TikTok is the Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.
|Year & Place Founded||September 2016, China|
|Initial Business Model||
Before acquiring Musical.ly, it was a video sharing app
|Business Model Change||
After acquiring Musical.ly, for about $1 billion, on 2 August 2018, TikTok became a short-form video sharing app with built-in music
|Total Revenues in 2021||$4.6 billion (source: BusinessofApps)|
|Total Downloads in 2021||3.3 billion (source: BusinessofApps)|
|Who owns TikTok?||Bytedance|
|Who owns Bytedance?||
Kohlberg Kravis Roberts, SoftBank Group, Sequoia Capital, General Atlantic, and Hillhouse Capital Group (Source: Reuters)
- History of TikTok
- TikTok short business model breakdown
- AI-based company
- The Chinese newcomer in the creative social media space
- TikTok business dissected
- ByteDance, the company behind TikTok
- What is ByteDance’s mission?
- The content hub is powered up by machine learning
- TikTok merge with Musical.ly accelerated growth
- How much is ByteDance worth?
- How does TikTok make money?
- Inside TikTok For You Feed?
- TikTok growth plan
- TikTok’s two-sided network effects
- Related Case Studies
- Related To TikTok Business Model
History of TikTok
The history of TikTok is somewhat more subdued than the fairy tale stories that characterize many similar companies.
Indeed, the platform was not built by two or three broke university students who feverishly worked away in their father’s garage and never saw the light of day.
Instead, TikTok started life as three different apps, and the story of how it came to be is told here.
TikTok was developed by Chinese tech company ByteDance and released in September 2016 under the moniker Douyin.
It was marketed as a video sharing and social networking platform not unlike Instagram and Facebook (which are both banned in China).
Douyin quickly rose to prominence in its home market with 100 million users and a billion videos viewed each day within a year after release. These numbers attracted the attention of company management who became interested in expansion to overseas markets.
To reflect a name with more international appeal, Douyin was rebranded to TikTok in some parts of the world – but it would not be available on iOS or Android until several years later.
Douyin continued to operate in China as per that country’s censorship laws.
In November 2017, ByteDance purchased Musical.ly – a social media app where users share short, 15-second lip-sync music videos.
The deal, worth around $1 billion, was seen as proof that ByteDance had global ambitions.
In a statement to Reuters, ByteDance chief executive Zhang Yiming noted that “By integrating Musical.ly’s global reach with Bytedance’s massive user base in China and key Asian markets, we are creating a significant global platform for our content creators and brands to engage with new markets.”
In August 2018, ByteDance decided to retire the Musical.ly platform and incorporated the most popular features into TikTok.
The company consolidated users from both platforms, particularly in the United States where Musical.ly enjoyed around 100 million users.
International expansion and controversy
TikTok was launched thereafter in the United States and became available in over 150 countries thereafter.
The app was an immediate success and by February 2019, TikTok had surpassed 1 billion downloads in the App Store and Google Play.
President Trump tried to ban TikTok transactions within the United States after signing an executive order on August 6, 2020.
Essentially giving ByteDance 45 days to sell the app, the company fired back at Trump in September with an injunction that would prevent the app from being banned.
Ultimately, the court ruled in favor of TikTok, and the U.S. Commerce Department was prohibited from imposing further restrictions.
In recent years, TikTok has been banned from countries such as Pakistan, India, Bangladesh, and Indonesia for various reasons.
Some of these bans relate to concerns over culturally inappropriate content, while others are associated with potential threats to national security.
100 million followers
In November 2020, Charli D’Amelio became the first TikTok user to surpass 100 million followers.
In an example of the power and popularity of the platform, D’Amelio dances and sings to lip-synched videos in a nod to TikTok’s Musical.ly heritage.
She now also hosts a podcast, has her own drink at Dunkin’ Donuts, and has launched a custom line of mattresses.
The history of TikTok, a recap
- The history of TikTok is somewhat more subdued than the fairy tale stories that characterize many tech start-ups. TikTok started life based on the popular Douyin short-form video app in China and was later supplemented with many of Musical.ly’s most popular features.
- To reflect a name with more international appeal, Douyin was rebranded to TikTok in some parts of the world while Douyin continued to operate in the Chinese market.
- Once the app was launched in the United States and countries in August 2018, it took a mere 6 months for it to surpass 1 billion downloads. TikTok remains a social media juggernaut today, despite some controversy, with the ability to turn ordinary people into celebrities.
TikTok short business model breakdown
TikTok is the Chinese creative social media platform primarily driven by short-form video content.
