TikTok Business Model Analyzed and Explained

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The word business model relates to the profit-making strategy of a company. It specifies the product or services that the company intends to offer, its core demographic, and estimated expenditures. Business models are critical for both new and existing companies. They assist emerging businesses in attracting investment, recruiting talent, and motivating management and employees.

The business model of Tiktok relies on a social networking platform where users may upload short self-made video clips that show their talent. The site presents challenges to encourage participation and innovation. TikTok makes money through advertisements and in-app gift purchases. The adverts operate in the same way as those on other social media platforms. Advertisers choose their core audience, and TikTok delivers its message to viewers. We have provided a detailed analysis and explanation of TikTok’s business model below to make it more comprehensive.

What is Tiktok?

TikTok is a free app, and anyone can download app. They will have access to TikTok videos and their account, where they can create their videos.

Tiktok began as a platform for short-form video sharing, particularly for lip-syncing and dance videos. TikTok has evolved into a full-fledged video service with material suitable for all audiences.

History of Tiktok

Chinese Tech Company giant ByteDance launched Tiktok. It was a video-sharing social media platform like Facebook and Instagram, which are not accessible in China. The app was released first as Douyin in China in 2016.

Later, they launched it in 2017 internationally as TikTok, a play on tick-tock related to the clock, a phrase for countdowns and minute-by-minute action. TikTok purchased and merged with rival musical.ly in 2017-18. Its Head quarter is in Beijing, China.

The owner of TikTok is ByteDance. He established a tech company in china in his name. Liang Rubo is the CEO of ByteDance, Shouzi Chew is the CEO of TikTok CEO, and Vanessa Pappas is the COO of TikTok. It falls under private or subsidiary business. It belongs to the social networking industry.

TikTok key statistics

TikTok, also known as Douyin in China, was introduced in September 2016. It soon gained popularity in China, and its parent company ByteDance introduced it internationally in 2017. TikTok became the most popular app in 2019 and 2020 in a short period. People downloaded the app around 700 million times in 2019 and around 900 million times in 2020. TikTok got the vogue quickly and was the seventh-most downloaded app of the decade. It has over 900 million active members globally and appears to be a genuine threat to Facebook’s stronghold on social media in the West. It had more than 1 billion monthly active users in 2021. It will reach 2 billion by the end of 2022. TikTok made around $5 billion in revenues in 2021.

Tiktok Users Statistics

The app serves as a social hub for Generation Z. 47% of Tiktok users belong to the ages 10-30. Gen Z comprises 65% of TikTok users, and research shows it is the largest population in American history and 26% of the population. The actual target audience of Tiktok is also Generation Z, who desire attention and social acceptance. TikTok provides a platform to its users who want to get famous. They can share their creativity and talent through their short videos. They produce and share their content with others around the world.

Tiktok Advertisers

TikTok advertising may significantly improve brand engagement. The advertisers can directly engage influencers through the creative marketplace that suits their target audience. Another TikTok aspect that aligns with its high vogue is the usage of “challenges.”

Tiktok offers a direct connection between the advertiser and the audience. TikTok successfully meets the needs of its client group by amusing its users, giving social recognition to artists, and offering massive engagement rates to advertisers.

How Does Tiktok Make Money?

The revenue of Tiktok increases every year. This is feasible by the income streams of the app, such as media advertising and in-app purchases. We are sharing the details of the income sources of Tiktok to present its business strategy.

1. Tiktok Ads

TikTok released a new advertising option named TikTok for Business in June 2020. It helped the companies to advertise their products on the platform via in-feed videos, brand takeovers, hashtag challenges, and branded effects.

In feed, ads are brief videos in users’ feeds when scrolling through the For You page. The advertisements are often the same as those shown in the stories on Instagram.

2.    In-Feed Video Ads

As the viewer scrolls the “For You” page, these short-form video ads appear between their feeds. The advertisements appear between videos and may take up the screen, much like Instagram stories.

3. Brand Takeover Ads

Brand takeover advertisements appear right after you open TikTok. Brands use this type of advertisement to deliver their message to their target audience. You see an advertisement for a product or service every time you use the app. The ads generate a good amount of revenue for the company.  Tiktok charges a premium fee for displaying such adverts, ranging from $50,000 to $100,000, yet it earns a lot of money.

