In recent weeks and months, we’ve conducted multiple interviews with leaders from digital and social media agencies on a variety of topics. What is common to these conversations is that whenever I asked for a point of view on TikTok, the subjects demured.
So much of this reluctance, of course, is related to the Chinese short-form video platform’s controversial nature. The Trump Administration has imposed a ban on U.S. companies doing business with TikTok. That ban will take effect on Nov. 12. In response, TikTok owner ByteDance has sought a deal with Oracle to create a U.S. entity not subject to the ban. That deal remains unresolved.
The premise for the ban is the fear that TikTok would hand user data over to the Chinese government. ByteDance has consistently denied it would ever do that. But there is widespread suspicion that TikTok’s security is compromised. And then there was this December 2019 tweet from entrepreneur Jason Calacanis.
Digital agencies, like most businesses, prefer to avoid controversy. Add in a general lack of familiarity with the platform and most agencies have understandably shied away from anything more than a wait-and-see attitude toward TikTok. For now at least. Here’s one example of a typical exchange on TikTok with a digital agency. “We really don’t have a position at this time. Just kind of monitoring the platform and its ongoing privacy issues before we make any kind of POV.”
So What is TikTok?
We had the opportunity to talk this week to Matthew Brennan, a Mandarin-speaking Brit based in Chengdu, China. Matthew has made a career of communicating how China’s unique social platforms operate. I’ve been to events where he quite skillfully explained what WeChat is all about. Now he’s turned his attention to TikTok, via a new book called “The Attention Factory: The Story of TikTok and China’s ByteDance“.
We thought who better to explain TikTok, its origins, and how it really works. Here are some highlights from our conversation with Matthew.
What we know of today as TikTok emerged from something called Musical.ly. This was a short-form video app created in China but popularized in Europe and North America that caught on with teenage girls for dancing and lip-synching.
“It was the first Chinese app that went was pretty successful in the West, but it was only successful with kids,” Matthew told us.
Later on, ByteDance, already a big company known for its news aggregator Toutiao, moved in. It took what Muscal.ly started to another level. It created Douyin. TikTok is the international version of Douyin.
“They [ByteDance] cloned Musical.ly,” Matthew said. “In the beginning, it was pretty much a failure. But then they kicked in with the technology they have become famous for.”
Why TikTok Is So Engaging
Matthew cites three key drivers in TikTok’s explosive popularity. Technology, community, and growth hacking. Today, TikTok has 600 million daily active users in China.
“The AI, machine learning, deep learning team they have in Beijing is amazing,” Matthew said. “And they created something called a recommendation engine, which is kind of like the opposite of a search engine. Once they linked that up with the Musical.ly experience, it totally exploded. All the technology in the back end is what makes the app addictive.”
There is another less tangible driver as well. Community.
“There’s no one reason why this app is where it is today. TikTok’s technology is definitely very important. So that’s one factor. And number two is the community they built around the app. They’re actually very good at fostering user-generated content communities. They localize operations in almost every region around the world. And they’ve got a playbook that they use systematically.”
And the third factor is ByteDance’s growth team, according to Matthew.
“In 2018, if you went on YouTube, you couldn’t go anywhere without seeing a TikTok ad. The same or Facebook and Snapchat,” Matthew explained. “So they spent wildly and boldly. In 2018, SoftBank gave them $2 billion. And they spent that on flooding the world with adverts. And they worked their strategy around that worked very well. They used the actual content from the app. It’s a growth hack technique that they used quite effectively.”
Is Jason Calcanis Right?
Ok, now for the question on everyone’s mind. Is TikTok a privacy trojan horse? Matthew’s view is nuanced. He says the privacy issues are real. But he argues the same is true of most social platforms. Of course, the other platforms aren’t accused of having connections to the Chinese state.
“When you’re in the app, TikTok is watching you the whole time, and it’s logging every single tiny action that you make,” Matthew said. “But actually, it’s no different from Facebook, which does exactly the same thing. And Instagram does the same. If you’re worried about TikTok, you should also be worried about Instagram, basically. I think it’s totally legitimate If you are concerned about privacy to not use those platforms.”
Matthew’s essential view is TikTok is shaky on privacy but the threat has been exaggerated.
“I think there’s a legitimate concern here,” Matthew said. “Some of it is hyped up and a little bit overblown. There’s definitely politics involved. Geopolitics are heavily involved. And America does seem to be, to some degree, scared of the rise of China. In particular, the technological aspects of China’s rise are worrisome.”
How TikTok Makes Money
Matthew told us that TikTok is in the very early stages of monetizing the platform globally. But it already has a few different paths to making money.
“It’s really in the early stages,” Matthew said. “It’s further ahead in Asia than it is in Europe and North America. But even in Asia, it’s still fairly early. In China, however, it’s quite developed.”
For example, TikTok is becoming a popular eCommerce platform in China.
“In the Chinese version of TikTok, there’s a lot of eCommerce, and it is quite successful for certain categories. Things like gadgets, women’s fashion, cosmetics. Actually, fruit works quite well, surprisingly, at least in China. And so we can expect that type of thing. We’ve seen that TikTok has announced that they are working with Shopify. And also Walmart wants to be involved with the Oracle deal. And so both of these are indicators that there needs to be some cooperation in order to have eCommerce fulfillment.”
Advertising is also a large and growing component of TikTok’s revenue base.
At its heart, it is an advertisement business,” Matthew said. “And it’s quite similar to Facebook in terms of how that works. Time spent on the platform is the metric they want to maximize. The actual adverts themselves are quite compelling. And advertisers in China have found them quite effective. There is a learning curve. It’sd been a little bit difficult for brands to get their head around how to do an advertisement on TikTok or how to run an account on TikTok.”
Also, Matthew notes that in China, the ads are not top-of-funnel brand ads. They are very response driven.
“There’s a call to action that pops up. But once you get maybe 10 seconds into the video, it’s a big button that appears. And it starts flashing and telling you to click below,” Matthew explains. “It takes you directly into the sales page or the signup page. Or if it’s an app install it will just go straight to download.”
Why TikTok Isn’t Social Media
While TikTok is often lumped in with Facebook, Instagram, and Snap, Matthew argues that functionally, the platform really isn’t a social network. It’s much more analogous to the evolution of YouTube. There are no real social features to TikTok beyond liking and commenting on videos. Which you can also do on YouTube.
“TikTok is a content delivery platform,” Matthew said. “YouTube is actually a really great way to think about this. Because if you think about 10 years ago, YouTube was really struggling with recommendations. The videos on the side that they recommended were pretty bad. It was kind of a joke, how terrible they were. And then, obviously, Google made some amazing breakthroughs with deep learning over the past, you know, decades. And they leveraged all of that technology into making the recommendations eerily accurate.”
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