A global social media platform with millions of subscribers, TikTok has become a phenomenon! Launched in 2012 by ByteDance, TikTok hosts creators, viewers, as well as brands and is growing every day.
We all know that every TikTok creator enjoys good earnings by posting content on the app and tapping into the TikTok creator fund. But do you know about the TikTok business model? Beyond its creativity program, how does TikTok make money to sustain itself? Let’s get to it.
How Does TikTok Make Money?
TikTok makes money primarily through different types of advertising and in-app purchases.
Advertising
Advertising and sponsored content are the primary sources of revenue for TikTok. According to reports, the app currently has 1 billion monthly active subscribers worldwide! This extensive reach makes TikTok ads profitable for advertisers.
In 2023, the platform generated $13.2 billion in TikTok ads revenue worldwide. This is estimated to touch $17.2 billion in 2024. Along with its twin version Douyin, you can only expect this revenue share to go up from 22% in 2022 to 37% by 2027.
Below are the different types of TikTok ads that the social media platform runs.
Brand Takeover Ads
When you open TikTok, an ad instantly appears on the screen. These are brand takeover TikTok ads that are used to create mass awareness. They are short, attractive, and clickable.
On a particular day, only one TikTok ad is designated as the brand takeover ad. This means that users will only see this ad when they open the app. According to Advertisemint, these ads cost a whopping $50,000 per day!
Top-View Ads
Top view ads are similar to brand takeover ads as they are high-impact and full-screen. The only difference is that, unlike brand takeover ads which come immediately, top-view ads are visible to the TikTok user as the first in-feed post after 3 seconds.
These ads are also highly sought after as they promise good visibility to the targeted TikTok followers. These ads can last up to 60 seconds.
As a brand, you can even customize your TikTok follower to whom you want to show this specific ad.
Branded Hashtag Challenges
A brand hashtag challenge (HTC) advertises a brand using the TikTok content creator base. The sponsor brand creates a hashtag and encourages users to feature it in their TikTok videos, helping boost brand awareness.
I really liked the Nestle HTC for their sparkling water brand Splash. The hashtag they used was #TheSplashDance and it went viral! These HTC TikTok ads appear on your in-feed placement and as a banner on the Discover page which takes you to the Hashtag Challenge page.
In-App Purchases:
TikTok has its own currency of virtual coins that can be used for making different kinds of purchases like a video gift on the app. These fictional TikTok coins can be purchased using real money.
And what can you do with these TikTok coins? You can use these coins to tip creators during live streams, buy animations that appear on-screen during a TikTok Live, or boost your TikTok video using TikTok Promote. These coins form part of the creator fund, which is soon going to be replaced by a new TikTok Creativity Program.
According to BrandEquity it is the first app to cross $10 billion in in-app spending!
Shop Commissions
Another brilliant revenue-generating hack by TikTok marketing is the TikTok Shop. This TikTok Shop hosts products by third parties at a commission.
As a creator, you’re encouraged to purchase these products at discounted prices and feature them in your content as part of affiliate marketing.
Some sellers at TikTok Shop also offer free samples to every TikTok creator who advertise their products. If you’re a TikTok creator, then this shop is a way for you to use influencer marketing. You can climb the ranks to become a celebrated TikTok influencer and make money from brand deals and brand partnerships.
This exciting creator marketplace allows you to create content and drive your TikTok followers towards specific products. You can also create insightful content to grab every lucrative brand deal in your niche!
LIVE Subscriptions and Gifts
The TikTok Live Subscription is a feature that allows you to subscribe to your favorite content creator for a small monthly fee. The follower who subscribes earns a badge that is displayed on their handle during live stream, as well as other exclusive privileges.
TikTok Live Gifts is a fun feature that allows you to engage with the content of your favorite TikTok creators. Fans can send virtual gifts or diamonds to the creator during Live feed. These get deposited in the creator fund. As a TikTok user, I’ve bought a few virtual gifts myself for my favorite TikTok creators!
TikTok’s Global Expansion
From a China-based social media platform to one with a worldwide reach, TikTok has certainly come a long way! You will be surprised to know that people in more than 160 countries can open a TikTok account.
But how is TikTok doing it?
Super App Strategy
A super app is defined as an app that provides multiple services including instant messaging and payments. TikTok is gradually moving towards becoming one such social media app.
It is combining all its resources to transition from an entertainment app to a super app. It is rolling out new features, one at a time, to earn revenue and keep every TikTok follower hooked! Features like Subscriptions, Ads, TikTok Coins, TikTok Rewards, Live streaming, etc., are all bids to become a super app and lure every follower.