It launches challenges of various types to tap into the creativity of its users and generate engaging (if not addicting content) accessible via an infinite feed.
TikTok primarily makes money through advertising:
|TikTok Business Model||Description|
|Value Model: Creative AI-Based Social Media.||
TikTok’s mission is “to inspire creativity and bring joy.” With a short-video format, a continuous feed can provide content by learning what users like, at scale, with a built-in AI, and hook users around content that can be built based on interactions (things like challenges, duets, and more).
|Technological Model: Two-sided network effects.||
TikTok works like a two-sided network. For each additional average power user joining (what on the platform is known as “TikToker”), the more the network will become valuable for average users, and the more power users will want to join the platform. As more TikTokers generate content, this content becomes viral, generating many interactions and new user-generated content. That makes the TikTok platform increasingly valuable,
|Distribution Model: User-Generated Content, Power Users, Brand, Growth Engine, Fast Product Development, AI-Driven Features.||
The main challenge for TikTok is to keep improving its platform at scale, thus making it viable and able to manage a large amount of traffic and interactions. The more features will be added, and the more the platform will enable creators to build content, the more this will make the user-generated content valuable at scale.
|Financial Model: Advertising Engine.||
TikTok primarily monetizes its business through its advertising machine. As the company managed to monetize the traffic on top of the platform many times over, the more the advertising machine can generate revenues at scale.
TikTok challenges are accompanied by compelling music tracks embellished via effects and filters, and powered by AI algorithms that optimize both content creation, curation, and recommendation.
The company had grown exponentially and reached over 1.2 billion monthly active users in Q4 2021 (according to BusinessofApps).
Facebook has taken notice and might be building its own version, called Lasso, which it launched in Brazil, back in 2018. Yet, now Facebook (rebranded as Meta) is shifting the whole Instagram format based on TikTok’s format.
Indeed, in May 2022, Adam Mosseri announced the whole change of Instagram feed, which is becoming full screen:
📣 Testing Feed Changes 📣— Adam Mosseri (@mosseri) May 3, 2022
We’re testing a new, immersive viewing experience in the main Home feed.
If you’re in the test, check it out and let me know what you think. 👇🏼 pic.twitter.com/dmM5RzpicQ
TikTok might be defined as a creative social media or a content platform that taps into the creativity of its users through a set of challenges of various types, to generate engaging content. TikTok has a few main characteristics:
- Classic social media platform leveraging on the willingness of people to share their content.
- Combined with compelling music tracks as the companion to the challenges set on the platform.
- A set of compelling filters and effects that can be applied to the videos.
- And an Asystemem as content curation and recommendation.
Bytedance has been a unicorn for years now.
Yet, as of 2021, thanks also to the success of TikTok, it has become a multi-billion dollar company, worth anywhere between 100-150 billion dollars!
What’s so unique about a company that has racked up over half a billion users globally?
Which has become among the most valuable Startups, owned by a Chines tech company?
TikTok business dissected
As pointed out on the TikTok site, “TikTok is a destination for short-form mobile videos. Our mission is to capture and present the world’s creativity, knowledge, and precious life moments, directly from the mobile phone.
TikTok enables everyone to be a creator, and encourages users to share their passion and creative expression through their videos.”
That doesn’t seem to be anything special about it, if not the fact that TikTok’s aim is really to tap into people’s creativity.
Yet to understand why TikTok might be unique, we’ll need to look under the hood, at the company that controls it: ByteDance.
ByteDance, the company behind TikTok
ByteDance was founded by Yiming Zhang, which the ByteDance website defines as “A lifelong entrepreneur before ByteDance Yiming founded several ventures including a real estate search portal.
Previously, he served as the Director of Technology at Kuxun, then the dominant travel and transportation search engine in China, where he led a team of more than 40 engineers. Kuxun was later acquired by TripAdvisor.”
The real-time network calculator from Forbes assigns Yiming Zhang a net worth of $49.5 billion in 2022, making him among the wealthiest Chinese people.
One of the most incredible aspects of this rise is that ByteDance has been able to get so far, even though it didn’t get money from China’s duopoly Alibaba-Tencent.
ByteDance found itself in a legal battle where it alleged Tencent and Baidu to have unfairly competed against one of its most popular apps in China, called Toutiao.
What is ByteDance’s mission?
As announced on its site, the mission ByteDance:
Our vision is to build global creation and interaction platforms – we aim to not just deliver information but serve as a creative hub, hosting and nurturing creators. This belief guides our strategy in product development. Alongside our flagship product Toutiao, the largest content discovery and creation platform in China, we have also developed a diverse portfolio of products that are popular around the world, most notably musical.ly and TopBuzz.
