How Does TikTok Make Money?

TikTok makes money through advertising. It is estimated that ByteDance, its owner, made $51 billion in 2021 in revenues. TikTok instead generated $11 billion in advertising in 2022, 3.3 billion downloads, and 1.2 billion monthly active users in 2021. TikTok, therefore, is a multi-billion company worth anywhere between $100 and-150 billion and among the most valuable social media platforms on earth.

Business Model Element	Analysis	Implications	Examples
Value Proposition	TikTok’s value proposition is built on: – Short-Form Video Creation: Enables users to create and share short, entertaining videos. – Virality and Creativity: Encourages creativity and viral content creation. – Algorithmic Feed: Utilizes a personalized content feed based on user preferences. – User Engagement: Fosters user engagement and interaction with content. TikTok empowers users to express themselves creatively, discover new content, and engage with a global community.	Offers a platform for creative short-form video creation and sharing. Encourages user-generated viral content. Provides a personalized content feed to enhance user experience. Fosters user engagement through likes, comments, and shares. Attracts users seeking creative expression and interaction.	– Creating and sharing short, entertaining videos. – Encouraging viral content creation and creativity. – Offering a personalized content feed. – Fostering user engagement and interaction. – Attracting users seeking creative expression and interaction.
Customer Segments	TikTok serves various customer segments, including: 1. Individuals: Personal users who create and engage with content. 2. Content Creators: Users who focus on creating and sharing content. 3. Brands and Marketers: Businesses using TikTok for advertising and promotion. 4. Influencers: Individuals with a substantial follower base for partnerships. TikTok caters to diverse user groups and offers advertising and partnership opportunities.	Addresses the needs of individuals for creative expression and content engagement. Provides content creators with a platform to showcase their talents. Offers businesses advertising opportunities to reach a large user base. Collaborates with influencers for promotional campaigns and partnerships. Customizes offerings for various user segments and industries.	– Meeting personal expression and content engagement needs. – Providing a platform for content creators. – Offering advertising opportunities for businesses. – Collaborating with influencers for partnerships. – Customizing offerings for diverse user preferences.
Distribution Strategy	TikTok’s distribution strategy includes several key elements: – Mobile App: Offers user-friendly mobile applications for iOS and Android. – Social Media Integration: Enables users to share TikTok content on other platforms. – Content Discovery: Utilizes a personalized content feed for users. – Partnerships: Collaborates with artists, influencers, and businesses for content. TikTok ensures accessibility and content partnerships for distribution.	Provides accessible mobile apps for user convenience. Integrates with social media for content sharing and visibility. Enhances content discovery through personalized feeds. Collaborates with partners for content creation and promotion. Prioritizes accessibility and partnerships in distribution.	– Offering mobile apps for widespread access. – Enabling content sharing on social media platforms. – Enhancing content discovery with personalized feeds. – Collaborating with artists, influencers, and businesses. – Prioritizing accessibility and partnerships in distribution.
Revenue Streams	TikTok generates revenue through the following sources: 1. Advertising: Earns income from businesses promoting products and services through ads. 2. In-App Purchases: Offers virtual gifts and other digital items for purchase. 3. Sponsored Challenges: Partners with brands for sponsored content challenges. 4. Virtual Currency: Sells virtual currency for tipping content creators. Diversifies income sources across advertising, in-app purchases, sponsored content, and virtual currency.	Relies on advertising as a primary revenue source for businesses seeking audience reach. Provides in-app purchases and virtual gifts for user engagement. Collaborates with brands for sponsored content challenges. Sells virtual currency for tipping content creators. Diversifies income streams for financial stability.	– Earnings from advertising for audience reach. – Revenue from in-app purchases and virtual gifts. – Collaborating on sponsored content challenges. – Selling virtual currency for tipping content creators. – Diversifying income sources for financial stability.
