If you are an avid social media user, you must have surely watched a Tiktok video. It is one of the most popular short video-sharing social media platforms across the world. However, there is a mystery surrounding its revenue model. Tik Tok’s business model mainly revolves around advertising and influencer marketing.
To learn more about its business model in detail, keep reading.
How does Tik Tok Make Money?
The primary source of Tiktok’s business model is advertising. The video-sharing app allows brands and businesses to promote themselves on its platform. Many brands and companies have successfully used TikTok as a part of their marketing campaigns to attract young audiences.
In 2020, TikTok, for the first time, introduced TikTok for Business. It is a different platform for brands to run their advertising campaigns inside the TikTok app. Brands can opt for different kinds of advertising, including In-Feed advertising, Brand Takeovers, and Branded Hashtag Challenges.
Let’s go into detail and talk about how TikTok makes money:
With more than 1 billion monthly active users, TikTok is one of the best platforms for social media advertising. Small and large businesses can use this platform to promote their products and services.
Now, TikTok is all set to launch its new program, called TikTok Pulse. This program will allow ads to be specifically run alongside “the top 4% of all videos on TikTok”. Content Creators and influencers with a minimum of 100,000 followers would be eligible to generate a cut from the revenue when their videos are included.
To elaborate more on the advertising model of Tiktok, let’s look at different forms of advertising in more detail:
Brand Takeover Ads:
When you first open TikTok and instantly an ad pop-ups, that ad is called branded takeover ad. They are displayed on the “For You Page.” They are usually short and are in the form of either GIFs or still images.
Brands/ Businesses may use this type of advertising to send the message directly to the target audience. There is only one branded takeover ad per category displayed on TikTok each day. Therefore, brands pay a premium price to earn this spot.
In-Feed Video Ads:
An ad that appears in between two videos, that type of ad is called an In-Feed Video ad. These are similar to those ads that appear in between an Instagram story.
Brands can utilize this opportunity by creating short, entertaining, trendy pieces of advertisement that can be placed in between the other video content. In-Feed ads also include some links and challenges within them.
TikTok users can also interact with these types of ads by commenting, liking and sharing them with other users. For brands, it’s a good way of understanding how the advertisement is perceived by the audience.
Branded Hashtag Challenges:
TikTok gives brands an option to create their hashtag with a unique challenge. TikTok users are encouraged to participate in the challenge and use the branded hashtag.
Brands can also opt for their customized filters/ stickers/ lenses on TikTok. These effects can last up to 10 days, giving enough time to the user to interact with the brand.
A TikTok influencer can do a brand partnership and perform in these brand hashtag challenges to increase the campaign’s reach. It’s entertaining for users and, at the same time, increases brand recognition.
Top View Ads:
These ads appear when a user is already using the app. They appear at the top of a user’s ‘For You Page’. They are usually 60 seconds long, and brands do not compete with other content.
The key use most out of top-view ads for brands is to create an entertaining, creative video that will keep the maximum users engaged. Do not confuse these ads with Branded Takeover Ads, as the latter appears as soon as the user first opens the app.
50% Commission from content creators
TikTok earns money also via virtual coins. These TikTok coins can be purchased by TikTok users and can be used to gift their favorite influencer. A TikTok influencer with a minimum of 1000 followers can do a TikTok live stream and earn virtual gifts.
If a TikTok user likes someone’s content and wants to tip them, they can purchase TikTok coins with real money and buy a virtual gift. You need a specific amount of coins to buy each gift. A TikTok user can get 100 coins for $1.29 and go up to $134.99 for 10000 coins (at the time of writing this article).
After receiving the virtual gift, a TikTok influencer can convert them into diamonds worth $0.5 each. TikTok charges a 50 per cent commission and then credits the TikTok influencer’s account with the remaining amount.
As discussed earlier, TikTok users can purchase virtual coins with real money; this is one of the in-app purchases that can be made on the video-sharing app. According to Sensor Tower, ByteDance has managed to gross an estimated $75 million directly from TikTok users through the sale of virtual currency.
Brands can also list their products for TikTok users to purchase in the band hashtag challenge. Brands pay some commission from their profits to TikTok.
TikTok’s Revenue Story
TikTok has grown exponentially in the last couple of years.. According to a business apps report, TikTok had generated an estimated $63 million in 2017. It surged to $4.6 billion in 2021, a 142% increase since last year. In 2020, the annual revenue was $1.9 billion.