ByteDance offers a series of products, and in China, its most popular one is called Jinri Toutiao (“Today’s Headlines”), which is a news aggregator.
The company claims that it uses AI to tap into the habits of users and to curate content from publishers. While it’s hard to verify how much AI is really at the core of Toutiao’s success, the company kept growing at and fast pace.
And ByteDance has become among the largest content platforms globally.
The content hub is powered up by machine learning
One of the main features of social media is the content generated by its users. In short, a large number of users create a vast amount of content for free on the platform:
ByteDance has accumulated a vast amount of content and social media created by people and rich engagement data across our various products. This massive data is fed into our machine learning algorithms, which further refines the quality of users’ content feed and enhances the content experience, which in turn encourages more engagement and generates more data to be fed back into our algorithms. We use this virtuous cycle to optimize every stage of the “content lifecycle”—creation, moderation, curation, recommendation and interaction.
In short, the ByteDance platform claims to use machine learning and AI on both sides of the content spectrum. In terms of consumption things like feeds, channels, apps, and entry points are assessed and assisted by the AI.
In terms of content creation, AI supports the production of articles, images Q&As, videos, and live sessions.
The mechanism is summarized below:
Thus, the AI works on several phased of the content experience lifecycle:
- And interaction.
TikTok is known in China as Douyin, and it allows users to create unique 15-second short videos, by applying effects that get shared across the world.
TikTok merge with Musical.ly accelerated growth
We are delighted to welcome musical.ly to the Bytedance family. Louis, Alex and their team have built a hugely powerful and engaging platform, and we see immediate and exciting opportunities to build on the obvious synergy with our business. y integrating musical.ly’s global reach with Bytedance’s massive user base in China and key Asian markets we are creating a significant global platform for our content creators and brands to engage with new markets. At the same time, our global-leading AI technology will help musical.ly to accelerate their incredible pace of innovation in mobile video creation.
How much is ByteDance worth?
Bytedance made $51 billion in 2021 and it might be worth well in the range of 300-400 billion dollars!
How does TikTok make money?
TikTok makes money through its advertising platform, the TikTok Ads Manager. From there, brands can kick off their branding campaigns over TikTok. While we don’t know for sure how much money TikTok makes.
We know that Bytedance, TikTok’s owner made as much as $51 billion in 2021.
TikTok made instead $4.6 billion in revenue in 2021 (142% increase year-on-year).
It did that, by creating a whole new category: user-generated hype.
In fact, Hype Houses (the houses where kids get organized, to develop short-form content for TikTok) have become the content farms for the platform:
A few potential monetization strategies might be:
- Advertising revenues are generated via targeted ads (similar to YouTube).
- Allowing content creators to monetize their content as a user-generated platform is critical to the platform’s long-term success.
- A subscription model for original, more extended form content from the platform that assembles the best short-form content.
- In 2021, TikTok built its creator fund, by committing £231 million over a 3 years time frame, devoted to the top creators.
In the context, of the digital advertising industry, TikTok is becoming a key player:
And we’re seeing exponential growth of its advertising machine, sustained by Bytedance.
Inside TikTok For You Feed?
In an attempt to make its algorithms more transparent (people’s concerns about TikTok being owned by a Chinese company has pushed the company in various directions, among which hiring a US CEO, who was the former Disney’s head of streaming) TikTok shared some details about its For You Feed.
The recommendation system is the tip of the iceberg and a window into how TikTok is redefining social media, into an ultimate meme machine, which power lies outside the social network.
TikTok (as we’ll see) is mostly interest-driven (both what you like and don’t like) and it has a capacity for customization that is extreme. If Facebook made us live inside filter bubbles, TikTok will make us live inside superbubbles. As TikTok explained:
When you open TikTok and land in your For You feed, you’re presented with a stream of videos curated to your interests, making it easy to find content and creators you love. This feed is powered by a recommendation system that delivers content to each user that is likely to be of interest to that particular user. Part of the magic of TikTok is that there’s no one For You feed – while different people may come upon some of the same standout videos, each person’s feed is unique and tailored to that specific individual.
Therefore, the For You feed reflects preferences unique to each user based on:
- User interactions (videos you like or share, accounts you follow, comments you post, and content you create).
- Video information (captions, sounds, and hashtags).
- Device and account settings (language preference, country setting, and device type).
