Introduction
TikTok is a social media app owned by Chinese company ByteDance. The app allows users to create short-form videos featuring music, sound bites or trending hashtags. It has quickly become one of the most popular apps worldwide, with over 689 million monthly active users. Despite its immense popularity, it remains a challenge for many to understand how TikTok actually makes money.
Advertising
TikTok generates a significant portion of its revenue through in-app advertising. Similar to Facebook and Instagram, companies can pay TikTok to advertise their products or services to its users. These ads can appear as sponsored posts in users’ feeds or as part of TikTok’s native video content. Companies are charged based on the number of impressions, clicks or views the ad receives. Some successful TikTok ad campaigns include Chipotle’s #GuacDance challenge and Samsung’s #danceAwesome campaign.
Advertising is a key way for TikTok to generate revenue. According to some estimates, TikTok’s advertising revenue may reach $1 billion dollars in 2021 alone.
Virtual Gifts
TikTok users can also purchase virtual gifts for their favorite content creators. These gifts range from simple emoji icons to more elaborate animations, such as a virtual car or a yacht. Users can send virtual gifts to content creators during live streams or to show support for their favorite videos. These gifts provide a fun and interactive way to engage with the TikTok community, while also generating revenue for the app.
TikTok takes a commission on virtual gift revenue, which ranges from 50% to 80%. The amount depends on the type of virtual gift purchased and the user’s geographical location. Some popular virtual gifts on TikTok include a panda hug, a firework display and a luxury car.
Brand Partnerships
Major brands can also run sponsored campaigns on TikTok. These campaigns can range from a one-time post to a longer-term partnership with a popular content creator. For example, luxury brand Louis Vuitton partnered with TikTok star Austin Li to promote their leather goods line.
Brand partnerships are an effective way for companies to reach younger audiences and increase brand awareness. These partnerships also generate revenue for TikTok, though the exact commission structure is not publicly disclosed.
Livestreaming
TikTok users can host live streams and generate revenue through tips and virtual gifts. Similar to virtual gifts, users can send tips during live streams to show their support for content creators. In some cases, content creators may receive thousands of dollars in tips during a single live stream.
TikTok takes a commission on livestreaming revenue, which ranges from 50% to 70%. The exact commission structure depends on the user’s geographical location. Some popular livestreaming content on TikTok includes Q&A sessions with popular creators and musical performances.
Merchandise Sales
Finally, popular content creators on TikTok can create and sell merchandise through the app. Merchandise can include items like t-shirts, phone cases and stickers. This provides a fun and creative way for content creators to monetize their TikTok audiences.
TikTok takes a commission on merchandise sales revenue, similar to virtual gift and livestreaming revenue. The commission ranges from 50% to 70%, depending on the user’s geographical location. Some successful merchandise sales on TikTok include a tie-dye hoodie from creator Emma Chamberlain and a limited edition phone case from Charli D’Amelio.
User Data
Another way TikTok may make money is through the collection and potential sale of user data to third-party companies. TikTok collects a wide range of user data, including location data, device information and browsing history. This data can be used to generate targeted advertising or sold to other companies for profit.
While TikTok maintains that it only collects data necessary for app functionality and user experience, there have been concerns raised by lawmakers and privacy advocates around its data collection practices.
Conclusion
TikTok generates revenue through several different streams, including advertising, virtual gifts, brand partnerships, livestreaming and merchandise sales. While advertising is the most significant revenue stream, these other streams provide a fun and creative way for users to support their favorite creators and engage with the TikTok community.
As TikTok continues to grow, it will be interesting to see how it evolves its revenue model and how it continues to balance the needs of users with the demands of advertisers and partners.
