Shoppable content continues to be an ongoing effort at TikTok. This is one path to growth and revenue diversification. The latter is timely, given an increasingly demand-challenged advertising market. The same reason stands behind other social players’ orbiting moves, like Snapchat+ and Meta Reality Labs.
But for TikTok, revenue diversification is all about eCommerce. The thinking is that there’s an abundance of engagement and social influence under its roof, which can be monetized through contextually-relevant shopping. And this concept isn’t misguided, given Instagram’s social commerce precedents.
Much of the above sits under TikTok Shop. This is the company’s eCommerce framework, including product tags in videos that serve as a connective taxonomy and conduit to shopping. TikTok gets affiliate fees for transactions which can be substantial at its operational scale (more on that in a bit).
But the entire effort traces back to those tags. If products are properly tagged in videos, they become searchable and shoppable. So TikTok has incentivized users to tag products, and for creators to do the same. The latter is fueled by affiliate revenue that influencers can make from product placement.
Chicken & Egg
Beyond those crowdsourced efforts to tag products throughout TikTok’s videos, the company recently buttressed the effort through automation. Specifically, it has begun to automatically tag products in videos, using a machine-learning algorithm. Another (buzzier) word for that is AI.
The way this works is that creators can toggle on the functionality when uploading their videos. When enabled, the computer-vision feature goes to work to identify objects throughout the video. When it identifies a match on a shoppable product – one that’s available for sale somewhere – it tags the item.
Unpacking that workflow, the “available for sale somewhere” part is important. This is a function of the brand and retailer partnerships that TikTok has established in TikTok Shop. In other words, TikTok needs somewhere to send users who click on tagged products so that they can shop and transact.
But though that presents a bit of a chicken & egg challenge, TikTok likely sees a way to accelerate a network effect by starting with product tagging. If brands and retailers see that their products are being seen and engaged on TikTok, they’ll be more inclined to create a presence on TikTok Shop.
Saturated Exposure
Backing up, what is TikTok Shop and how does it fit into TikTok’s revenue mix? It has several components but the best way to think about it is an eCommerce layer that straddles the app and makes content shoppable. This is separate from TikTok’s early but quickly-developing native eCommerce efforts.
As for the revenue model, TikTok keeps 2 percent to 8 percent of transactions – depending on the purchase price – as a channel/platform fee. This is substantial but less than Amazon’s 15 percent cut. Creators whose videos drive product sales, tracked by product tags, also get a revenue share as noted.
TikTok has been testing this model and onboarding brands and merchants since November, 2022. Since then, It has signed up more than 200,000 brands, 90 percent of which are based in the U.S., according to the company. meanwhile, 100,000+ creators have signed up for the affiliate program.
As part of this growth plan, TikTok Shop will blitz users in several in-app touchpoints. It will be planted as a tab on users’ home screens for dedicated shopping; within videos (via tags); shoppable ads; and affiliate programs for creators. This saturated exposure should give TikTok Shop the traction it needs.
