Innovation Monitor: The business of TikTok

Innovation Monitor: The business of TikTok

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Welcome to this week’s Innovation Monitor.

This week we consider advertising and revenue on social media platforms, through the lens of one of its newest players. In five short years, TikTok has reached over 1 billion MAUs (monthly active users), and has garnered a user base of teenagers and young people similar to Facebook’s user demographic in the 2000s, and Instagram and Twitter in the early and mid-2010s. To offer context, Facebook reports to currently have 2.89 billion MAUs. And the global population is approximately 7.8B people including children. While not much is known of its founder, Zhang Yiming, TikTok is undeniably part of our global social media ecosystem.

We’ll consider the business model and ask — what’s the company’s priority? Facebook and Google’s priorities are to their advertisers, and demonstrating growth through metrics like MAUs and other proxies for user engagement. Snap’s is to creators, as is Roblox (150M MAUs) — which one can argue is a prototypical metaverse, the experiential evolution of web 2.0 participatory networks — is heavily investing in creators. So where does TikTok fall? How does TikTok make its $34B now? Let’s unravel it.

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All best,
Erica Matsumoto START WITH ADS

TikTok launched its For Business offering last June. The company encourages advertisers to act more like creators: “TikTok For Business is where you can unleash your brand’s creative side. A fully immersive no judgement world where there’s an audience for every voice.”

That makes sense. If you’re a reddit user, you might have noticed that nothing sticks out morethan an ad in your feed, no matter how subtle it tries to be (god forbid the advertiser allows commenting). No, advertisers are better off with a Dunk in the Dark mindset — live in the moment, become part of the wave. And, capitalize on creators. CREATOR MARKETPLACE & API

In 2019, TikTok introduced an automated system for brands to find creators matched to their interests. Creator marketplaces aren’t anything new (in the past couple of years). Snap has one, Facebook introduced Brand Collab Manager in 2018, and YouTube has BrandConnect.

As Jeremy Yang, an assistant professor at Harvard Business School who did research on TikTok while a PhD candidate at MIT, put it: “A lot of this virality is coming from users sharing with other users. You’re more likely to share posts from an influencer with a friend than an ad posted by a company.”

A company is a lot less at risk looking cheugy if they pair up with someone who understands the platform. It also might feel like a safer alternative for the half of major brands (including Nestlé and Audi) that have distanced themselves from directly advertising on TikTok — some because of the Trump-China debacle last year. And the China stuff this year.

More recently, TikTok announced the Creator Marketplace API. The idea is that TikTok is opening its first party-data to third-party influencer platforms — then those platforms can better select influencers or target advertising, which leads to better results. An interesting attempt at building an ecosystem, and feels a bit like Facebook developer tools back int the day. CREATOR FUND

A newer trend TikTok has embraced is funding creators — something that took Facebook 17 years to do (it’s investing $1B). In May this year, YouTube introduced its Shorts Fund ($100M); last July, Roblox said it will invest a minimum of $500k per qualifying entry for its Game Fund, and Snap has been paying its creators millions. NFTs

Now we’re entering a more speculative realm. Facebooks is exploring NFT features alonside its digital wallet. Creators can showcase unique characters in Roblox’s first blockchain-powered realm, PlayDapp World. Twitter touted NFT authnetication last month.

And here, TikTok is dipping its toes a bit further into the pool with TikTok Top Moments, official NFTs focused around creators and powered by Immutable X.

“Inspired by the creativity and innovation of the TikTok creator community, TikTok is exploring the world of NFTs as a new creator empowerment tool. NFTs are a new way for creators to be recognized and rewarded for their content and for fans to own culturally-significant moments on TikTok.”

Lil Nas X, collaborating with artist Rudy Willingham, is the first to offer Top Moments NFTs this month. TikTok says “proceeds will largely go directly to the creators and NFT artists involved,” according to The Verge, but we haven’t heard specific percentages yet. RECRUITING

Even if you’re not frequenting TikTok, you’ve probably glanced at reposts on LinkedIn, where influencers have shared work-related TikToks. Sounds less weird in 2021, right? (I remember being surprised the first time seeing food brands sporting a Facebook logo on their packaging in the 2000s.)

Prospects have also been posting videos for recruiters on TikTok, racking up tens of thousands (and in some cases hundreds of thousands) of views — definitely cheaper than the brilliant “I spent my last £500 on this billboard” ploy by Adam Pacitti in the early 2010s.

In fact, there’s a dedicated hashtag — #tiktokresumes. While LinkedIn is encumbered in these types of posts, and McDonald’s allowed users to apply via Snaplications in 2017, college students are finding it natural applying through short videos: “The app said over 800 applicants had submitted TikTok résumés in the past week,” according to The NY Times. This Week in Innovation History

September 28th, 1987: Apple launches it’s famous Think Different ad campaign

The campaign was launched across TV and print, with the core of the campaign was the “Crazy Ones” advertisement that was narrated by Richard Dreyfus and lives on in tech and advertising lore.

The campaign was launched as a response to IBM’s campaign and longtime slogan of “THINK”. IBM had utilized this concept since its founding:

The “THINK” slogan was first used by Thomas J. Watson in December 1911, while managing the sales and advertising departments at the National Cash Register Company.[1] At an uninspiring sales meeting, Watson interrupted, saying “The trouble with every one of us is that we don’t think enough. We don’t get paid for working with our feet — we get paid for working with our heads”. Watson then wrote THINK on the easel.[2]

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