how TikTok monetizes its lightning-fast success

In 2021, TikTok, the short video platform that is enjoying success among teenagers and young adults, passed a symbolic bar in its meteoric rise: that of one billion active users per month, or a spectacular increase of 40% in one year.

In the ruthless universe of social platforms in which few giants share the market (Meta with Facebook, Instagram, Messenger and WhatsApp; Google with YouTube; Snap …), the Chinese giant has carved out a place among the greats seven years after the its creation, and three years after the acquisition of Musical.ly, which allowed it to enter the western market.

TikTok dethrones Facebook as the most downloaded application in the world

Profitability soon?

Now, another challenge faces leaders, as they have to prove they can monetize their huge user base. According to a report by the consulting firm Insider Intelligence, cited by Reuters, the projections go in this direction, given that the company would reach 11 billion dollars in advertising revenue (10.1 billion euros) in 2022, or triple compared to 2021. .

The company does not indicate whether this spectacular progression would allow TikTok to become profitable, but the company is still taking the road. Incidentally, it once again demonstrates the power of the network effect in the digital economy: it is only when a platform reaches a critical size that it can effectively monetize its users’ personal data treasury.

In detail, half of this advertising bonanza would come from the United States. TikTok is expected to capture 2.4% of the online advertising market in 2022, estimated at approximately $ 250 billion. Not enough to worry about the duopoly of Google (28.2%) and Meta (22.3%), but TikTok’s market share would still exceed that of Snap (1.1%) and Twitter (1%).

19.7 hours per month spent on TikTok

Monetizing your audience isn’t easy. Many social platforms, even popular ones like Snap and Twitter, still don’t. Despite 500 million monthly active users for Snap and over 330 million for Twitter, the two Americans are still not big enough to make a profit.

In 2022, they are expected to generate $ 5.58 billion and $ 4.86 billion in advertising revenue, respectively, which is as much between them as TikTok alone. Snap has the huge advantage of its huge popularity among young people, which inflates the ad value, but Twitter is still fumbling to find a sustainable business model that weakens it and makes it prey to activist shareholder Elon Musk.

Conversely, all signals are green for TikTok. Because not only is the number of video app users skyrocketing, but they are spending more and more time there. According to Data.ai (formerly App Annie), each user spent an average of 19.7 hours per month on the application (excluding China, where the law limits the time of use of social networks). That’s how much on Facebook, the number 1 in the ranking. It’s also nearly five times more than in 2018 and a sign of user captivity that can seduce advertisers.

TikTok on the territory of Instagram, Twitch and Spotify

To capitalize on its audience, TikTok developed several tools in 2021. Like Instagram and others before it, the platform positions itself as an intermediary between brands and ‘influencers’. [les créateurs de contenu les plus populaires, ndlr] through its “Creator Marketplace”, and recovers a commission on advertising partnerships.

Then, in October, the company strengthened its partnership with ecommerce specialist Shopify to work on features that will accelerate “community commerce,” buying content-related products from creators, including Instagram being the specialty.

But TikTok is also testing professional financing channels: at the beginning of the year it signed a partnership with Atmosphere TV, a startup that offers a range of channels for activities such as restaurants, sports halls or cinemas waiting for doctors. One of these will then only consist of videos selected on TikTok.

Finally, the platform was launched in early March Sound on, a tool that allows artists to offer their music and monetize it. It is therefore attacking the territory of Spotify and Apple Music and can rely on its ability to make a song go viral. Best example of the phenomenon, in December 2018, the then amateur singer Lil Nas X had seen her title Street of the Old Town used en masse by users for the “Yeehaw Challenge” – which involved filming a transformation into a cowboy after drinking “yeehaw juice”. This virality opened the doors of the industry to Lis Nas X, and Old Tow Road ended up breaking the record of weeks spent at the top of the Billboard 100 (the top of American singles).

TikTok, former champion of user spending

Before seeing if these new channels will meet the hoped-for success, TikTok can already congratulate itself on the success of its “coins” system, a virtual currency that can only be used on the platform. Since October, it allows users to donate to their favorite creators, a practice popularized by the Twitch live streaming platform. Previously, this currency already allowed videographers to promote their content via a dedicated tool.

But the arrival of the donation system has made corner buying take off: according to Data.ai, TikTok is the application where users spent the most in the first quarter of 2022, a place that until now was always busy with video games. The platform raised a record $ 840 million, up 40% from the previous quarter. This amount brings total user spend since the app’s creation to $ 3.7 billion, again a record.

Regulators as the only brake on growth

On its upward trajectory, TikTok now has YouTube, the video champion, owned by Google, in its sights. If the American giant remains secret about the success of its platform, it had indicated that it had achieved 15 billion dollars in turnover in 2019. According to various projections, the two social networks could even compete in terms of revenue by 2024, estimated at more than 23 billion. dollars each.

Attempts by Instagram (with Reels) and YouTube (with Shorts) to emulate TikTok don’t seem to be able to dampen its momentum. Data.ai even expects 1.5 billion users by the end of 2022.

But the social network has two problems. In the United States, the regulator is closely monitoring it, despite having separated its Chinese (on Douyin) and American (on TikTok) activities, on suspicions of personal data transit to China. In China, TikTok’s parent company ByteDance is facing increasing pressure from power over its tech giants. As a result, it has once again postponed its IPO project, which has been under consideration since 2020.