TikTok isn’t foolish. It’s critical

January 15, 2022

“WWHEN YOU look into TikTok, TikTok looks into you,” wrote Eugene Wei, a tech blogger, in 2020, explaining the almost psychic nature of TikTok. What the algorithm sees when it stares at your newbie columnist is anyone’s guess: a random feed provides tips on how to design a prom dress, someone barks at a dog, Rod Stewart with a handkerchief on his head, and (phew! ) Maya Angelou recites “Phenomenal Woman”.

However, Schumpeter is pretty clear about what he sees on TikTok. It’s not just the busty seduction of many of the clips that catches his eye. It’s the serious money changing hands. And the unmistakable thrill of creative destruction.

about time. Just five years after its birth, TikTok claims to have surpassed 1 billion monthly users, despite a ban in India. On Jan. 12, App Annie, a data collector, said TikTok has caught up with Facebook in 2021, overtaking WhatsApp and Instagram in the time users have spent doing it. Despite a judge’s Jan. 11 decision to allow the US Federal Trade Commission to sue Meta, the social media trio’s parent company, on antitrust grounds, TikTok’s success seems to mock the argument that Facebook is impregnable.

TikTok gets its magic from its algorithm and the data it is trained on. Unlike Facebook’s rolling feed, TikTok’s simple one-video interface means the app always knows exactly what a user is watching. The clips are short so viewers see a lot of them and get a lot of information. This, combined with few friends and family clogging the feed, allows the algorithm to match users with content creators who actually entertain them. And because most videos are shot on a smartphone, anyone can make them. The entry barriers are low. Virality is high.

One big question remains. Can TikTok win business as well as court eyeballs? Its origins have long suggested that this is possible. It emerged from ByteDance, a privately held Chinese powerhouse that some believe has generated more than $40 billion in revenue in 2021, by comparison. This allows TikTok to draw on practical commercial experience.

So far, its earnings, while growing fast, are reportedly small (it doesn’t disclose financial information). That’s not surprising. Donald Trump’s failed attempt in 2020 to ban it on national security grounds deterred advertisers. The drama that followed — a thwarted sale, management upheaval, and uncertainty about the relationship with ByteDance — added to the confusion. But these hurdles now seem to be behind it. In the absence of further geopolitical turmoil, TikTok could rock the social media business model in America, not just the user experience.

There are several ways to do this. Start advertising. Google and Facebook pioneered the pay-per-click approach. TikTok continues to transform it, inviting brands to collaborate with developers to create potentially viral content, such as: B. Skateboarders gulping down Ocean Spray juice to the sound of Fleetwood Mac. Sometimes a brand’s presence is only visible through a hashtag.

Second, eCommerce. Like other American social media platforms, TikTok now allows viewers to purchase goods directly by tapping a purchase tab on a video. It has partnered with Shopify, an e-commerce platform, to bring more merchants to the site. So-called social commerce – also via live streaming – is much larger in China than in America. Harvard Business School’s Jeremy Yang says TikTok could build on Douyin’s experience in the space to boost its online shopping business.

Third, the creator economy. It’s not just that TikTok’s seven highest-paid stars made a total of $55.5 million from work on and off the platform last year, according to Forbes magazine, triple what it was in 2020. TikTok recently did, too Opportunities introduced for users Present gifts and tips for favorite creators, increase incentives to produce new material and provide TikTok fees. Such practices first emerged in China.

None of these innovations will matter much if TikTok has another near-death experience. Because of this, it appears to be implementing one final part of its trade strategy: balancing America’s and China’s demands. It has appointed Shou Zi Chew, a Singaporean of Chinese descent, as CEO. It is based in the city-state that serves as neutral territory. He feels comfortable on both sides of the Sino-US divide, having been educated in the West and having served as the Chief Financial Officer of ByteDance and Xiaomi, a Chinese smartphone maker. It’s still an open question whether he can, or even should, further unravel TikTok from ByteDance in order to curb the perception that China could use TikTok’s data nefariously. This can be geopolitically helpful. But separating TikTok from an army of Chinese software engineers could also jeopardize its mind-reading brilliance.

TikTok faces many other challenges. There needs to be a heavy investment in content moderation to ensure toxic videos are removed before they go viral. Addiction is a tangible problem, and not just as a meme — #tiktokaddict has over 500 million views. The app faces privacy scrutiny, particularly from underage users. Regulatory risk will increase as TikTok gains traction.

One thing TikTok doesn’t have to fear is being crushed by the big beasts of Silicon Valley (at least without Uncle Sam’s help). Instagram has tried mirroring TikTok with “Reels,” and YouTube, owned by Google’s parent company Alphabet, has introduced “Shorts.” Neither has harmed the popularity of TikTok.

#Lesson for China

That is a good thing. TikTok is at the forefront of ideas developed in China’s video-crazy social media landscape that have taken years to permeate America. At a time when the Chinese Communist Party is cracking down on the consumer tech industry indiscriminately, it’s particularly gratifying to see China’s free enterprise and ingenuity catching the world’s attention.

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This article appeared in the business section of the print edition under the heading “Creative Seduction”

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