4.  Top-View Ads

The top view ads pop up while watching videos on the app. The video ads might last up to 60 seconds. It draws the user’s attention. It is the best technique to engage customers and increase ad clicks. Big brands prefer these kinds of ads over brand takeover advertisement, which shows when a user opens the app. They can promote their products more effectively in top-view ads that seek immediate attention.

5. Branded Hashtag Challenges

One of TikTok’s most profitable income streams is the branded hashtag challenge. Brands design their hashtag challenges and pay TikTok to have their tags appear on people’s discovery pages in a sponsored hashtag challenge. TikTok users take in these challenges and share their videos using a specified hashtag. It’s entertaining for users and profitable for companies as it raises brand awareness. These challenges now take the visitor to the main page of the challenge, where they may view the complete instructions.

TikTok earns revenue from these hashtag challenges and demands a considerable cost for such an advertisement which is $1.5 billion for the first week of a hashtag challenge and an additional fee of $1-$2 billion for promoting these challenges.

6. Branded Effects

TikTok offers users branded personalized stickers, enhanced filters, and lenses to use in their movies. Each branded impact may last up to ten days and provide ample opportunity to engage with the brand. TikTok makes money when companies purchase these adverts to reach their global audiences. Tiktok is creating more engaging and enjoyable 2-D and 3-D Virtual reality branded lenses. These lenses, when combined with the hashtag challenge, have the potential to make the campaign more attractive. Tiktok allows a brand to design its lenses. These can also let the user get a closer look at the items before purchasing them. TikTok users may add branded custom stickers, augmented-reality filters, and lenses to their videos.

7. In-App Purchases

TikTok, like many other social media networks, makes money through in-app purchases. The software offers 100 to 10,000 virtual coins with prices ranging from 99 cents to $100.

TikTok coins are an in-app currency that you can purchase. Users may use their coins to buy virtual presents for other users to demonstrate their gratitude for their work.

Before the release of Tiktok for Business, in-app purchases were the primary source of revenue. Creators with at least 1,000 followers may earn virtual presents from their fans by streaming a live video under this scheme. If fans enjoy their content, they may tip them with virtual gifts; however, each present is worth a certain number of virtual coins, which you can purchase with real money via the app. They may then use these coins to send as a gift to their favorite content creators.

8. Commission from Content Creators

When a user makes an in-app purchase, the creator can withdraw all tips in return for real money. The drawback is that TikTok charges a 50% fee on each dollar from the app and then restores the remainder to TikToker’s account. Users may often withdraw money from their accounts after they reach $100, with a daily withdrawal limit of $1,000.

TikTok earns money on the front end when users purchase TikTok coins and on the back when a content producer wants a withdrawal. When a TikToker has 1,000 followers, he can earn TikTok Coin presents from people in their live broadcasts.

To obtain these coins, TikTokers must swap them for actual money via the app, and TikTok charges a fee for that exchange and earn a commission.

9. E-Commerce Offers

TikTok is offering opportunities and considering ways to incorporate e-commerce into its platforms, such as selling tools for shopping events and showing or reviewing products during a live stream. TikTok earns a commission on every sale.

10. Key Partners

Digital influencers, YouTubers, celebrities, and other content creators are among TikTok’s main partners. All of these customers are moving to TikTok. Employers of huge companies, brands, and e-commerce businesses are also attracted to TikTok because it is more profitable than any other social media platform to sell or advertise their products and services.

Growth Plan of Tiktok

TikTok has expanded significantly and gained popularity from its beginning. Facebook also launched its own short-video service Lasso in the United States in November 2018 after seeing the quick popularity of Tiktok. However, just 70,000 people downloaded Lasso in the United States, which is very low compared to TikTok. Tiktok had 40 million users in the first four months of its launch in the United state.

According to the latest research, the number of TikTok users in the UK will grow by 15 million in 2025. The app’s popularity is likely to rise even higher, with 16.8 million users in 2024 in the US. Now TikTok is also working with merchants in areas such as the UK and USA and helping them to sell their products directly to millions of app users.

Future of Tiktok                

TikTok’s future is bright and promising, but the app has been facing controversies and restrictions. The app has paid millions of dollars in fines in some cases. Many countries banned it, including Pakistan and India. The Big data centers of Tiktok are in China, but now they are establishing franchises in other countries. TikTok CEO Zhang Yiming is convincing the governments of other countries that the app is secure and that they have done all necessary checks to clear their name of such allegations. They have built a transparency center where professionals may assess their moderation policies.

