The short-form video-sharing app TikTok has become one of the top social networking platforms in the world alongside Facebook and Instagram with over a billion downloads. In 2020, it also became one of the fastest-growing brands in the world alongside Zoom and Peacock.
Owned and developed by the Chinese multinational internet technology company ByteDance Technology Co., it is an international version of the Chinese app called Douyin, which was introduced in the Chinese market in September 2016.
The app was launched in several markets outside China in 2017. However, it was only in August 2018 when it became widely available globally after ByteDance acquired the Chinese social media service Musical.ly and merged it into TikTok.
Due to its mass appeal among the younger audience and eventually across different demographics, it has become a global phenomenon. Nonetheless, a deep dive into the business strategy of TikTok is essential to understanding further its success.
Elements of the Business Strategy of TikTok
TikTok and Musical.ly Merger
Mergers and acquisitions can be a source of competitive advantage for a company or a particular brand. When ByteDance acquired Musical.ly Inc. in November 2017 for around USD 1 billion and merged the Muscal.ly platform with its TikTok platform, it fundamentally gained easier access to over 200 million users across different countries.
Note that Musical.ly was popular among teenagers in the United States market. It also became the most downloaded iOS app in 30 countries, including Canada, the United Kingdom, Germany, Japan, and the Philippines in 2015. ByteDance consolidated the user accounts of these two social networking platforms after it acquired Musical.ly Inc.
Hence, the acquisition of the parent company and the merger of the two platforms were an important business strategy because they allowed ByteDance to introduce its homegrown app in the wider international market. It is also worth mentioning that the acquisition also meant acquiring the talent pool and existing technologies of Musical.ly Inc.
Furthermore, the merging of the two social networking platforms was critical to the specific strategy of TikTok because it subsequently gained new features such as an extensive library of filters and effects, as well as higher-quality code, better software performance, more stable and efficient in-app editing capabilities, and improved content publishing systems.
Unique Selling Proposition
A critical aspect of the business strategy of TikTok is the introduction of a unique selling proposition that includes some aspects of short-form video-sharing platforms such as Snapchat and Instagram, as well as content-creation and content-consumption use cases of other social networking sites such as Facebook, YouTube, and Twitter.
However, the app is considerably unique. It is different from Facebook, which has several layers of features and use cases, YouTube, which centers more on long-form video contents, the microblogging-centric nature of Twitter, the special focus of Instagram on images and videos, and Snapchat, which focuses more on short multimedia messages.
TikTok focuses on the creation of short-form videos between the 15-second to 180-second duration. The app has powerful recording and editing features that allow users to add filters and effects based on augmented reality, cutting and stitching clips, and attach sound effects or music, thereby creating rich and engaging video contents.
Note that there are hundreds of filters and effects to choose from. The app also provides users with access to thousands of audio clips. It is also worth mentioning that its audio library includes sample tracks from mainstream and lesser-popular recording artists across the world, as well as remixes produced by upcoming artists and hobbyists.
Technology Strategy of TikTok
Part of the overall business strategy of TikTok is its specific development and deployment of notable digital communication and computing technologies. As mentioned, augmented reality powers its in-app video recording and editing capabilities to provide it with a notable differentiation from other social media platforms such as Instagram and Snapchat.
The company is continuously investing in augmented reality capabilities. It has leveraged advanced camera systems found in smartphones, as well as the LiDAR system found in iPhone and iPad Pro devices. Furthermore, it is currently developing its own AR development platform to allow business users to create rich ad campaigns and contents.
An algorithm powered by machine learning is also critical to the overall functionality of the app. Its content discovery feed called the “For You” page or FYP is part of the reason behind the appeal of TikTok. The feed acts as the primary timeline of the app and it allows the discovery of new contents based on user interest and preference.
The algorithm specifically tracks which types of video contents a specific user interacts with. Examples of these interactions include viewing, commenting, sharing, and liking. This content discovery algorithm differs from the algorithms used by Facebook and Twitter, which depend primarily on connections between people.
Capitalizing on Pop Culture
What makes this social media platform appealing to the younger population is that it has become a venue for some of the notable trends within the digital pop culture. These include the latest dance craze and so-called online challenges, as well as the latest pop music hits, the most relevant products or brands, and the most trending topics, among others.
The specific focus on short-form videos, in addition to the inclusion of AI-based filters and video effects, a large library of audio clips, and powerful editing tools, have made TikTok an ideal digital platform for digital pop cultural trends. Note that Facebook can be too crowded and Instagram is somewhat limited while microblogging-centric.
ByteDance was able to capitalize first on trends in pop music hits with its deliberate attempt to expand its audio library and the subsequent acquisition of Muscal.ly before it ventured into an ideal platform for creating and sharing video memes, as well as dance videos, short comedy skits, and educational and advocacy-centered clips.
As A Marketing Platform
TikTok has also become a digital marketing platform and a specific social media marketing channel that caters to different types of marketers because of its widespread popularity. Note that it provides another digital medium for social media influencers or content creators to land deals with brands and entities, as well as connect to more people to promote the brands or ideas that they are endorsing.
Similar to YouTube or more specifically, similar to how YouTube content creators make money, content creators on this app can also make money by partnering with brands or individuals and other organizations. ByteDance does not mediate between creators and brands because. It simply provides a platform for connecting creators with an audience.
Nevertheless, because of its current number of active users and widespread reach, as well as its content discovery algorithm that allows the propagation of digital pop cultural trends, organizations have used the platform to promote their products or causes. Note that even recording artists have capitalized on its influencer marketing potential.
Revenue Strategy of TikTok
Similar to social networking sites such as Facebook and Twitter, the main revenue strategy of TikTok centers on advertising. To be specific, its business strategy is based on a revenue model that aims to generate income from digital advertising. ByteDance essentially sells digital ad spots to individuals and organizations.
The app provides different in-app display advertising solutions to its business clients. These include in-feed video ads that appear in-between user feeds, brand takeover ads that show whenever a user launches the app, and top-view ads that appear randomly while the app is in use. Branded hashtag challenges and branded effects also provide unique ad solutions.
Apart from digital ad placements, part of its revenue strategy includes in-app purchases. The app allows users to spend money to buy virtual tokens that they can use to access filters and effects, as well as send to other users as virtual gifts to show their appreciation for their contents. The price of these coins ranges between 99 cents to USD 99.99.
Note that the annual revenue of ByteDance doubled in 2020 with an estimated income of USD 34.3 billion. The gross profit from last year was USD 19 billion, which marked a 93 percent jump compared to its gross profit from 2019. Of course, a bulk of these earnings came from the Chinese market but the streams from other markets are starting to become significant.
A Note on the Business Strategy of TikTok
The overall business strategy of TikTok follows the common business model used by other social media platforms. However, to provide value to its own model ByteDance has focused on the unique selling proposition of its app to differentiate it from the rest.
Unlike the cluttered user interface and varied use cases of Facebook and Instagram, the limitations of Twitter and Snapchat, and the long-form video-centric focus of YouTube, the platform maximizes the advantages of short-form video contents.
Its differentiating identity makes it a highly engaging social media platform that sufficiently addresses the need to satisfy the content-consumption habits of internet users without taking too much of their time from a single content.