Headline: The Clock is TikToking

Date: 1/1/2022

Body:  OK.   Confession time.   I don’t have a TV.    I also don’t have any Netflix or Hulu accounts.   I do watch probably too much TikTok.   Despite my fears of a shortening attention span… What was I saying?   JK.   I began to wonder about the business model of TikTok.   How do they make money?   How do the content creators make money?  Why does this particular top keep on spinning?   I got some interesting answers.

Who owns TikTok, and is it profitable?

TikTok is owned by ByteDance, a Chinese company, and it is substantially profitable.  In fact, according to an internal memo, in 2021, their revenue rocketed 111%.   Now, Chinese accounting practices are pretty opaque, so these numbers must be taken with a few grains of salt.  But, even if they are 200% wrong (unlikely) the company still emerged more than 50% increased in value at the end of 2021.  They also have just under 2 Billion active users.  By any definition, this is impressive!

Has there been any political pushback against this Chinese company?

In the past administration, TikTok and WeChat were banned within the U.S.   Now, the Department of Commerce will use an “evidence-based approach” to  assess the risk of any piece of software.  At the same time, the Chinese government is beginning to tighten control on TikTok and other similar platforms to prevent “disorderly expansion of capital.”   Cynicism aside, that sounds like further expansion will come at a very high price.

Given these political pressures, does TikTok have the business gravitas to weather such storms?

The answer to this question is yes, definitely yes.     First, TikTok was started by people who have the experience to deftly guide the young enterprise through potentially choppy waters.   Mr. Zhang, president of ByteDance is a former Microsoft engineer and long-time business leader within China.   So, he has the technical chops to see the small picture, and the political/financial chops to navigate the larger picture.  Moreover, he has carefully cultivated some friends and partners from around the world.   Examples include Sequoia Capital, Softbank, KKR and others.  With this vast array of expertise, I think Bytedance and TikTok have the potential of fantastic growth.  At the same time, they also seem to have the financing of their venture locked down.   Advertising is the largest proportion of the revenue stream(about $1.3 Billion), but, the company is also quite innovative, testing whether tipping and subscriptions could be sold to their audience.

Beyond these financial innovations, the company is quite good with the technical innovations as well.  An employee of Andreessen Horowitz in San Francisco, Connie Chan, published a blog post endorsing their effective use of AI to serve up only the content most likely to be useful or enjoyable to them.  I can back her up on this in my own experience.    I began by telling TikTok that I liked seeing videos featuring dogs.   The AI took note of that and served up dog videos.  But then it served up some videos about dog grooming, and I hit the heart button, and sent in questions and comments, and the AI system has since sent me many more dog grooming videos.  It very effectively learned my preferences and does small experiments to see if I react well to related video types.  The AI system they have is VERY good at determining which videos to put on your FYP.

Can I REALLY make money on TikTok?

Yes, and no.   Let me explain.  Yes, there are a few TikTok start who make millions of dollars every year.   Based upon my experience looking at TikTok, a few attributes become clear:

  1.  You must post regularly, and to this audience, that means multiple posts per day.   This is a HUGE commitment.  (Some  creators actually apologize when they take a vacation.)
  2. You must have a hook.   One lady has 8 huskies in a house.  A few creators have assistance dogs that people become enamored of.  One guy is very colorful (and really smart) and runs a business in the Carolinas, pumping septic systems.  Colorful, wonderful guy, but he works like a demon possessed.  All of these creators have a hook.
  3. You must invest the time to respond to individual comments.   A LOT of time.    Your earning money relies upon your ability to engender a real relationship with people you probably will never meet in real life.  But, the interest, passion and care must be on display.  (And fair warning, TikTok users are phenomenal at sniffing out fakers.)
  4. You must at least consider offering some kind of merchandise related to your posts.

I am sure that there are more unofficial rules, but these serve the purpose to show that quitting your full-time job is probably not something you’d want to do right away.  Contrary to opinions of some, to make real money here, REAL work is required.  But, if you are interested in making only a small amount of side-income, TikTok might be your thing.  Just be sure that, if filming people, you have their consent to be placed on TikTok.

To be sure, if you desire to make a lot of income on TikTok, you can, but you have a lot of work to do consistently, and the learning curve can be steep.

OK, so now I have a loyal following and been granted permission to do several “live” sessions on TikTok, when do the big checks start rolling in?

Once you have achieved large scale popularity on TikTok, you can start to earn real money. Below are 4 ways to earn that income:

  1. You could become an influence marketer.  Assume that you do some wonderful training videos with your Yellow Lab puppy.  (A GREAT hook, for sure), you might want to show how delicious these new artisanal, organic, cruelty-free dog treats are.  So, you clearly display yourself holding the bag of treats, and Woofus is jumping, trying to get to those delicious treats.    Then, you take one and give it to Woofus, and the puppy eats it without bothering to chew it.  Gobble, gone.
  2. You could develop and sell your own branded merchandise.  One guy wants to start a dog shelter in Upstate NY.    He has a whole line of shirts, pajamas and leggings with his logo on it.   Each sale goes toward the purchase price of the building for the shelter.
  3. You could take all of your TikTok experiences and parlay that into a job as a TikTok consultant.    Remember that TikTok is a relatively new social media, and there are many people who would be willing to pay a knowledgeable consultant.
  4. There is yet another option.   This is not “getting paid” exactly, but, there is a functionality where you can put together an Amazon wishlist, and if the individual viewers like your content enough, they could purchase items for you.

Never before has the phrase “Buyer Beware” been more important.  Be aware of what other people are selling and compare that to the resources you have.  Be true to yourself, and then, be true to your brand.  More than any other advice, I think that your content must be able to help somebody do something, if you plan to win friends and influence people.

So, can companies really achieve real world success from things that start on TikTok?

In a word, yes.   In a few words, it takes a lot of effort, but it is possible.    In one instance, one gentleman created a country-type song that  featured products available at Applebee’s.    This started on TikTok and can now be found on network TV,  inculcated into ads for Applebee’s with appealing images of good food and happy families.  In another example, Buffalo Wild Wings has successfully tested commercials on TikTok, and then translated them to TV ads.    Said one industry insider, “It’s an old technology on a new medium, and it’ll be interesting for the traditional agencies of the world to embrace,”

In addition to testing commercial content, TikTok is also developing productive partnerships with companies like Square, Shopify and others.   These partnerships will allow you to buy directly from the retailers thru a link from a TikTok video.

The Verdict

If you are thinking that you can post a video or 2 and instantly be given hundreds of thousands of dollars, I suspect you might be mistaken.    But, if you are dedicated, some real money can be made.   If like most, you just want  to entertain or make a little money, this is actually quite approachable.  But, even within Social Media, there is no free lunch.  So, if you are making funny videos to entertain friends (including ones you didn’t know you had), GREAT!!  TikTok is your very large oyster.  But, if you envision easy millions coming from very little apparent effort, you are probably still dreaming.




Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

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