Analysis of TikTok’s popularity and business model

If you ask any teenager how do they spend their free time? TikTok definitely makes a top place in their list! Currently the talk of the day, TikTok is basically a video sharing app that allows its users to easily create small singing, acting or dubbed videos with their amazing editing features.

Today, TikTok is one of the most prominent valuable startups. Available in over 150 markets and in 75 languages, TikTok (together with Douyin) recently crossed the one billion mark for worldwide installs on the App Store and Google Play, excluding Android, installs in China. Here are some other interesting facts to warm you up before we further go into details about TikTok:

  • On average, users spend 52 minutes daily on TikTok.
  • 83% of TikTok users have posted a video.
  • A user opens the TikTok app 8 times per day.
  • American users have spent over $23.1 Million on TikTok’s virtual currency (more on this later) since 2018.

It’s impressive, right?

Now, let us take a closer look at how TikTok: How it came into existence? Why is it so popular? How does it make money? And so forth. 

But before, I get to those questions let me first describe to you in little technical terms what TikTok really is? 

What is TikTok?

You’ve got the simple definition above, let me use more technical terms here; It might be defined as a creative social media platform primarily driven by short-form video content (about 15 seconds long). It launches challenges of various types to tap into the creativity of its users and generate engaging content.

These challenges are accompanied by compelling music tracks embellished via effects and filters, and powered by AI algorithms that optimize content creation, curation, and recommendation.

In other words, it is a mixture of Instagram, Facebook, and YouTube powered by artificial intelligence.

How it came into existence?

I’m sure you’ll know at least this by now that it comes from China. But what’s really interesting here is that it is not owned by one of the Chinese tech giants. Although tech giants such as Alibaba, Baidu, and so forth have done massive investments in video platforms, none of them dominates this area.

ByteDance (a Beijing-based tech company traditionally focused on news, valued at $75 billion as of November 2018 and is considered to be one of the most valuable unicorns in the world) launched Douyin (Chinese sister app of TikTok) in 2016 followed by TikTok in 2017, both the apps use the same software but run on separate servers to comply with Chinese censorship laws. Toutiao (Bytedance’s news app), uses advanced AI algorithms that learn user preferences and then provides customized news feeds. TikTok uses the same algorithms to provide relevant video feeds to its users.

Bytedance created Douyin, as a rival to Musical.ly, a social media app launched in 2014. The main purpose of Musical.ly was user-generated videos that combined popular songs with videos from the users (often called Musers). The most popular use of the app was to create videos where they were lip-syncing and dancing. By May 2017, the Musical.ly app had over 200 Million users.

Musical.ly was acquired finally by ByteDance in November of 2017. One year after the acquisition, Bytedance consolidated the user accounts of Musical.ly and TikTok, merging the two apps into one and keeping the title TikTok. While Musical.ly was also founded in China, most of its users were based in the US. The combined global reach of TikTok and Musical.ly made for a powerful combination.

Why it is so popular?

If you think about it the allure of TikTok is a bit like the allure of every other social media app. It offers instant gratification (Without following a single account, users experience a whirlwind of shot amateur videos when they open it, making it perfect for people looking for micro-entertainment and distraction for a few minutes during the day), the opportunity to go viral, and a chance to connect with people having similar interests. And if you listen to teens, according to them TikTok not only does this, but it does it better than its social media predecessors.

A big part of Instagram’s value came from the fact that it made it “easier” for people to become photographers. It gave people the option to take pictures from their mobile devices, edit it, and share it with friends. 

Now, coming to TikTok, almost anyone can become a content creator with this platform, it’s never been this easier. It provides you with tools like filters, control over video speed, access to professional audio and more. Even if you’re not the best lip-syncer, you can still create something fun on TikTok with a music background. Hashtags encourage users to participate in various challenges, giving even the smallest account an opportunity to become a viral superstar.

As the platform is growing, it is evolving and capturing the interest of both brands and celebrities. Will Smith (the actor, I’m sure you know him) recently adopted the platform and within a few weeks, had already amassed a following of over five million people (as of today he has about 14.8 Million followers). Other influencers such as Gary Vaynerchuck (Belarusian-American entrepreneur, New York Times bestselling author, speaker, and Internet personality) have also joined TikTok and have been sharing repurposed content that is more relevant to the demographic.