Marketing Strategy	TikTok’s marketing strategy focuses on the following elements: – Trend Promotion: Highlights trending challenges and content. – Hashtag Campaigns: Encourages users to participate in hashtag challenges. – Influencer Collaborations: Partners with influencers for content promotion. – User Engagement: Promotes user engagement through likes, shares, and comments. – Viral Content: Encourages the creation of viral and entertaining content. TikTok prioritizes trend promotion, hashtag campaigns, influencer collaborations, user engagement, and viral content in its marketing efforts.	Highlights trending challenges and content for user engagement. Encourages user participation in hashtag challenges. Collaborates with influencers to promote content. Promotes user engagement through likes, shares, and comments. Encourages the creation of viral and entertaining content on the platform. Prioritizes user engagement and content creation in marketing.	– Highlighting trending challenges and content. – Encouraging user participation in hashtag challenges. – Collaborating with influencers for content promotion. – Promoting user engagement through interactions. – Encouraging viral and entertaining content creation. – Prioritizing user engagement and content creation.
Organization Structure	TikTok operates with a functional organizational structure: – Leadership Team: Led by top executives responsible for strategic direction. – Content Moderation: Focuses on content guidelines and user safety. – Engineering and Development: Manages platform development and features. – Sales and Partnerships: Drives advertiser relationships and partnerships. – User Support: Ensures user satisfaction and support. TikTok’s structure emphasizes functional specialization and user safety.	Employs a functional structure with clear divisions for efficient operations. Prioritizes content moderation and user safety. Focuses on platform development, sales, and support. Ensures user satisfaction and data management. Supports strategic direction and decision-making from top executives. Maintains a focus on functional specialization and user experience.	– Functional structure with specialized divisions. – Prioritizing content moderation and user safety. – Focusing on platform development, sales, and support. – Ensuring user satisfaction and data management. – Supporting strategic direction from top executives. – Focusing on functional specialization and user experience.
Competitive Advantage	TikTok’s competitive advantage is derived from: – Short-Form Video Dominance: Leads in the short-form video content niche. – User-Generated Creativity: Encourages user creativity and engagement. – Algorithmic Feed: Provides a personalized content feed for users. – Viral Trends: Drives viral content and challenges. – Youth Appeal: Attracts a young and active user demographic. TikTok stands out as a dominant short-form video platform with user-generated creativity, personalized feeds, viral trends, and appeal to a youthful audience.	Derives a competitive advantage from leading in short-form video content. Encourages user-generated creativity and engagement. Offers personalized content feeds for enhanced user experience. Drives viral content and challenges. Appeals to a young and active user demographic. Stands out as a dominant platform for short-form video content.	– Leading in short-form video content dominance. – Encouraging user-generated creativity and engagement. – Providing personalized content feeds for users. – Driving viral content and challenges. – Attracting a young and active user demographic. – Standing out as a dominant short-form video platform.

Table of Contents

TikTok Business Model Explained

TikTok is the fastest-growing attention merchant.

It went to 1.2 billion active monthly users in a few years. A meteoric rise, that we have never seen before.

The company monetized this attention through an advertising platform, miming the advertising model of Instagram:

While TikTok has become popular through its native short-form videos, in reality two elements contributed to its incredible success:

Video editing at scale

TikTok transformed everyone into a video editor through its CapCut app. This is a critical point to understand, as TikTok brought user-generated content to the next level by enabling millions of users to easily take existing content on TikTok to recombine it and make it into an exponential content machine.

Indeed, CapCut is among the most popular apps.

AI discovery feed, no more the social graph

The key turning point for TikTok was the move from the social graph to an AI-based feed. Where the experiences of users wouldn’t be tied – anymore – to who were your friends, but rather what was sticky, based on your interaction.

In short, you could get a short-form video of a person in the other part of the world, with which you don’t have any connection, doing strange dances, only because this has proved sticky for hundreds of millions of users.

TikTok showed the world the new paradigm of AI-based discovery at scale. All major companies (from Instagram to YouTube) adapted and transitioned.