The Economist January 15th 2022 Business 57Creativeseduction
“W
hen yougaze into TikTok, TikTok gazes into you,” wrote
Eugene Wei, a tech blogger, in 2020, explaining the almost
clairvoyant nature of TikTok. What the algorithm sees as it gazes
into your columnist, a neophyte user, is anyone’s guess: a random
feed delivers tips on how to design a ball gown, someone barking
at a dog, Rod Stewart with a hankie on his head, and (phew!) Maya
Angelou reciting “Phenomenal Woman”.
Schumpeter is quite clear, however, about what he sees in Tik
Tok. It is not just the busty seductiveness of many of the clips that
he cannot help noticing. It is the serious money changing hands.
And the unmistakable thrill of creative destruction.
About time. Just five years after its birth, TikTok claims to have
exceeded 1bn monthly users, despite a ban in India. On January
12th App Annie, a data gatherer, said TikTok caught up with Face
book in 2021 and overtook WhatsApp and Instagram in time users
spent on it. Notwithstanding a judge’s decision on January 11th to
allow America’s Federal Trade Commission to sue Meta, the social
media trio’s parent company, on antitrust grounds, TikTok’s suc
cess appears to mock the argument that Facebook is impregnable.
TikTok derives its magic from its algorithm and the data on
which it is trained. Unlike Facebook’s rolling feed, TikTok’s sim
ple, onevideo interface means that the app always knows exactly
what a user is watching. Clips are short, so viewers see a lot of
them, generating plenty of information. This, combined with few
friends and family clogging up the feed, allows the algorithm to
match users with content creators that actually entertain them.
And because videos are mostly shot on a smartphone, anyone can
make them. Barriers to entry are low. Virality is high.
A big question remains. Can TikTok win business as well as it
woos eyeballs? Its provenance has long suggested it can. It is born
out of ByteDance, a privately held Chinese powerhouse that some
think generated more than $40bn in revenues in 2021. Its sister
app, Douyin, has thrived in China’s hypercompetitive socialme
dia market, which makes Silicon Valley look staid by comparison.
That gives TikTok handson commercial experience to draw on.
So far its revenues, though growing fast, are reportedly low (it
discloses no financial information). That is unsurprising. Donald
Trump’s abortive attempt in 2020 to ban it on nationalsecuritygrounds scared away advertisers. The ensuing drama—a thwarted
sale, management upheaval and uncertainty over its relationship
with ByteDance—caused yet more disarray. But these hurdles now
appear to be behind it. In the absence of further geopolitical tur
moil, TikTok could shake up the business model of social media in
America, not just the user experience.
There are several ways it could do so. Start with advertising.
Google and Facebook pioneered the payperclick approach. Tik
Tok is transforming it further, inviting brands to work with
creators to make potentially viral content, such as skateboarders
swigging Ocean Spray juice to the sound of Fleetwood Mac. Some
times a brand’s presence might only be visible via a hashtag.
Second, ecommerce. Like other American socialmedia plat
forms, TikTok now enables viewers to buy goods directly by tap
ping a shopping tab on a video. It has teamed up with Shopify, an
ecommerce platform, to bring more merchants to the site. So
called social commerce—including via live streaming—is far big
ger in China than in America. Jeremy Yang of Harvard Business
School says TikTok may build on Douyin’s experience in this field
to bolster its onlineshopping business.
Third, the creator economy. It is not just that, according to
Forbes magazine,TikTok’s seven highestpaid stars earned a total
of $55.5m from work on and off the platform last year, triple the
sum it counted in 2020. TikTok has also recently introduced ways
for users to provide gifts and tips to favoured creators, boosting
the incentive to produce fresh material and providing fees to Tik
Tok. Such practices first took off in China.
None of these innovations will amount to much if TikTok has
another neardeath experience. That is why it appears to be put
ting a final piece of its commercial strategy into place: balancing
the demands of America and China. It has appointed Shou Zi
Chew, a Singaporean of Chinese ethnicity, as ceo. He is based in
the citystate, which serves as neutral territory. He is comfortable
on both sides of the SinoAmerican divide, having been educated
in the West and served as chief financial officer of ByteDance and
Xiaomi, a Chinese smartphonemaker. It is still an open question
whether he can—or even should—further disentangle TikTok
from ByteDance to curb the perception that China could make ne
farious use of TikTok’s data. To do so may help geopolitically. But
cutting TikTok off from an army of Chinese software engineers
could also jeopardise its mindreading brilliance.
TikTok faces plenty of other challenges. It needs to invest
heavily in content moderation to ensure toxic videos are removed
before they go viral. Addiction is a palpable concern, not just as a
meme—#tiktokaddict has more than 500m views. The app faces
probes about data privacy, particularly of underage users. Regula
tory risk will rise as TikTok becomes more prominent.
One thing TikTok need not fear is being crushed by the big
beasts of Silicon Valley (at least without help from Uncle Sam). In
stagram has sought to mirror TikTok with “Reels”, and YouTube,
owned by Google’s parent company, Alphabet, has introduced
“Shorts”. Neither has damaged TikTok’s popularity. #LessonforChina
That is a good thing. TikTok is on the vanguard of ideas pioneered
in China’s videomad socialmedia landscape that have taken
years to permeate America. At a time when the Chinese Commu
nist Party is arbitrarily cracking downontheconsumertech in
dustry it is especially gratifying to witnessChinese free enterprise
and ingenuity grab the world’s attention.nSchumpeter
TikTok is not silly. It is a serious disrupter