This article first appeared in The Edge Malaysia Weekly on September 26, 2022 - October 2, 2022
HOW addictive is TikTok? Think of the immersive short-form video app like a hit of dopamine, the “feel-good” hormone that gives us a sense of pleasure. When you are watching TikTok, its algorithm dishes out more short videos, which in turn pushes you further down the rabbit hole and keeps you wanting and watching more of the same.
TikTok, which lures users to an endless scroll of mostly 15-second to three-minute-long random short-form videos, reaches 1.5 billion monthly active users, according to data.ai, a San Francisco-based firm that tracks social media usage. Unlike some of the other global social media sites whose usage is shrinking or are seeing their growth taper off, TikTok is still growing at a 35% to 40% annual rate, according to most estimates.
TikTok users spent an average of 45.8 minutes on the platform every day last year, more than on other social media such as YouTube, Instagram, Facebook, Snapchat and Pinterest, and are increasingly spending more time on the platform at the expense of doing other things. Its ad revenues are forecast to top US$12 billion (RM54.8 billion) this year, up nearly 200% over last year.
A couple of weeks ago, I spoke to Mark Shmulik, internet analyst for Sanford C Bernstein & Co in New York. Shmulik recently compared TikTok to America’s 1980s crack cocaine epidemic and called the short-form viral video app “digital crack”. In the 1980s, crack emerged as a cheaper alternative to cocaine in America. While the more expensive cocaine’s effects take some time to set in, crack gives a short, almost instantaneous and intense high to smokers but wears off fairly quickly, forcing users to seek another “hit” until they become addicted. More recently, between 2014 and 2020, America faced an opioid crisis due to increased prescription and widespread misuse of highly addictive opioid medications that use fentanyl. Opioid addictions killed 70,000 people in the US in 2020, up from around 50,000 in 2019. Now, a new addiction, “digital crack” called TikTok, is hogging the headlines.
Regular readers of this column might recall that over the past four years, I have covered TikTok, its Beijing-based parent ByteDance, which also operates the Chinese version called Douyin, and the larger controversy over the short-form video content as well as the attempt by former US president Donald Trump’s administration to ban, forcibly restructure and stifle the burgeoning Chinese-owned firm. The ban was overturned by the courts but regulators and politicians from both sides of the aisle in Washington still have TikTok in their sights. Earlier this month, TikTok’s chief operating officer Vanessa Pappas spent hours being grilled at a Senate hearing about when her company would seal off American user data from being reviewed by Chinese regulators.
TikTok’s influencers create their own videos and upload them for other users to see. They are paid between two and four US cents per thousand views. TikTok makes money from selling advertising on its platforms. Its top-ranked influencer, 18-year-old Connecticut girl Charli D’Amelio who has been on the platform for three years, has 10 million subscribers, gets over 350,000 views every day for her videos and is worth nearly US$20 million.
Little wonder, then, that everyone wants to create videos and have their 15 seconds of fame. And it is not just creators or influencers; TikTok has been so successful that just about every tech platform wants to be a short-form video distributor and join the gold rush. Its clones include Meta Platforms’ Reels, YouTube’s Shorts, Snapchat’s Spotlight, Pinterest’s Idea Pins, Netflix’s Fast Laughs and Amazon’s Inspire. YouTube last week announced that it would share 45% of revenues from ads that run between videos in the Shorts feed with creators and pay out at the end of every month in an effort to woo influencers away from TikTok.
In a way, TikTok and its competitors in short-format videos are wooing viewers away from other players in the attention economy — video streaming services like Netflix, Disney+, Amazon Prime and Apple TV+, video game makers Electronic Arts, Activision Blizzard and Take Two Interactive Software, and music streaming services like Spotify. Short-form video is also taking share from other social media as well as newspapers, radio, terrestrial TV and podcasts.
“If short-form video is going to grow, it will take share from everything else that has our attention,” Shmulik says.
So, how much more time will we all spend watching short videos like those on TikTok? Shmulik believes there is still plenty of room to grow. While the average TikTok user spends just 45 minutes daily watching its videos, the average Douyin or Kuaishou user spends up to 120 minutes on such videos every day. If TikTok can match its Chinese short-form video peers, it would take 80 minutes from TV, newspapers and other social media. He notes that the time Americans spend on short-form videos has been growing 20% to 30% a year, with 65% of the time taken away from other formats and 35% being “newly created” internet time.
The arrival of short videos like TikTok has been music to the ears of music rights owners like Japan’s Sony Corp, which owns about 50% share of global music rights. The music industry is now focused on extracting more licensing fees from TikTok and other short-form video distributors like Meta’s Reels and YouTube’s Shorts because they are seen as the fastest-growing platforms consuming music from top-grossing singers like Taylor Swift and Ed Sheeran.
