Have you seen videos of Adele’s concert but the people are replaced with gummy bears? If you have, you might be familiar with TikTok videos.
Yes, these videos are goofy and are most likely some cheap-production. But jokes aside, TikTok could do way more than that. TikTok’s AI-powered algorithm has a transformative effect on short video app industry. It changes the way people engage in video consumption. More importantly, TikTok’s AI capability opened the gate for a new wave of digital marketing.
But first, let us have an understanding of this “notorious” short video app which has been appearing all over the internet recently.
What is TikTok?
TikTok is a short video app whereon users can film, edit, and share videos up to 15 seconds. Its appeal to users lies in its accessibility, the simple interface, and plentiful features that indulge amateur’s creativity. TikTok provides countless filters, music, and sound clips to enhance the diversity of contents. From lip-syncing performance to improvisation, there are all kinds of videos on TikTok.
Bytedance, a Chinese company founded in 2012 by Zhang Yiming, a former Microsoft engineer, started out by offering users personalized lists of news headlines (Barrett, 2019). ByteDance successively released products related to news and entertainment, and in 2016, the company launched Douyin in China featuring short-video-sharing (Barrett, 2019). AI-learning technology is the prioritised objective of ByteDance, and Douyin is one of the few products proved successful (Fannin, 2019). Douyin’s algorithm is powered by AI. The app collects user data to directly deliver contents on user feeds based on their preferences.
Eager to expand into global markets, TikTok’s launch began with ByteDance’s acquisition of Musical.ly in 2017 (Lee, 2018). Musical.ly was a short video app that allows users to create and share lip-sync videos. TikTok leveraged Musical.ly’s concept and integrated it with Douyin, The app started growing rapidly in the global markets, and it proved successful as it became the most downloaded app on Appstore in 2018 (Chen, 2018).
Most downloaded apps on Apple App Store, H1 2018
Today, TikTok continues to flourish in the short video app industry, though the future is uncertain.
Business Model – TikTok’s money earning logic
It has been about two years since TikTok was released, and there are already 500 million monthly active users on TikTok (Datareportal, 2019). However, the app itself has not shown a sign of monetisation on the app, yet. TikTok’s identical twin, Douyin, on the other hand, allows companies to advertise on the app.
On its website, Douyin demonstrated several mechanisms for digital advertisements:
- Display advertisement once Douyin launches. The advertisement can be either static or dynamic.
- Display advertisement in the “For You” feed.
- Create hashtag challenges to attract users’ engagement.
- Enterprise authentication allowing companies to perform closed-loop marketing.
Examples of Advertisements on Douyin
Looking back at TikTok, we can then find that TikTok has a similar monetising structure. TikTok also offers partnerships for brands to launch campaigns using the format of “hashtag challenge” (Thomaselli, 2018). Hashtag challenge encourages users to share videos for a particular topic using a hashtag (Barrett, 2019). Although this type of marketing is less visible to users, it still attracted several partners from different industries (Droesch, 2019). One example is Walmart’s campaign #SavingsShuffle, which generated 1.6 billion views.
Yet, marketing partnership is only a small portion of the profit. What lies below is the abundant intangible assets, which is data. ByteDance is a company that focuses on developing machine-learning enabled content platforms, and its products incorporated AI-powered algorithms (Fannin, 2019). Data is essentially tied to commercial intends, and users online activities can further perpetuate the enrichment of the algorithmic engine (Konig & Rasch, 2014). Ultimately, ByteDance could make greater and more ambitious ventures in the global markets using the collected data.
TikTok’s Internet Ecology
Ownership, Partners & Suppliers
Other than the parent company ByteDance, TikTok also has other shareholders who invested in ByteDance including General Atlantic, SoftBank Group, Morgan Stanley, and Goldman Sachs (Crunchbase, 2019). TikTok’s partners include Walmart, NFL, Ralph Lauren, and Chipotle (Droesch, 2019), who collaborated on marketing campaigns. TikTok is a SaaS (Software-As-A-Service) that relies on internet service providers as suppliers. TikTok’s internet service providers include Alibaba Cloud, AmazonWeb Services, and Akamai (Intricately, 2019).
TikTok currently faces few direct competitions, and the main competitors are Like and Vigo Video (which is also a brand under ByteDance). But TikTok will face future competitors. In the information technology industry, rivalries between tech conglomerates are continual events. Facebook has launched an identical app called Lasso to compete with TikTok (Liao, 2018), which can be only accessed through FaceBook and Instagram by U.S. users (Fannin, 2019). In addition, Facebook CEO Mark Zuckerburg mentioned the plan to capture niche markets like Mexico where TikTok is not popular (Newton, 2019). Facebook-owned Instagram also has also incorporated music in Stories following the trend (Barrett, 2019). TikTok also indirectly affects players in other sectors like YouTube and Instagram. A CEO at the Newtop 100 CEO Summit 2018 in Beijing explained that the integration of technologies, data and capital allows companies to easily enter new industries for competition (Zhu, 2018). Vice versa, companies from other sectors could also potentially affect TikTok in the future.