Partnerships and Collaborations
TikTok is a mega entertainment platform that engages millions of users worldwide. Brands have also realized the potential it holds for promoting their products through brand partnerships.
Entering into collaborations and partnerships with brands is a way for TikTok to boost its global expansion. This mutual relationship is beneficial for both.
Brands earn from the immense exposure TikTok offers and in turn, TikTok makes money and expands into new markets. Brand collabs are also a great way to promote user engagement as brands use the TikTok influencer base to push their products through various brand deals.
Additionally, TikTok is becoming an exciting influencer marketing platform. As a creator, you’ve access to the entire TikTok creator marketplace – offering you opportunities like the creativity program, TikTok creator fund, creator rewards program, etc.
So, you’d like to be on the platform as a content creator. All this, in turn, helps TikTok.
Revenue & Valuation Of TikTok
Ever since its inception, TikTok’s revenue and valuation have improved exponentially. It has overtaken Instagram and WhatsApp to be the most downloaded app worldwide.
In April 2023, ByteDance, which owns TikTok, was the highest valued unicorn globally. It had a market cap of 200 billion U.S. dollars in the same year!
The app posted a revenue of about $16 billion worldwide in 2023. We also saw a rise of 16% in the TikTok user base. All this is a result of the immense popularity the brand enjoys due to its connection with the youth who form the crux of the TikTok follower demographics.
History of TikTok
The origins of TikTok are as interesting as the app itself. TikTok belongs to Chinese tech giant ByteDance founded by Chinese serial entrepreneur Zhang Yiming. It is in fact a global version of the very famous Chinese entertainment app- Douyin.
Douyin was launched in 2016 and managed to capture the audience’s interest. Its popularity grew fast in China and Thailand. The makers then decided to expand it worldwide.
To do so, they first acquired Musical.ly, a Shanghai-based app created by Alex Zhu and Luyu Yang in 2014. This app allowed users to lip-sync and create dance videos. You can imagine how popular it became, especially amongst every U.S. teen influencer!
ByteDance then merged the users and content of Musical.ly with their app TikTok in 2018. And that is when the true rise of the app started, and it hasn’t looked back since.
TikTok uses an intelligent algorithm that has been one of the contributors to its massive success. It is a feedback-driven system that tailors content you see as per your preferences. This keeps the TikTok followers hooked.
TikTok’s parent company ByteDance did not stop at TikTok. They are regularly dishing out apps and have been nicknamed the “app factory”. To date, they have around 21 products ranging from productivity tools to news aggregators.
Top Competitors of TikTok
Social media is a competitive space and there are ample alternatives available in every niche. TikTok is no exception! Although the brand is a market leader in its category it does have to keep a close watch on competition.
Instagram is a close competitor of TikTok. Although the two social media platforms are used for different purposes, the Reels feature on Instagram is similar to TikTok. An influencer can post short videos on Reels and also earn from them.
Like TikTok, Instagram has a worldwide reach and boasts around 2 billion monthly active users.
Triller
Triller is another app that is based on a similar format as TikTok. It allows the influencer to post videos with great ease.
However, TikTok offers incredible AI-powered editing tools like the TikTok Creator tool suite that does everything for you.
As a creator, you simply need a video and you can trim, add filters, draw, and do so much more with them.
YouTube Shorts
YouTube Shorts is also competing with TikTok in the short entertainment videos category. It was launched in 2020 to challenge TikTok.
You can post videos up to 60 seconds in length. It’s fun and easy to use and gaining users worldwide due to YouTube’s global reach.
Although YouTube has been around for quite long, we’ve seen creators complaining about the complicated process of editing and posting videos on it.
Future Of TikTok
So far TikTok has mesmerized the audience and kept both the creator and users engaged. To continue on this path of success TikTok needs to stay connected with its target audience.
This means staying updated with trends and user preferences, as well as evolving the app features and content. Infusing freshness, creativity, and exclusive content helps in retaining existing users and attracting new ones.
At the same time, it needs to address challenges like privacy concerns and bans being imposed by various Governments. Since it is owned by a Chinese company, countries are worried about potential data breaches through the app.
TikTok must solve such challenges to continue its successful journey.
Conclusion
TikTok’s innovative approach, expansion strategies, creativity program, and use of technology have helped the platform stay ahead.
To keep the momentum going the company must address some emerging concerns. The future looks promising as TikTok continues to remodel and innovate itself at each step.
