4 min read
Everyone wants a piece of TikTok, but why?
September 18, 2020
8 min read
TikTok, the short-form social video app owned by Bytedance, a Chinese A.I. behemoth, has been under pressure since July of 2020, when the U.S. Secretary of State Mike Pompeo was asked if the administration was considering a potential ban on TikTok. His response? “We are taking this very seriously and we are certainly looking at it.”
Today, the Commerce Department announced it would ban U.S. business transactions with China-owned social apps WeChat and TikTok beginning on Sunday. TikTok, Oracle, and Walmart have until November 12th to finalize terms to review for the federal government.
Together, Oracle and Walmart could own a consequential stake in TikTok — and potentially change the majority ownership from Chinese to U.S. investors. Three reasons have lured major U.S. companies to seek a piece of TikTok: an exponentially growing user base, ad revenues, and an A.I. technology unlike any other social media app.
Show me the users
Over the past two years, TikTok has poured billions of dollars into acquiring new users, first, through its acquisition of Musical.ly, and later, through paid ads on its competitors’ platforms — Snapchat, Twitter, Facebook, Instagram, and YouTube. TikTok last reported that it has 50 million daily active users in the U.S., surpassing Twitter by 14 million users.
Partnering with or owning part of TikTok means that you now have access to the third-largest social media platform — behind Instagram and Snapchat — in the U.S. Going one step further, the growing user base enables the acquirers or partners to open the flood gates of ad revenues for their businesses.
It’s all about the $$$
Oracle, a 43-year-old company, is known for enterprise software, hardware, and cloud computing — not social media. However, adding $200 million to $8 billion in ad revenues via acquisition or partnership with TikTok could change that. It also enables Oracle to reach an audience it has never marketed to: Gen Z.
In contrast, Walmart has been aggressively competing with Amazon, offering a new membership service called Walmart +, and investing more heavily in its e-commerce platform. A partnership with TikTok allows the firm to more effectively compete with Amazon by using the app to provide an enhanced omnichannel experience and help grow its third-party marketplace.
“The way TikTok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets. We believe a potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses. “ Walmart Inc. , Press Release
It’s built for you (literally)
The “for you” section, driven by an A.I. recommendation engine in the TikTok app, is regarded as the magic behind why users feel like five minutes in the app translates to an hour in reality. Recommendations are driven by engagement with content, rather than by a user’s network. Bytedance, the parent company of TikTok, is heralded as a pioneer in the field of A.I., and other social media giants now have to compete or offer investors reassurance that TikTok will not eat their lunch.
Facebook on its new Reels product
“Yeah. And I think you mentioned Threads and Reels and a couple of the apps that we’ve launched within Instagram. It’s still early. I think there are some promising signs. We’re figuring out the extent to which those should grow to be big independent apps over time or should be integrated into the core of the Instagram service or our other messaging apps. So we’ll figure that out over time. But those are certainly both important spaces to be in, visual messaging and kind of interspaced talent, showing Stories type functionality.”
Mark Zuckerberg, Facebook Q4 Earnings Call
Snap on enabling users to create snaps with music (an early differentiator for TikTok)
“But looking at the content side of the business, in particular, I do think it’s fascinating to see the rise of services like TikTok because they embrace a lot of the ideas that we’ve been thinking about for a long time. And TikTok in particular focuses much more on the engagement around a piece of content rather than who created it. And if you look at social media today, social media privileges the creator of the content, really regardless of how engaging that content is. So when you follow a bunch of people you get a bunch of content from them. On TikTok on their For You page the content is really ranked in terms of its engagement. How often are people watching it?. How long are they spending watching it? Did they rewatch it? And I think that’s really interesting because it starts to disaggregate identity from content creation on social media. And for us, that’s in line with our thesis, going back five or six years now when we launched Discover, that consumer taste for mobile content was going to evolve very rapidly, similar to how we saw consumer taste evolve with radio or television, where they demand higher quality content over time. And so TikTok represents a step forward towards more premium user-generated content, away from sort of status-oriented content. Mostly because that status-oriented content is getting boring, especially if it’s created by someone who’s not really that close to you. So your best friend or your partner could post a really boring photo and it could be fascinating because you know them.”
Evan Spiegel, Snap, Morgan Stanley TMT Conference
Twitter on reexploring Vine, a short-form video app it acquired and later shut down
“One, around Vine, so when we shut the servers down in 2017, it was a hard decision along with a number of really hard decisions that we made at the time. But when we step back and look at that, any one of them is easy to judge but, collectively, they allowed us to prioritize the work that we’ve been doing since then, and when we look at the pace of DAU, we doubled the number of people who use the service since then. When we look at where we stand with advertisers today, where we stand with our health work, where we stand with the ad server, we feel like we’re in such a stronger position than we were then. And collectively, we feel great about the decisions that we made that were really hard at the time but positioned us to focus on this great opportunity to get the rest of the world to use Twitter and to show them really relevant, informative ads. Having said all that, we learned so much when we look at other services, when we look at how people engage with them, when we learn about how they think about relevance for the people who use our services, and we’ve watched with appreciation how people like my daughter who I had to ask to stay off of TikTok for a few minutes so we could all talk today engage with the service.”
Ned Segal, Twitter, Oppenheimer Technology, Internet & Communications Conference
Google on releasing YouTube Shorts
“YouTube said Monday YouTube Shorts will be aimed at users who want to create content on their mobile phones, with those videos to be shown on the YouTube platform. The videos will run for up to 15 seconds…an early beta of Shorts with tools will be rolled out in India over the next “few days” but YouTube invited people to immediately start uploading short videos on its wider platform ‘to start getting discovered.’”
Google, Market News
Will you stay or will you go?
If the TikTok, Oracle, and WalMart offer is approved by the Trump administration, creators will continue to flourish on the platform. The app store ban, starting on Sunday, September 20th, forces the trio to come to an agreement sooner to prevent users from churning and turning to TikTok’s competitor apps. Existing users will still have access to the app, but will not be able to access updates or maintenance of the app, which means that users may experience slow speeds to the point of timing out, even though the app is still live.
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