TikTok Turns on the Money Machine

TikTok Turns on the Money Machine

Alyssa McKayPhotographer: Kyle Grillot/Bloomberg ByteDance’s hit video app is on track to triple revenue this year to $12 billion, threatening Facebook’s hold on social media

Alyssa McKay used to work part-time at a frozen yogurt store in Portland, Oregon, making minimum wage to cover her college tuition. Now the 22-year-old earns more than $100,000 a year on the short-video platform TikTok. Brands like Coach, Netflix and Amazon Prime Video pay up to reach her 9 million followers, mostly teenage and pre-teen girls who wouldn’t dream of visiting Facebook.

“TikTok definitely 100% changed my life,” says McKay, who recently moved into her first apartment with her dog.

The most downloaded app of 2021, TikTok has surged to a billion-plus global users, who consume an infinite feed of short clips delivered instantly by algorithm. While the platform has long helped creators like McKay step to the center of the attention economy, the company is only now starting to cash in on all that popularity.

TikTok raked in nearly $4 billion in revenue in 2021, mostly from advertising, and is projected to hit $12 billion this year, according to the research firm eMarketer. That would make it bigger than Twitter Inc. and Snap Inc. combined — three years after it started accepting ads on the platform.

“It’s definitely a threat to Google and Facebook,” said Pieter-Jan de Kroon , chief executive officer of the online ad firm Entravision MediaDonuts. “TikTok is starting to command a percentage of the media budget that’s more in line with its audience size.”

Alphabet Inc. ’s Google and Facebook, now Meta Platforms Inc. , are the giants of online advertising, a duopoly so powerful they have been hit with antitrust complaints in the US , the UK and the European Union . TikTok and parent ByteDance Ltd. is shaping up to be the most serious threat to that chokehold since the pair rose to power over the past two decades.

With a billion monthly active users, TikTok is still smaller than Facebook (2.9 billion) and Instagram (2 billion), also part of Meta. Yet TikTok’s programming is proving unusually compelling: Its average user in the US now spends about 29 hours a month with the service, more than Facebook (16 hours) and Instagram (8 hours) put together, according to mobile researcher Data.ai. Scott Galloway, a professor at New York University Stern School of Business, has likened the service’s addictiveness to opium. TikTok Turns on the Money Machine This isn’t beginner’s luck. ByteDance, TikTok’s parent, has been developing apps with algorithms for recommending just the right video clip or news story ever since Zhang Yiming founded the company ten years ago. The Beijing-based firm built a Chinese version of the TikTok platform, Douyin, that already has more than 600 million users and a battle-tested business model. ByteDance’s revenue hit an estimated $58 billion last year and its growth is faster than any other major social network. Zhang Yiming has called the blending of entertainment and buying his “next major breakthrough.” TikTok is starting to show the profit potential in countries like the US. The company is now charging as much as $2.6 million for a one-day run of a TopView ad — the first thing that pops up on users’ feed when they open the app — roughly four times what it charged a year ago, according to a document reviewed by Bloomberg News. A 30-second Super Bowl ad runs about $6.5 million — but TikTok can charge that rate every day.

The ByteDance model goes beyond advertising. TikTok is diversifying into music distribution , game publishing and Twitch-style subscriptions . It’s also edging into e-commerce, blurring the line between social media and online shopping in ways that could challenge Amazon.com Inc. The video-sharing platform now lets merchants set up digital stores in countries like Britain, Indonesia and Thailand, where millions of users purchase products directly inside the app without any involvement from traditional e-commerce.

“TikTok is TV for Gen Z,” said Jo Cronk , president of marketing firm Whalar. “If you want your brand, your product, your service to get attention with Gen Z, that’s just a non-negotiable today.”

Mark Zuckerberg is starting to sound a little worried. The Meta co-founder blasted his Chinese rival for censorship in 2019 and later told Congress that hindering American innovation would only help Chinese companies like TikTok, perhaps to blunt antitrust scrutiny.

Then in February, Meta reported disastrous earnings that triggered a $230 billion stock wipeout . Zukerberg name-checked TikTok no fewer than five times in a post-earnings call. The […]

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