Everyone’s heard of TikTok. It’s the world’s fastest-growing social media platform, available to users in over 150 countries. It also has the highest social media engagement rate per post and has revolutionized the way we share and watch digital content.
TikTok is free to download and use and has so far been downloaded 3.5 billion times. And with so much going on about it, one can’t help but wonder – how does TikTok make money?
Read on to find out how exactly this wonder app is earning its fair share and what makes it so appealing to younger audiences.
How Does TikTok Make Money?
Before we go into the specifics of how TikTok makes money, it’s important to note how it works. In fact, what makes TikTok such a unique platform to use is that it’s designed to work as a multi-sided platform. What this means is that it offers content for viewers, creators, and brands.
TikTok users have two feeds to choose from. One offers content generated by the TikTok algorithm, and the other shows videos from the profiles they follow. These two are combined with a virtual gift shop which is actually one source of revenue for TikTok.
Read on for the elements of the TikTok business model.
In-App Purchases
TikTok allows users to send gifts as a way to say thanks to whoever watches their content. But in order to have gifts, the user first needs to purchase them from the TikTok shop. To do this, they first need to buy TikTok’s in-app currency or TikTokens.
The coins cost from ¢99 to $99.99, and depending on how much money they’re willing to spend, users can buy 100 to 10,000 virtual coins. Only users that are 18 or older can purchase them.
TikTok Ads
In 2020, TikTok made it possible for advertisers to promote their products and services on the platform. TikTok For Business allows advertisers and brands to up their marketing solutions through brand takeovers, top-view ads, hashtag challenges, branded effects, and in-feed videos.
In addition, advertising is not only its primary source of revenue, but it’s also the basis of the TikTok revenue model. The ads function in exactly the same way as they do on other social media platforms. Advertisers choose their target audience, and TikTok distributes their ads to them. There are several types of ads available on TikTok.
In-Feed Video Ads
These are short-form videos that appear to users while they scroll through the ‘For You’ page. In-feed video ads are typically shown in between feeds and are very similar to the ones that appear on Instagram Stories.
Brand Takeover Ads
These are full-screen 3-5-second video ads that appear as soon as the user opens the app. This advertising style allows brands to quickly share their message with the precise people they intend to reach. The cost of these ads ranges between $50,000 to $100,000.
Top-View Ads
These ads are shown after the user has spent some time on TikTok. Unlike brand takeover ads that pop up immediately, these are less intrusive but can last up to 60 seconds.
Branded Hashtag Challenges
A branded hashtag challenge is a great way for brands to increase their visibility and create buzz while also entertaining TikTok users. Brands can pay TikTok so that their specific tag appears on TikTokers’ discovery pages, allowing them the opportunity to participate in challenges by posting with the same hashtag. By using the challenges feature, brands can boost engagement and build brand awareness.
Branded Effects
This is probably the most unique way to advertise on TikTok. Brands can create their own custom filters and stickers and then pay TikTok to show them to the right audience when they’re looking for a specific product or service. Branded effects can go live for a maximum of 10 days, giving plenty of time for users to engage and interact with them.
Does TikTok Make Money?
Yes, TikTok makes money and is quite profitable too. By the end of 2022, TikTok’s revenue peaked at $9.4 billion. The platform’s ad revenue accounted for $5.04 billion. Thanks to the success of the TikTok business model, the company is expected to make $6.4 billion just from advertising and surpass the $13 billion revenue threshold by 2026.