Many major corporations are interested in purchasing its US services regardless of all the threats and restrictions. The app is trying to execute a revival and diversified plan to overcome legal flaws while keeping its potential audience. So, the future of Tiktok is safe and sound.

Top Competitors of Tiktok       

Tiktok has many competitors. They are trying to compete with it in every possible way. TikTok has five major rivals that we are describing below;

1. Instagram

Instagram is also very popular and has more than one billion active users worldwide. It’s a social media platform for sharing temporary images, reels, and posts after creating your account. Instagram is the biggest competitor of Tiktok, which has attempted to counter the growth of Tiktok by introducing the function of the Reel. It allows you to share short videos with sounds similar to TikTok.

2. Snapchat        

Snapchat is also a social media app that is very popular in the android market. It has more than 1.5 billion users. It is an innovation in fast and fleeting photos with filters and effects. It has options for sharing Snapchat memories, Snapchat stories, and images with friends or the community.

3. YouTube

YouTube is the oldest video-sharing platform. It’s fascinating to see short videos on YouTube. YouTube used to be the most popular video-sharing site, but Tiktok gained more attraction because of its crispy videos. People prefer to watch a few seconds video than a long video. Moreover, YouTube videos need video editing skills to upload videos. So, YouTube has launched Shorts to watch random short videos. YouTube still has a strong influence on the internet, which is why it is the biggest competitor of Tiktok.

4. Facebook

Facebook is a social media platform and one of the top competitors of Tiktok. Facebook has billion of daily active users, but Tiktok is affecting its percentage of downloads. So, Facebook introduced a new feature as reels and stories that are short video clips like you watch on TikTok.

5. Twitter

Twitter is a micro-posting social media platform that allows a character limit of 280 for posts. Big companies and celebrities are the most active users of Twitter. However, Twitter has added stories- a feature similar to those seen on WhatsApp, Instagram, and Facebook, which includes Twitter as one of the main competitors of Tiktok.

6. SWOT Analysis

SWOT stands for Strengths, Weaknesses, opportunities, and threats. We are giving a detailed SWOT analysis of TikTok to make its business model more comprehensive.

7. Strengths

The most attractive feature of Tiktok is its algorithm that chooses videos of your interest. This feature sets it apart from other social media platforms. It does not analyze the user preferences, family, and friends but the amount of time you spend using the app. It does not show you random videos like Facebook or YouTube shorts. It selects videos based on your preferences. It catches the indication that if you scroll to the next video too quickly, you do not enjoy this type of material. Tiktok has another great strength- market share, as it is free of cost in over 150 countries, and people are using it a lot.

8. Weaknesses

TikTok has issues with inappropriate content, like many other social media platforms. TikTok users often share videos and audio that is explicit. They do not follow the terms and conditions of a social app. Users share harmful content with youngsters and teens, which is very destructive.

Another flaw of Tiktok is its addiction, which is beneficial to the platform but very bad for users. According to research, children and teens spend a minimum of two hours daily using the app. These are a few reasons that some countries boycott it.

9. Opportunities

TikTok offers users and marketers several alternatives for marketing and promoting content, products, and services. Many brands, companies, and digital influencers share their content and merchandise with millions of active users. Some brands use tools, such as hashtags, to get customers to use or evaluate their products. Tiktok is a one-of-a-kind platform for connecting with individuals who like to share their everyday life experiences, recommendations, thoughts, information, accomplishments, culture, and events.

10. Threats

Foreign boycotts are the most widely discussed threat to TikTok. Donald Trump attempted to outlaw TikTok in the United States. Because of immorality and obscenity, India and Pakistan also restricted the usage of a few Chinese applications.

Data collecting is another cause for concern as TikTok changes privacy settings this year to gather faceprints and voiceprints.

Conclusion

The audience of Tiktok is broad and diverse. The majority of TikTok content creators are indeed young. But it is a typical misperception that all users are youngsters. Tiktok has a user that belongs to all age groups. Many still feel Tiktok will never be as popular as Facebook or Instagram. TikTok has a unique algorithm and a better way of creating and sharing content that might upset competitors. TikTok will reach 800 million monthly users worldwide by the end of 2022, with a market share of more than 20%.