India was one of the biggest markets for TikTok. In 2020, the Indian government banned the app. However, that did not hinder TikTok’s popularity. Today, TikTok has 1 billion monthly active users across the world, and it has been installed 3 billion times across the globe. It surpassed the 1 billion figure in 2019 and 2 billion in 2021, and the numbers have only gone higher.
TikTok is also the first non-facebook app and non-gaming app from the global south to hit the benchmark of 3-billion. According to a Sensor Tower report, consumer spending on TikTok has surged globally and has crossed over $2.5 billion worldwide.
As per a report by Reuters, TikTok’s advertising revenue will increase three times in 2022, and it will be more than 11 billion, surpassing the combined sales of its rivals, Twitter and Snap Inc.
TikToks Story & Top Influencers
TikTok was earlier not called ‘Tiktok’; the app was called Douyin and was launched in 2016 by a Beijing-based company ByteDance. Within a year, Douyin reached 100 million users in the Chinese market.
In 2017, the company started to launch its Android and iOS versions abroad under a brand new name TikTok. The video-sharing app quickly crossed over the 500 million users benchmark and was seen on the top charts of many Asian markets.
TikTok also purchased Musicals.ly at the end of 2017, which had gained popularity in the United States, for $1 billion. It gave access to an expanded market, and it officially entered the United States. In 2018, TikTok became the most downloaded app in the US.
A large chunk of TikTok users are teenagers, aka ‘Gen-Z’. TikTok is one of the popular apps among influencer marketing hub. The most popular TikTok star is Charli D’amelio, with over 82.1 million followers. She is then followed by Addison Rae. She has over 57.4 million followers.
Both Rae and Charlie D’amelio have kept their audiences entertained with their viral dance videos. Dixie D’Amelio is also another famous influencer and creator on TikTok. She has over 35.7 million followers.
In men, Jason Derulo tops the chart with 33.6 million followers. Other popular TikTok creators include Josh Richard, Kyle Thomas, Holly H, Noah Beck, Flo Simpson, etc.
To encourage creators, TikTok has created the TikTok Creator Fund. It was first launched in 2021 with an initial investment of $200 million. The fund was launched with an aim “to encourage those who dream of using their voices and creativity to spark inspirational careers.”
It is neither a grant nor is it an ad revenue-sharing program like YouTube Adsense. It is simply a fund, set aside by the company to reward the high-performing creators. The amount of money each influencer gets is not fixed.
The Creator fund is not the only way to make money. A content creator can produce sponsored content by collaborating with brands. It
The payout structure of the TikTok Creator Fund is not revealed by the company. However, while calculating payout structure, factors like views, engagement and region-specific performance play a major role.
A creator can be eligible for this fund if they have a pro account, and have a minimum of 10,000 followers. Your TikTok profile should at least have 100000 views on a video in the last 30 days.
It is rumored that TikTok pays between 2 and 4 cents for every 1000 views. If you reach a million views, you will get $20 to $40. As of now, the Creator Fund is only available in the US, France, UK, Germany, Italy, and Spain.
There are controversies around the creator fund. Some creators have accused TikTok of cutting down views because they had signed up for the creator fund. However, the company has denied all these claims. The company is planning to increase the TikTok creators fund to $1 billion within the upcoming years.
Tik Toks top investors and valuation
According to the Chinese news portal 36Kr, the valuation of ByteDance, TikTok’s parent company, has reached $425 billion in 2021. ByteDance, a Chinese company, also owns other popular social networking apps in China that include WeChat, FlipChat, and Duoshan, to name a few.
In 2018, Tik Tok raised $3 billion in a round led by SoftBank Group. The most recent investor is Tiger Global Management. It acquired shares of Tik Tok through the secondary market in 2020. The amount has not been disclosed yet. Other investors included KKR & Co, general Atlantic.
As of now, TikTok is not a publicly owned company. While the majority owner of the TikTok remains its parent company, ByteDance. The minority owners include Oracle and Walmart. These US partners make up 53% of TikTok’s ownership.
TikTok is the first app from the global south to have such a tremendous growth story across the world. It gives stiff competition to its western competitors like Instagram, Snapchat and Facebook.
The video-sharing app is loved by teenagers and has more than 1 billion active users worldwide. Therefore, Tiktok has become an ideal social media platform for brands to advertise their product.
TikTok is expected to grow its revenue from 4.1 billion in 2021 to 13.6 billion in 2026, as per Statista. Even so, the majority of its revenue comes from advertising. However, it is finding new and fresh revenue streams as well.