TikTok Business Model: How TikTok App Generate Revenue
TikTok is a short video-sharing social network developed by ByteDance, a company in China. Since its takeoff in 2016, the platform has been seeing tremendous growth and made it through to outperform other social media.
As of today, TikTok has reached 3.5 billion downloads in total. It’s the first non-meta social media to hit numbers.
According to Sensor Tower, TikTok has brought about $821 million in users’ spending over the Q1 of 2022. TikTok, as a brand, is valued at $43.52 billion.
The numbers sound like pure success. This article will go into the TikTok business model to earn money.
What is TikTok, and How Does it Work?
I won’t believe it if anyone tells me they never heard about TikTok. As appeared in 2016, TikTok fits tightly into our daily-used social media.
The platform gave people another chance to realize their talents, opened a new channel for creativity, and facilitated promotions. TikTok's trick is short, entertaining videos. Engaging vids are shown in users’ feeds that have no end. The app has a built-in video editor fitted with countless effects and sounds.
Although we all know or have used TikTok, the company aces up its sleeve about its revenue and how TikTok makes money. But using the app has shed some light on TikTok’s business revenue models.
TikTok Business Models Revealed
We’ve determined that TikTok uses several business models to generate revenue.
- Advertising-based Business Model
TikTok's revenue is generated primarily from advertising. TikTok sells ads to merchants and marketplaces to advertise their goods. In 2021, social media’s advertising gain was $4 billion in revenue. TikTok ads come in several shapes: in-feed ads, brand takeover ads, top view ads, branded hashtag views, and branded effects ads. We’ll blow the gaff of them a bit later.
- Selling Digital Goods Business Model
Computerized goods selling is low-risk and sometimes fun BM. TikTok brought about its own digital items - coins that are purchased for cash. The coins are aimed to be swapped for gifts or diamonds that the bloggers can be awarded as a sign of appreciation.
- Commission-Based Business Model
TikTok's coins may be withdrawn and received in cash. TikTok cuts 50% per withdrawn dollar. Also, it’s still unknown how the planned e-commerce integration will work, but there are assumptions that the platform will follow Instagram and charge setbacks for every in-app transaction.
TikTok Revenue Models in Action
- E-commerce Offerings
Ecommerce integration is an integral consideration in social media rivalry. Many giant social networks have integrated e-commerce solutions into their structure so that the brands can do in-network selling. TikTok has been experimenting with e-commerce since 2019. They introduced e-commerce links in brand profiles, inserted an in-video “buy now” button, and presented a «Hashtag Challenge Plus» e-commerce function.
In 2020, TikTok announced Shopify integration. This event will change the game of e-commerce and social media collaboration. TikTok Pro users will be able to link their account with their Shopify account and sell their goods via TikTok vids.
As of now, TikTok has started partnerships with sellers. The conditions of the platform’s relations with merchants remain unknown. It’s an unfolding business venture, but a beneficial one as it is convenient for users and increases the conversion rate.
- Setbacks from bloggers
It was mentioned that bought coins can be handed out to favorite bloggers as diamonds. In their turn, authors can exchange the diamonds in their PayPal accounts. When a blogger withdraws diamonds, they pay a 50% fee for every $ to be withdrawn.
The cash can be taken out to PayPal with a matching name. TikTok set a minimum amount of $100 to be possible to draw out.
- TikTok Coins
TikTok has its own currency - coins that can be purchased by users. The coins can be used to thank vids creators and give them coins in the shape of gifts or diamonds. The diamonds can be exchanged and withdrawn in real US dollars, while gifts cannot be withdrawn.
Important note: Not all users can enable gifts. There are requirements for them to make it work:
1. At least 10, 000 subscribers
2. Videos should not violate community guidelines and pass moderation
3. 30-day active account
4. A creator shouldn’t be underage.
The coins are subject to change across the countries. They are purchased in packages. We’ll list the prices relevant to the US as of June 2022:
100 coins – $1.29
500 coins – $6.49
2000 coins – $26.99
5000 coins – $66.99
10000 coins – $134.99
- TikTok Ads
In-Feed Ads
The ads are wholly toned into the feed and resemble the Instagram ads. We see them when scrolling the video feed.
Brand Takeover Ads
Brand Takeover Ads are the ones that pop up with the app opening and occupy the whole screen. These types of ads are preferred to increase advertiser recognition and instant message delivery.
Top View Ads
Can you remember experiencing the ads appearing after scrolling the feed for some time? These are the Top View Ads. The same as Takeover ads, these take up the whole screen. They are auto-played and run for up to 60 seconds.
Branded Hashtag Ads
TikTok has its own challenges or trends that users are actively engaged in. The platform makes the best of it by turning it to be one of a revenue venture. The authors are offered to make a short video featuring the hashtag or brand. This is much fun and also promotes brands.
Branded Effect Ads
TikTok is famous for its video effects. There are also all-the-go tailored stickers, augmented-reality filters, and lenses that serve as ad means. Again, users opt to adapt newness and create vids featuring it. The users have a limited period of 10 days to shoot a video promoting these ad elements.
Is It Worth Following TikTok Business Models?
TikTok is a pioneer in the sphere of short video social networks. Due to TikTok kicking upstairs, the other social networks styled after the newcomer. Instagram introduced reels, YouTube brought shorts, and Facebook launched lasso, a separate short video streaming app. But despite the competitors’ arrival, TikToks keeps strengthening briskly and outpaces the mentioned giants.
In 2021, TikTok became the world’s top 1 downloads-leading app chart, leaving behind Instagram, Facebook, and YouTube. It was downloaded 656 million times. Meta-owned Instagram, which saw 545 million downloads, goes next.
The sudden TikTok spring-up might prompt the idea of creating a TikTok-like app. Also, TikTok was banned in some countries over time, and developing a clone targeted at your region was a lucrative idea. For instance, the Indian government put a stop to TikTok in the country and a TikTok-like app “Josh” was welcomed in the region. Josh has received Google’s and Microsoft’s financial support.
So, during the TikTok boom, the clone apps stand a show to get around but buckle up to compete with a number of other short video apps.
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To create a competitive application, you need a team of competent developers who can not only develop a bug-free TikTok clone but also help in the selection and implementation of a TikTok business revenue model.
Celadon is a custom mobile app development company that will lead you to the planet of TikTok-like apps. Our developers are strong in custom android app development and iOS app development. Our vast portfolio is made of a sports social network, audio streaming app, dating app, and plenty of other projects in different spheres.
We develop software from scratch, or we can rescue an existing project that seems to be failed or stuck. Whatever your need is, we definitely can find a solution. Provide us with a brief description of your idea, and we’ll reach back to you in a heartbeat to discuss and estimate the idea.
Final Thoughts
TikTok is an example to follow. They created a kicker that keeps hitting highs over several years. The triumph was pulled off thanks to the correctly picked and implemented TikTok business model to make money. The feather in TikTok’s cap is achieved with a mixture of three: advertisement, commission, and digital goods selling. How does TikTok generate revenue by running its business with these three BMs? The earnings come from several channels: In-app purchases, setbacks, coins, and ads that come in multiple types.