But if TikTok doesn’t know anything about you, how does it learn? Let’s look at the workflow TikTok uses to go from an un-personalized For You feed to a tailored one, at scale:
- TikTok starts by offering a generalized feed of popular videos. From there based on the first set of likes, comments, and replays it will learn your tastes and start recommending more.
- As you enjoy and use the app, TikTok will learn from any interaction happening on the platform.
- You can also “long-press” to add a video to your favorites (that indicates clearly what you like), or you can long-press on a video and tap “Not Interested” (which will help the system learn quickly about your tastes).
In such a personalized system, filter bubbles can be a real problem to address the TikTok For You Recommendation system tries to interrupt patterns (by for instance no recommendation by the same creator might be done twice in the same session), by showing videos that are outside your usual preferences, so that the recommendation algorithm can itself adjust to that.
In a paper published on September 2022, entitled “Monolith: Real-Time Recommendation System With Collisionless Embedding Table,” the team at Bytedance, which works on the TikTok recommendation engine, explained:
Monolith Online Training Architecture created by Bytedance for TikTok
As Bytedance’s team concluded:
We reviewed several most important challenges for industrial-level recommendation systems and present our system in production, Monolith, to address them and achieved best performance compared to existing solutions.
We proved that a collisionless embedding table is essential for model quality, and demonstrated that our implementation of Cuckoo HashMap based embedding table is both memory efficient and helpful for improving online serving metrics.
We also proved that realtime serving is crucial in recommendation systems, and that parameter synchronization interval should be as short as possible for an ultimate model performance.
Our solution for online realtime serving in Monolith has a delicately designed parameter synchronization and a fault tolerance mechanism: In our parameter synchronization algorithm, we showed that consistency of version across different parts of parameters could be traded-off for reducing network bandwidth consumption;
To conclude, Monolith succeeded in providing a general solution for production scale recommendation systems.
TikTok growth plan
By 2021, TikTok had passed 1.2 billion monthly active users. For some context, it took Facebook 8 years to pass 1 billion monthly active users.
TikTok passed a billion monthly active users in five years.
Its growth has been so fast that Facebook has taken notice.
Indeed, Facebook – now Meta – has been building over the last years its own clones of TikTok.
Given TikTok’s presumably multi-billion firepower, it won’t be easy for Facebook to stop TikTok growth.
As Facebook is also investing in its own creative social media app, it makes sense that TikTok is pushing so much on growth.
However, this strategy is also hazardous, as when fuels start to run over, either the company will be able to get another round of investing and keep better monetizing its products, or it might risk falling.
What’s most important about TikTok is its research lab, what ByteDance calls “AI Lab” which claims expertise in several areas, from natural language processing (NLP), computer vision, machine learning, and more:
For instance, in the NLP areas, ByteDance has created applications like:
- Byte Translator: the machine translation service for all ByteDance products
- Xiaomingbot: a robot writer for sports, finance, housing, worlds highlight, etc.
- Search for Toutiao and Tiktok (Douyin)
Will TikTok be able to sustain its growth to the point of becoming the dominant creative social media?
I heard in the past couple of years people talking about how TikTok was different from this or that app.
However, I would like to remind you that as an evolution to social media TikTok will over time become a competitor to all the entertainment apps and websites (from YouTube to Facebook, Instagram, and also Netflix).
As new generations get used to new formats and content types, what once seemed sticky content formats will be replaced – over time – by something else.
TikTok’s two-sided network effects
TikTok is a hype machine. A platform, with native short-form video content, delivered at scale, through an endless feed, powered by AI.
This feed’s objective not only is to show addicting short-form videos. It’s also to incentivize users to generate other content on top of it. Thus, the two-sided network starts with power users (those generating hype) who by producing engaging/addicting content, publish it on the platform.
In turn, TikTok amplifies the content through its algorithms and incentivizes other users to create their own version of the same content, thus making the user-generated content scale more easily.
TikTok combines music, video, and interactions to create a compelling/if not addicting experience, thus bringing validation to another level. Whereas Instagram was about validation by posting filtered pictures.
TikTok is about hyped validation, by posting dances, challenges, and memes.
Which new content categories can we expect from TikTok? And what sorts of people will be successful on the platform?
Based on the above, three categories of people will become the main driver of TikTok’s success:
Those are the fields TikTokers might disrupt. Just like Instagram created the “influencers” who are power users, which became the gatekeepers in various fields (fashion, cooking, beauty, gaming, and more).
TikTok is creating a new type of influencer, who, through dances, songs, challenges, and memes will become the new gatekeepers for many brands to gain visibility online!
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