What is TikTok, TikTok AI & How does TikTok make money?
Have you ever heard the famous Kesha single from 2009 “Tik Tok”? This song is something that millennials probably still jam to. The social media app, TikTok, has nothing to do with this song. [Apologies for the lame myth-buster, but this is widely believed fact that needed to be set straight.]
Musical.ly launched in 2014 by entrepreneurs Alex Zhu and Luyu Yang, rose to fame in the 10’s as a popular lip-sync-karaoke DIY app and topped the download charts on every operating system store, until it was acquired by ByteDance in 2017 for a whopping 1 billion dollars! Cha-ching for the founders, who were labelled ‘doomed-to-fail’ early on with their venture. ByteDance absorbed Musical.ly into its already then famous video DIY app “TikTok”, ready to roar all guns blazing. Today, TikTok is the world’s most highly-valued private startup, with a valuation of $78 billion after a SoftBank-led $3 billion investment round.
What is TikTok?
TikTok is a social media app that lets users view go wild with imagination (literally) to create as well as view short-form video content. TikTok facilitates content creation by providing several tools, filters & other video assisting elements as well challenges of various types to help users tap into their creativity, which is visible to other users via an infinite feed.
TikTok & Artificial Intelligence
Now, there has been a lot of ‘tok‘ (pardon the pun) & complaints about TikTok’s AI from its users regarding the discoverability of their content on the platform. There are literally millions of reviews on both the PlayStore & AppStore regarding this, and to address the & so-called ‘TikTok won’t show my videos to users’, we would need to look under the hood of TikTok’s AI.
There are two sides of the coin in TikTok’s AI:
Based on each user, TikTok’s algorithms quickly learn individual preferences by capturing basic engagement parameters such as “likes”, “comments” & duration of the video viewed. These “tendencies” of a user are quickly recorded into vast datasets by the app, and fed to the machine learning component of the AI saying, “Hey, Please find attached the likes and dislikes of this user. Now, do your magic and show them what they want!” And this is how you see what you like. This all may seem good until you realize the fact that: You do not have the option to “not see” what the app shows you. You do not get a list of preferences or suggestions, ‘You may like this.‘ Whatever the AI feels right, will be stuffed down on you.
Since there are many filter & video enhancement options, TikTok cleverly adds AI & MAchine Learning into the video creation process too. It simplifies video editing and suggests enhancements in components like music, hashtags, and filters that are trending or have proved to be popular based on the category
For AI geeks out there, here’s a neat diagrammatic representation I found on the logic behind TikTok’s AI:
How does TikTok make money?
Before we begin, to understand how does TikTok make money, I’m gonna take you through a dual journey: A game of statistics & revenue generation. If you were to market on TikTok, by mapping a statistic with an aspect of TikTok’s business model, you can predict your campaign reach as well as much you will spend, which eventually adds up to how much money does TikTok make.
Here is a list of TikTok statistics as of 24th April 2020, courtesy BusinessOfApps.
- TikTok MAUs estimated at 800 million [MAU=Monthly Active Users]
- Average daily time on TikTok estimated at 45 minutes
- TikTok downloaded 738 million times in 2019
- Android TikTok users spent 68 billion hours using the app in 2019
- 41 per cent of TikTok users are aged between 16 and 24
Now, deep-diving into TikTok’s Business Model & how TikTok makes money:
1. TikTok Ads
Yes, you guessed it right. TikTok, like every social media platform, displays ads. There are 4 types of Ads on TikTok:
a) Brand Takeover
Video Ads that let a brand dominate a specific topic for THE DAY! This can cost the brand anywhere between $20,000-$50,000 for a guaranteed 5 million impressions.
b) In-Feed Videos
These are the normie advertisements that pop on your screen for 9-15 seconds, conveniently labelled “For You”. In-feed videos ads generally cost around $10 CPM, which is a fancy industry word for cost per millie, which is basically cost per 1000 views. Geez, this is comparatively affordable and much more widely used.
c) Hashtag Challenges
Hashtag challenges are basically sponsored hashtags that ask users to do something (remember the ‘Ice Bucket Challenge’? Well, that was not from TikTok) and share the video using the sponsored hashtag. These are usually time-bound campaigns, up to 1 week. Dwelling into the costs, Hashtag challenges have a $150,000 flat fee per six days and an additional $100,000 to $200,000 to promote the challenge. Cha-ching!
d) Branded Lenses
TikTok offers brands the possibility to create 2-D, 3-D as well as AR lenses. With Branded Lenses, users can interact with the brand and play with it by using their filter. The lenses promote the consideration to buy and allow users to test products. By integrating Branded Lenses into a hashtag challenge, a stronger bond to your brand and products can be promoted. Now, that’s some next-gen marketing, right?
2. In-app Purchases
As of May 2019, TikTok generates $75 million in revenue from in-app purchases. Instead of directly making purchases, TikTok users have to buy coins on their platform. These coins enable users to buy gifts for their favourite creators as well as Diamonds to gift another user someone as an appreciation for their work. TikTok coins are priced starting at 100 coins for $0.99 all the way up to 10,000 coins for $99.99. A major chunk of how TikTok makes money is derived from in-app purchases, especially since this is the first revenue-generating medium employed by early TikTok.
In hind-sight, TikTok has been highly pipped and well-positioned to dominate app store downloads & increase their market cap in the industry, but let’s not forget that it is users that decide the make or break of an app. TikTok has been subject to a lot of controversies over the quality of content on its platform as well as discoverability of its content too. Especially garnering a lot of flake recently in India due to its content as well as the Youtube vs TikTok war, culminating into a #BanTikTok campaign trending on social media along with its Playstore rating dramatically plummeting from 4.6 to 1.3 stars [as of 20th May 2020]. TikTok was previously also banned in India in April 2019, as ordered by the Madras High Court, which was consequently lifted later. It will be interesting to witness how TikTok will bounce back from this, that is, if at all they do. Especially since 42% of the total TikTok users are from India.