As a content-driven social media platform, users are indispensable for TikTok. TikTok seems to attract generation Z, with 66 per cent of TikTok users aged 10 to 20 (Fulayabu, 2018). This is an extremely valuable data as it clearly demonstrates TikTok’s demography, which can be helpful for target dissemination of content and advertisement.
TikTok is regulated by corresponding government entities. Short video apps is a burgeoning industry. Although the regulatory system for such an industry is still not mature, people have been sceptical about the legitimacy of firms in this industry, especially TikTok. There are political and social factors concerning issues about TikTok. Knowing that TikTok belongs to a Chinese company, people had concerned that TikTok might be censoring politically sensitive content towards the Chinese government (Roumeliotis, Yang, Wang & Alpher, 2019). The U.S. government has started a security investigation into TikTok’s deal with Musical.ly (Roumeliotis, Yang, Wang & Alpher, 2019), while the UK enquiry is investigating TikTok’s use of child data (Hern, 2019).
The Diagram Below Demonstrates TikTok’s Internet Ecology
The Transformative Effect of TikTok
TikTok has a highly active community with 500 million monthly active users (Datareportal, 2019). Social intercourse is the essence of social media platform, and socialising is based on a two-way interaction that requires participants to engage in discussion actively. IM (instant messaging) is one of the products that facilitate conversation. This concept of communication has integrated into our everyday lives as technology advanced, but its significance is often overlooked. Instant messaging is a form of synchronous communication that connects people for the purpose of exchanging texts (Chandler & Munday, 2016). An instant message is usually between acquaintances, and the reciprocal exchange of messages between specific individuals facilitates the conversation. Platforms such as Facebook Messenger, Snapchat, and WhatsApp are all using instant messaging as their core product.
TikTok uses comment sections to accelerate conversation. However, a fixed comment section does not ensure the consistency of reciprocal communication. TikTok lacks the core feature of IM, which is also the problem for many other video sharing platforms. But still, TikTok’s community remains a strong cohesion. It is worth noting that Vine tried to achieve what TikTok is doing today, but it eventually failed to do so. Vine was unable to retain the interests of users, and a large number of its users moved on to other platforms. In 2017, Vine was shut down (Huddleston, 2017) because it was unable to turn a profit (Barrett, 2019). Then what distinguishes TikTok’s approach to governing the community from Vine‘s, a former short video app that was once viral?
AI-powered Algorithmic Feeds
The vital element of TikTok’s community is the categorisation of subcommunities. With thousands of users generating new videos every second, contents on TikTok are getting vibrant and more diverse. Imagine you launch TikTok with the intend to watch some cat and dog videos only to find out videos of teenagers doing Fortnite dances taking over your feed. Nevertheless, this is not a problem with TikTok. By tapping the “heart” button, which is equivalence to “like”, it conveniently learns user preferences for contents and distributes videos cater to the user’s “For You” feed. After clicking the “heart” button a couple of times, you will eventually end up with most “For You” videos that suit your appetite. This process not only filters the content, but it also helps you to navigate to users with similar interests. Therefore, the more you engage and interact with your prefered content, the more you will find yourself in like-minded subcommunities in the comment section.
In addition, TikTok uses AI-powered algorithms to directly send contents to user feeds based on their preferences, which distinguishes itself from other video platforms (Fannin, 2019). For example, YouTube’s feed only recommends videos, and users will not necessarily watch the content until they click on the video. In this case, the user’s attention is not fully exploited because the user will not pay attention to contents that are not of interests. TikTok’s interface allows videos to intrude into the user’s line of sight and attract the user’s full attention. TikTok has designed its feeds to be addictive to the extent that users are always tempted to swipe and watch the next video for more. As recorded in 2018, the average number of daily activation of TikTok is about 43 times a day, compared to Twitter which is an average of 15.5 times a day (Fukayabu, 2018).
It is then clear to see why TikTok did better than Vine. TikTok has demonstrated the power of big data and algorithms to the social media video industry. It is intriguing to see the transformative effect of an appropriately modified AI-powered algorithm on creative social media platforms.
TikTok for Business
The potential of all these collected consumer data is infinite. The database will continue to grow as people participate in the TikTok circle. At this point, the sky is the limit. The attention of users is an extremely valuable commodity for advertisers that can determine the number of sales (Halavias, 2013). The hashtag challenge has given foray of a new wave of digital marketing for companies. Users on TikTok are no longer solely receiving advertisements. Instead, they are merged into becoming a part of the marketing campaigns, either willingly or simply unaware. TikTok is eager to explore the capability of its algorithm. A leaked sales pitch from TikTok has released the plan to develop its ad technology to enable advertisers to automate their campaigns while allowing them to target and measure the process (Sloane & Rittenhouse, 2019). In a greater context, TikTok gives a whole new meaning for digital marketing. Perhaps before long, a large scale integration of social media platform, advertisers, and users will take place in the digital landscape.
The Future of TikTok
TikTok’s success is partly due to learning from other social media platforms. As in 2019, TikTok reaches the summit of the creative social media industry. But from now on, TikTok will be walking on thin ice, knowing that every step ahead will be uncertain. TikTok has paved the way to show others what AI algorithm can do, and its transformative impact will continue to shape the digital industry.
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