The NBA has always been an early adopter of online content and joined the platform early. With over 8 Million followers, the NBA share highlights of games and celebrity player cameos. The NFL is following suit with 2.4 Million followers and growing. 

Fast food restaurant Chiptole has been another early adopter on the platform. The majority of their content celebrates the foods they serve, but they also run popular competitions for TikTok users to submit fun videos at the locations.

Media companies such as The Washington Post and NBC are using TikTok to give previews of their content and to showcase their reporters’ personalities through behind-the-scenes videos.

The biggest draw of TikTok is the ability to post about anything. From travel to music, from fitness to dance, and so forth; every category is open and gaining huge attention. Each area is offering exposure for those that can adapt their content to the short-form video model. While entertainment seems to be the main draw at the moment, there is an increase in educational, inspirational, and business-oriented content too. 

One thing I would like to talk about here is the success of TikTok with younger audiences which reminds me of a lot of Facebook and Snapchat. The former first started as a college-only platform and later gained popularity in other age groups. While, the latter did something similar by capturing a younger demographic first, then aging up.

Snapchat captured the younger audience because it understood two factors that are very important when it comes to teens: 

  • It’s not cool to hang out at the same place as your mom 
  • You want to lock your room

Like Facebook, Snapchat’s app and strategies eventually started to skew other age groups and become more appealing to a much larger demo. Similarly, TikTok will likely eventually do the same.

Think about when Facebook turned into “your mom’s” app. In many ways, TikTok is making Snapchat “someone’s older brother’s app” and owning an even younger gateway.

But even though it skews younger, it wouldn’t be smart to ignore it. Because eventually, it will age up.

How does it make money?

Following are the ways through which TikTok make money:

In-app purchase

TikTok offers in-app purchases of coins similar to mobile games like CandyCrush, Clash of Clans, etc, starting at 100 coins for $0.99 and leveling up to 10,000 for $99.99. TikTok users can give coins to their favorite creators, who can, in turn, exchange them for digital gifts.  As mentioned above, American users have spent over $23.1 Million on TikTok’s virtual currency since 2018. Meanwhile, it is not clear how the platform itself earns from this. All we know is that they receive a certain percentage of this amount.

TikTok ads

Popular apps like Facebook and Instagram are generating money from displaying advertisements. Companies or even an individual can pay to these apps for advertising the business. Thus, we see “Sponsored” ads on the timeline.

Similarly, TikTok offers brand advertising too. Small & large brands are using TikTok to promote their products or services through in-feed video ads. These videos are displayed in between user-generated content, similar to Instagram story ads; these ads will link the users to a landing page or an app store. Agencies started advertising on TikTok as it is going forward given its explosive popularity. Moreover, TikTok is offering brand takeover ads for its users too. These ads appear when a user first opens the TikTok app. These brand takeover ads direct the users to a webpage or TikTok account.

There are various pricing models available in TikTok such as,

  • Cost per Click: It charges the merchant or advertiser on TikTok whenever the user interacts with the specific ad. Users are not expected to purchase or subscribe to the newsletter.
  • Cost per View: CPV aka Cost Per Mile. TikTok charges advertisers for every one-thousand impressions of their advertisement.
  • Cost per Action: It’s an important pricing model for business. The advertiser only pays to TikTok when a specific action is performed through the ad, such as an app install or newsletter signup.

Final thoughts

Although one cannot deny the effectiveness of ads, it’s also true that people are (sick and) tired of seeing the exact same thing getting advertised to them again and again and again. How many times have you rated an ad irrelevant or repetitive? Believe me; you are not alone. Seventy-four-percent of users think there are too many ads on social media. On TikTok, ads aren’t as abundant as they are on other platforms (this is something I’m telling from my own experience), another reason why it’s getting so popular day-by-day.

The point I’m trying to make here is that TikTok indeed has gotten themselves at the top of the social media. If there is ever the most critical stage for them, it got to be now. It will remain popular until the ads become too much and a new app with a new innovative concept appears and swoops up the young audience. They need to have a strategy that will carry them into the next decade, something that will ensure a long-term existence in the world of social media. Yes, as at now, TikTok is ruling the world & is undoubtedly the most celebrated global application created in China. 

If you are planning to use TikTok for your business, now is the time!