risks. At the height of the conflict in 2020, ByteDance even agreed to sell a majority stake in TikTok to Oracle and Walmart and pledged to create 25,000 U.S. jobs.
Apparently, TikTok ultimately outlasted Trump, and the discounted sale plan was canceled. With ByteDance retaining 100% ownership, the company’s business model is starting to really gain ground. A key figure in the effort is Blake Chandlee, TikTok’s U.S.-based president of global business solutions.
Chandley, who worked at Facebook for 10 years, joined TikTok in 2019. He thinks traditional advertising is dying, and if businesses keep pouring money into the same TV shows or social networks, they will die with it. “When people think of a brand, TV is still the first thing that comes to mind,” Chandley said. “I think that’s wrong and we should disrupt traditional TV.”
Chandry leads a team of engineers, data analysts and sales reps scattered around the world who work with brands and influencers like McKay to create pop challenges, camera effects and immersive full-screen videos. Their motto is: “Don’t advertise, shoot TikTok videos.”
Advertisers are now making TikTok an important part of their media strategies and budgets. Ryan Detert, CEO of marketing firm influence, said: “Two years ago, before the political winds shifted, TikTok was really just in test mode. Now they’ve done the test, and we need to think about it. How much money to put into this platform.”
Richard Henne, the co-founder of clothing store Ivory Ella, said his company uses TikTok to attract Gen Z girls, a key target the company 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’s now trying to “reduce that number as quickly as possible because they’re clearly losing control of the market.”
TikTok has a bigger advantage over Meta, and Apple helps the former cement that advantage. Last year, shopping mode Apple updated its iPhone operating system, and users had to choose whether to have apps like Facebook track their activity when using other software on the phone. Most users decided not to let Meta track them, and Zuckerberg blamed the change for causing Meta to lose money.
Unique Gen Z ad placement
As it turns out, TikTok is less reliant on this kind of tracking data. Its artificial intelligence (AI) identifies users’ likes and dislikes primarily through activity on the platform, such as how long you’ve watched cat videos, skateboarding videos, or dance parodies. TikTok’s algorithms not only match users with content but also with ads.
Take Oanh Nguyen, 31, of Los Angeles, who has racked up 13 million followers on TikTok since the Covid-19 pandemic shut down her hair salon. Oanh Nguyen makes comedy sketches on her account “Moontellthat”. Procter & Gamble paid her $20,000 to have Oanh Nguyen and her boyfriend promote Pantene shampoo in a 30-second video that was viewed 5 million times.
This is the ad placement model for Gen Z. TikTok set up a $200 million fund in 2020 to encourage creators to create original content and has pledged to expand the fund’s pool to $1 billion over the next three years. YouTube, Instagram and Snapchat followed suit. Every major social network is now experimenting with short videos on their main platforms, taking the competition to a super high level. 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, which is TikTok’s core appeal.
Although Meta’s moves are risky, they are deemed necessary because Facebook, its most profitable company, is suffering from an aging user population. Meta attributes the lower-than-expected demand from advertisers to external factors such as inflation, tight supply and the Ukraine conflict, but those factors don’t appear to have affected TikTok as much as it just turned on the money-making machine. To fund Zuckerberg’s futuristic immersive internet “Metaverse,” Meta needs to continue to experience strong revenue growth. Zuckerberg acknowledged that building the Metaverse would cost “a lot” of money in the short term.
For creators like Maria Luisa Van Zwieten, the intense competition between platforms has benefited them a lot. In good times, the 29-year-old Dutch cosplayer makes $10,000 a month through brand invitations to make TikTok videos. Now, she can make the same amount of money by posting the same video on Reels. “Even though I have less work, I have doubled my income, so I think everything is fine,” she said.
Entering e-commerce makes TikTok a game-changer?
Chandley and his team are continuing to experiment. In May, TikTok began allowing top creators to earn a share of the revenue from ads in their video content, a move that mimicked YouTube’s business model. TikTok has also started selling TopView ads by metrics like clicks and impressions, rather than just one-day bundles, giving customers more targeting and budgeting options accustomed to options similar to Facebook.
The marketing and advertising agency says Meta still offers a better product when it comes to media buys, i.e. those great ad placements that translate directly into purchases or app installs. Fabian Ouwehand, the founder of Munich-based advertising agency Many Creators, said many companies simply don’t accept the idea of replacing ads with TikTok “because a lot of people still don’t understand how to make TikTok videos”.
ByteDance’s Zhang Yiming called the fusion of entertainment and shopping “the next big breakthrough.” Back in 2020, the first year Douyin offered shopping, it completed $26 billion in e-commerce transactions. The business has tripled in size in the past 12 months. The idea is to complete as many purchase steps as possible with an in-app store, customer support, and built-in payment capabilities.
TikTok has started working with Shopify to let merchants embed their web stores into videos on the platform. These transactions are handled by third-party sites, similar to Facebook Shops. But recently, TikTok has taken a closer approach: Since mid-2021, TikTok has launched in-app stores in countries including the UK, Indonesia, Singapore and Thailand, offering a smoother experience.
“The process of buying something on TikTok is as simple as a click of a mouse,” said Fauza Istighfareva, manager of digital agency Leverate Media in the Indonesian capital, Jakarta.
TikTok plans to increase its total e-commerce merchandise volume to $2 billion this year and $23 billion by 2023, according to people close to ByteDance. Indonesia, one of the most populous markets, will play a major role in TikTok achieving its desired goals.
“Douyin is usually two to three years ahead of TikTok in terms of monetization, including in e-commerce. TikTok’s foray into e-commerce may make it an important game-changer.”
All of this gave ByteDance a huge success with its initial public offering (IPO) a year ago. It is reported that in a private transaction last year, the company was valued at more than $350 billion, surpassing SpaceX and Stripe to become the most valuable startup in the world.
ByteDance has turned more of its attention to TikTok as uncertainty mounts. The company poached top executive Zhou Shouzhi from mobile phone maker Xiaomi last year and promoted him to CEO of TikTok. Other key executives switching from ByteDance to Douyin include Zhu Wenjia, the coding guru behind Douyin’s algorithm, and Kang Zeyu, head of Douyin’s live-streaming commerce business. There has also been speculation that ByteDance may consider spinning off TikTok to make it a non-Chinese company.
These behind-the-scenes scenes are largely invisible to TikTok stars. Creators like McKay are more focused on how to make the best short videos, saying: “Even if my acting career takes off, I’ll still keep shooting short videos. I just love sharing my life, so I don’t care. will do it.”
If you like our news and you want to be the first to get notifications of the latest news, then follow us on Twitter and Facebook page and join our Telegram channel. Also, you can follow us on Google News for regular updates.