In China, e-commerce is being touted as the next frontier for short-form video players like Douyin, Kuaishou as well as the super app WeChat and its parent Tencent Holdings, which are both players in the short-form video space in their own right. Goldman Sachs in a recent report on short-form videos in China noted that Douyin, Kuaishou and Tencent “are becoming funnel ecosystems as they know their users more and more day by day, widening their advantage in providing relevant recommendations, ahead of other forms of entertainment and shopping apps”. Goldman noted that short-form video players initially focused on live streaming shopping and are gradually expanding into all-purpose shelf-based shopping, local services, recruitment and real estate. The giant US investment bank estimates that live streaming contributed to 15% of total online retail share in China last year. It estimates that figure is likely to grow to 25% to 30% by 2025.
But don’t expect TikTok to become a competitor to Amazon in e-commerce anytime soon or short-form video players to morph into serious e-commerce players. Shmulik doesn’t see social commerce or group buying taking off in a big way in the US or elsewhere in the West.
“It may have taken off in China but that’s just not the way we in America, or people in Europe, buy things,” he says. “We like going to a mall or go online and shop on Amazon for ourselves.”
Americans don’t want to call friends and neighbours or compare shopping lists and buy as part of a larger pool to cut overall shopping costs. Even in China, group buying has been more popular in second- and third-tier cities as well as rural areas rather than larger urban centres like Shanghai.
Still, short-form video players are busy trying to make inroads into e-commerce. Facebook is expected to shut down its live shopping feature next month to focus on Reels. Amazon is reportedly working on a TikTok-like vertical video feed for its own shopping app. Last month, YouTube announced a partnership with e-commerce enabler Shopify. Creators will be able to link their products from their Shopify stores directly to their live streams on YouTube. And giant retailer Walmart is delving further into live streaming and social commerce with an extended partnership with Talkshoplive.
The rise and rise of TikTok has pressured earnings of tech platforms like Meta, Snap, Pinterest and even Twitter. So, which is the biggest loser from TikTok’s ascendancy? While a lot of media attention has been on how much Meta has suffered, Shmulik believes YouTube is probably the most vulnerable because it is the closest thing there is to TikTok. Both are in the business of monetising video entertainment.
“The reality is that there is a finite amount of time that we can spend online,” Shmulik says.
We need to work, sleep, eat, play and our kids need to go to school and learn. We can’t be online watching videos all the time. All short-form video platforms are trying to attract viewers away from other forms of entertainment like longer-form videos, movies, music, sports, surfing the web, instant messaging, social media, or whatever else we do in whatever little free time we have every day.
Is an IPO on the cards for TikTok? Trump had tried to force TikTok to sell itself to US companies so that American data would stay away from servers in China and the preying eyes of its regulators. Walmart, software powerhouse Microsoft and another large software firm Oracle, which was keen on hosting tens of millions of short-form videos on its own cloud servers, were all at one point in the race to take a substantial stake in TikTok, which could be worth up to US$50 billion as a standalone entity if ByteDance were to sell it.
Unable to sell or list TikTok or seek an IPO itself, ByteDance recently offered to buy back as much as US$3 billion of its own shares from investors at a US$300 billion valuation. At its height 18 months ago, the company was reportedly worth over US$400 billion and readying an IPO for late this year. ByteDance’s investors include prominent venture capital firm Sequoia Capital, investment group Susquehanna International Group and Japan’s SoftBank Group. China, which has tightened its grip on the tech giants and their data over the past two years, is unlikely to allow a TikTok spinoff because selling TikTok would involve transferring algorithms and other sensitive intellectual property and data from ByteDance to a US entity.
Even if Beijing was willing to allow ByteDance to sell TikTok, Shmulik doesn’t believe any of the major tech players will buy the firm.
“TikTok is now just too big to be acquired by one of the big players,” he argues.
Even if they could, Alphabet and Meta would be prevented from buying it because of antitrust issues. And the Bernstein internet analyst doesn’t see why Apple, Amazon.com or indeed even Microsoft would be interested.
“I don’t see them doing an IPO over the next year or so or being sold to private equity or a consortium led by Oracle,” he says. “I don’t know what will happen in five or 10 years, but nothing in the foreseeable future.”
In the end, TikTok’s future will be in the hands of regulators and politicians. When it comes to addictive stuff, whether it is opioids or cocaine, or for that matter digital crack, regulators will step in to save society at large. Politicians in the US — both Democrats and Republicans — have talked about moving against TikTok as well as other platforms that they believe are harmful to society. Whether they will do so against popular media, however toxic, remains to be seen.
Assif Shameen is a technology writer based in North America
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