How Tiktok Makes Money: Tiktok Business Model

TikTok has revolutionized the social media scenario in numerous ways.

First and foremost, TikTok has made a record for being the social media platform that has shown the fastest growth of all time. The app was launched in 2016 and has amassed more than 3 billion downloads and captured a third of all social media users in less than four years. To put the growth of TikTok in context, it took Facebook and Instagram almost a decade to do the same.

Then, TikTok is one of the few social media applications that has come from China. Before entering the scene, all the major social media companies in the United States were born.

Third, the virality of TikTok somehow forced Instagram to launch Reels and YouTube to launch Short, in an attempt to catch up with the short video craze. Facebook, the largest social media platform, also came up with a feature of its own short video app Lasso in November 2018 for competing with TikTok but shut down Lasso after failing to match TikTok’s success.

In this article, we will follow TikTok’s journey from the start, how it rose in the ranks to write a tremendous growth story, and we will discuss how TikTok makes money towards the end of the game.

The basic story and the growth of TikTok

Nowadays we all are aware that TikTok is a short video application used by young people across the globe, but it did not start as TikTok. It started as Douyin, which was launched in 2016 in the Chinese market by the Beijing-based company ByteDance.

Like Facebook, ByteDance is a Chinese agency that is the owner of many other famous networking applications and was founded in 2012 by CEO Zhang Yiming, a former Microsoft engineer and serial entrepreneur.

Just one year after its launch, Douyin reached 100 million users and in 2017, it launched iOS and Android versions in international markets with another name: TikTok.

Shortly after it was launched, TikTok gained 500 million active users worldwide and reached the top in many Asian markets. In 2018, TikTok was ranked number 1 in free downloads of apps from app stores in Thailand and fourth globally as the most downloaded non-game app.

But as TikTok quickly became popular across the globe, another short videos application had already appeared in the US: Musical.ly, launched in 2014, which allows users to sync 15-second music videos.

As the year 2017 reached its end, TikTok’s parent company bought ByteDance Musical.ly for approximately $ 1 billion and operated Musical.ly and TikTok as two different social media platforms till August 2018.

For the creation of a larger user base and officially entering the US market, TikTok merged with Musical.ly 2018. All existing Musical.ly profiles and data were consolidated on TikTok and Musical.ly was closed.

Shortly after, in October 2018, TikTok had become the most downloaded application in the USA and became the first Chinese application to accomplish this feat. Subsequently, TikTok and Douyin together reached 1 billion app downloads worldwide in early 2019, excluding Android installations in China.

One of the main reasons why TikTok downloads have exploded is its popularity in India, which has contributed to about a quarter of the total TikTok downloads. 188 million TikTok downloads were attributed to India during the first quarter of 2019, which even topped Facebook with 176 million. But, the Indian government had placed a ban on TikTok in 2020 after the tense situation between the Chinese government and the Indian government escalated, and the ban has existed since.

In January 2020, TikTok had become the most downloaded non-gaming application in the United States. After TikTok was banned in India, China (where TikTok acts as Douyin) and the United States are still the largest markets in terms of users. In India, Tiktok has been replaced with Instagram Reels.

TikTok Business Model

TikTok makes money in three different ways: advertising, in-app purchases, and e-commerce offers. Tik Tok offers the following ad types: feed ads, brand acquisition ads, top viewed ads, branded hashtags, branded effects. In-app purchases typically include customers who purchase virtual currencies in-app, and e-commerce offerings include revenue for acting as partners.

Let’s take a closer look at each of these revenue streams to better understand TikTok’s revenue generation strategy.

1. TikTok Ads

Like all other social media platforms, advertising is one of the main sources of revenue for TikTok. These are the different types of ads that advertisers place on TikTok.

TikTok In-Feed Ads

In-feed ads are short video ads that appear in the user’s feed as they scroll through the “For You” page, which contains easy-to-use content. These ads, similar to Instagram Stories, fit naturally into the TikTok feed.

TikTok brand acquisition announcements

As the name suggests, the TikTok brand resumes onscreen ads as soon as users open the app. These types of ads are used for the creation of great exposure and increase sales by sending them to your target audience.

Top view of TikTok ads

TikTok Top Views ads are the same as TikTok Brand Takeover ads, except that they do not cover the screen after users sign in; appear in the first In-Feed message after 3 seconds. These audio, autoplay, full-screen ads last up to 60 seconds, increasing brand awareness.

Hashtag ads tagged on TikTok

By appearing on the discovery page, branded hashtag ads engage users by asking them to do a dance video or do something else online with a particular product. After making these crazy videos, users upload them with a pre-defined branded hashtag. Large hashtag ads help increase awareness while making it a fun activity.

Effect ads tagged with TikTok

Branding effects include custom stickers, augmented reality filters, and lenses, which users can add to their videos as well. TikTok allows these effects to last for up to 10 days, giving users ample time to interact with the brand.

2. TikTok currency

Another source of income for TikTok is virtual currencies which allow both TikTok and TikTokers to earn money. TikTok with 1000 or more subscribers can earn virtual gifts by submitting a live video.

If users like your content, they can award you by sending virtual gifts like tips, and every gift has a value of the set number of coins, and users have to purchase those coins with real money through the app. They can then utilize these coins for sending gifts to their favorite content creators.

These parts start at $ 100 for $ 1, but prices are subject to change and may vary by country. Users can utilize the coins for purchasing virtual Panda gifts worth 5 coins for Drama Queen, which are worth 5,000 coins. TikTok users receive gifts from users in the form of diamonds.

A diamond has a value of 50% of the coin for the reason that TikTok cuts a 50% commission before adding the rest of the money to the TikToker account. So if a TikTok has diamonds worth $ 500, they’ll get around $ 250 for themselves and the remaining $ 250 will go to TikTok. TikTok users can only withdraw their funds when they reach $ 100 and cannot withdraw more than $ 1,000 in a day

3. E-commerce offers

In recent years, one of the megatrends in social media has been to facilitate e-commerce.

TikTok has also been launching its e-commerce related features for a long time now. In 2019, TikTok began testing basic e-commerce links in clips. Subsequently, TikTok further developed its platform sales tools with the introduction of live shopping events and a Shopify integration to continuously display product ads.

In May 2021, Bloomberg reported: “TikTok began working with retailers in markets, including the UK, to sell products directly to millions of users in the app, according to people familiar with the matter.

As for commercial agreements for such associations, the details are not clear as they are still in the implementation phase, but it can be assumed that TikTok will take a percentage of the sales amount to act as an affiliate like other social media platforms like Instagram. Okay. Allowing users to make purchases directly in the app reduces the friction of redirecting users elsewhere and increases the conversion rate that would otherwise be adversely affected.

TikTok user and revenue statistics

In 2020, TikTok generated estimated revenue of $ 1.9 billion, an increase of 457% compared to the $ 350 million generated in 2019.

In 2021, TikTok had 1 billion active users every month across the globe, which means that 22.32% of the 4.48 billion social media users actively use TikTok per month. Since its launch in 2016, TikTok has recorded a downloading number of 3 billion, which makes it the first non-Facebook application reaching 3 billion downloads.

TikTok investors

Bytedance, TikTok’s parent organization, which is running numerous other apps such as Toutiao, Xigua Video, and BytePlus, was valued at $ 180 billion after raising $ 2 billion from the US Venture Capital Firm and KKR & Co. Prior to this round, Bytedance had raised $ 3 billion in October 2018, $ 2 billion in August 2017, $ 1 billion in April 2017, $ 100 million in June 2014, and $ 5 million in July 2012.

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