In a previous blog post, we talked about the basics of TikTok – what it is, its history, and why it’s so popular today. However, there was one thing we didn’t cover: how the heck does this free app make money? I mean, there isn’t any sort of “Premium” TikTok subscription, nor are you required to spend money to watch more videos or anything. What other possibilities are there?
Two Ways It Makes Money
Because TikTok is free to use, it makes money from two things: advertising and in-app purchases.
TikTok has several different types of advertising options for companies. According to Ad Stage, the average cost per CPM (cost per 1000 impressions) on TikTok is $10 as compared to Instagram’s $8 rate according to Ad Stage. The options include:
- In-feed videos that are up to 60 second long ads
- Hashtag challenges allow brands to engage with users and encourage them to create their own videos over the course of six days. Chipotle ran the #ChipotleLidFlip hashtag in May 2019 which received more than 230 million views. The campaign encouraged users to post videos where they tried to land a burrito bowl lid on top of their bowl container. The Verge claims that promoting a hashtag can run a company hundreds of thousands of dollars.
- TopView and Brand takeovers are 3-5 second ads. Only difference is that top view is skippable / swipe away and brand takeovers are not.
- Branded Lenses – stickers or sponsored filters
- TikTok also just launched on June 25th, “Brand Scan” which allows products to be added to TikTok videos via AR or in 2D or 3D.
As of June 25, TikTok relaunched their marketing solutions as “Tiktok For Business.” The new business platform makes it easier for businesses to manage all of TikTok’s marketing options under one roof – likely to result in even more dollars spent on TikTok.
TikTok also has a creator marketplace that allows brands to search for and hire TikTok influencers to promote their products on TikTok. While TikTok, does not currently take a commission – it seems that that is the likely next step.
While you are not required to spend any money on the app, TikTok also makes money from in-app purchases made by its users. Users who are 18 or older can buy coins on TikTok to send gifts to other users. For example, you can buy 100 coins for $1.29. Your coins can then be used to buy virtual gifts which are essentially emojis. So if you like someone else’s content, you can send them a gift. If you receive a gift, it is converted into a “diamond” and once you have amassed a certain amount of diamonds you can cash out and be paid.
You can see why in-app purchases are so popular with TikTok’s main audience. The gifts tap into GenZ’s love of collaboration and a higher propensity to showing appreciation towards their collaborators and are incredibly fun. Plus, when you see others sending gifts, you’re more likely to do so too.
ByteDance, TikTok’s parent company, is currently valued at nearly 100 billion dollars. According to Business Insider, ByteDance generated 17 billion in revenue in 2019 and 3 billion in profit. Forbes estimates that TikTok alone generated $175M in revenue in 2019. More recently, during the first quarter of 2020, ByteDance generated $5.6 billion in revenue.
As you can see, TikTok has been really smart in positioning their revenue stream through advertising and in-app purchases. Plus, it seems that they are just scratching the surface as they have recently relaunched their business product.
Thanks for reading,