TikTok Matters Even If You’re Over 20
Disruptive innovation is alive and well in the social media industry and the COVID Crisis has accelerated it meaningfully.Case in point: TikTok – a Chinese video-sharing social network service – which is the most downloaded app this year. Here is some background:
- Content:TikTok allows users to share short clips of dances, tricks, pranks, memes, comedy or lip-syncing performances, etc. The target audience is teens and young adults in their twenties.
- Downloads:Since its launch in 2016, TikTok and its Chinese version Douyin have been downloaded over 2 billion times according to Sensor Tower, which makes it the first app to cross that threshold after Facebook’s WhatsApp, Instagram and Messenger.
TikTok/Douyin are the most downloaded non-game apps globally nearly every month so far this year save April when it was surpassed by Zoom. For example, last month TikTok and Douyin had +111.9 million installs, an impressive 2x year-over-year increase.
- Owner:TikTok’s owner, ByteDance, is reportedly the most valuable startup in the world with a private valuation of between $105 billion and $110 billion. The company recently hired Disney’s Head of Streaming, Kevin Mayer, as TikTok’s chief executive and ByteDance’s chief operating officer.
- COVID impact:While TikTok was growing in popularity even before the pandemic, it “generated the most downloads for any app ever in a quarter” at 315 million instills across the App Store and Google Play during Q1 according to Sensor Tower. The app is particularly prevalent among teenagers and young adults, so stay-at-home orders and school closures helped boost its user base as people searched for new content to consume and create.
As for why this matters to investors, a few points:
#1: The last 100 days has sped up the impact of disruptive tech due to the COVID-19 Crisis, allowing TikTok to shine.The app follows the classic Clayton Christensen’s “Innovator’s Dilemma” playbook: it offers an affordable service (in this case free) to an underserved market (teens and young adults). This simple setup coupled with conditions conducive to its recent explosive growth from the virus has made TikTok competitive with major tech giants, such as Facebook and Google. Any time spent on TikTok or creating videos for the platform is less time on Facebook, Instagram, YouTube, Twitter, etc. Not to mention Facebook isn’t allowed to operate in China, unlike TikTok’s Chinese version Douyin.
Moreover, TikTok has only scratched the surface with its advertising and e-commerce capabilities. Despite that its young user base lacks the financial resources of their older counterparts and may therefore be less attractive to advertisers, their earnings power will grow as they age and they will likely remain loyal to TikTok. As the app matures it will also branch into more monetization opportunities with new products and services as it moves up the value chain.
#2: TikTok owner ByteDance will likely go public in the future, but even if it lists in the US it will never be in the S&P 500 because it is a Chinese company.This example demonstrates one suboptimal feature of indexing. The S&P 500 will miss out on the growth of a disruptive tech company that could meaningfully improve the index’s returns over the next decade.
#3: US lawmakers remain concerned about TikTok potentially censoring political content and sharing user data with the Chinese government.Nevertheless, these qualms have not seemed to persuade its target audience enough to slow the app’s impressive user growth much to the discontent of Mark Zuckerberg. Here’s what he said during a speech at Georgetown University last year: “Until recently, the internet in almost every country outside China has been defined by American platforms with strong free expression values… There’s no guarantee these values will win out. A decade ago, almost all of the major internet platforms were American. Today, six of the top ten are Chinese."
TikTok only just recently explained how its “For You” page works, which is the first thing you see when you open the app and includes videos customized to each user. As Wired noted in a recent article (link below), “the For You page has become some of the most valuable digital real estate in the world” and “getting featured can make or break a would-be TikTok influencer’s career”.
Bottom line: TikTok is one more example that disruptive innovation starts at the low end of a market, and any company following that model can have a meaningful chance against established players particularly during times of changing consumer behaviors as we’re currently experiencing.
Sources:
https://www.wired.com/story/tiktok-finally-explains-for-you-algorithm-works/
https://sensortower.com/blog/top-apps-worldwide-may-2020-downloads
https://www.cnbc.com/2020/05/27/tiktok-bytedance-profit.html
As an expert in the field of social media and disruptive technologies, I can confidently affirm the critical role that TikTok plays in the current landscape, especially in the context of the COVID-19 pandemic. My expertise is grounded in a deep understanding of the technology, industry trends, and the impact of disruptive innovations on established players.
TikTok, a Chinese video-sharing social network service, has emerged as a disruptive force in the social media industry. Since its launch in 2016, it has garnered over 2 billion downloads globally, making it the most downloaded app this year, surpassing major platforms like Facebook's WhatsApp, Instagram, and Messenger.
The platform primarily targets teens and young adults in their twenties, allowing users to share short clips encompassing various content types such as dances, tricks, pranks, memes, comedy, and lip-syncing performances. Its popularity has soared during the COVID-19 pandemic, with stay-at-home orders and school closures contributing to a surge in user base as people sought new content to engage with.
Key Concepts Explored in the Article:
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Disruptive Innovation and COVID-19 Impact:
- TikTok exemplifies disruptive innovation by offering a free and affordable service to an underserved market—teens and young adults.
- The COVID-19 crisis has accelerated the impact of disruptive tech, allowing TikTok to shine as people turn to the platform for entertainment during lockdowns.
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Market Dominance and Competition:
- TikTok competes with major tech giants such as Facebook and Google for user attention. Time spent on TikTok is time away from other platforms like Facebook, Instagram, YouTube, Twitter, etc.
- Unlike Facebook, TikTok's Chinese version Douyin operates in China, giving it a unique advantage in that market.
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Monetization Opportunities and Future Growth:
- TikTok is still in the early stages of exploring advertising and e-commerce capabilities.
- The young user base may currently have limited financial resources, but as they age, their earnings power will grow, making them more attractive to advertisers.
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Ownership and Potential IPO:
- TikTok's owner, ByteDance, is reportedly the most valuable startup globally, with a private valuation of $105-110 billion.
- ByteDance is expected to go public in the future, but being a Chinese company, it may not be included in the S&P 500.
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Concerns and Controversies:
- U.S. lawmakers express concerns about TikTok potentially censoring political content and sharing user data with the Chinese government.
- Despite these concerns, TikTok's user growth remains robust, posing a challenge to established platforms.
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Influencer Dynamics and Algorithm Explanation:
- TikTok's "For You" page, a crucial aspect of the platform, has become highly valuable digital real estate.
- Understanding the algorithm behind the "For You" page is essential for TikTok influencers, as being featured can significantly impact their careers.
In conclusion, TikTok's rapid rise illustrates the dynamics of disruptive innovation, showcasing how a platform can gain prominence by targeting a specific demographic and offering a unique user experience. The platform's impact on user behavior, competition with established players, and its potential for future growth make it a noteworthy subject for investors and industry observers alike.
