Tik Tok Business Model Analysis

Tik Tok Business Model Analysis

Business Model

Tik Tok is one of the social media platforms that allows users to share short videos which are self-made, allowing users to show their creativity. Tik Tok services are accessed via an app that functions as a multi-sided platform with brands, viewers, and content creators. The app is easy to use. Due to its ability to promote creativity, Tik Tok has been widely accepted across the globe even in rural and poorer regions characterized by limited access to digital entertainment. Tik Tok is different from other social media platforms. It has two social feeds – for shared content from profiles that users follow and one for recommended content from the platform’s algorithm. The two feeds provide Tik Tok users with a variety of entertainment content. The platform has a virtual gift shop used to reinforce the relationship between the viewers and the content creators. Through this platform, virtual gifts are given to the content creators as a sign of gratitude for their positive engagement, after which the creators convert the virtual gifts into real money. The platform also provides a creator marketplace where advertisers directly contact influencers based on the target market demographic. Therefore, the platform provides a direct relationship where third parties are involved in handling influencer marketing agreements.

Tik Tok allows for live streaming, which gives content creators an opportunity to directly interact with their followers. This feature provides the influencers with an opportunity to auction products during the live session. Besides live streaming, the platform offers video editing functions that are constantly updated and allow users to become creators regardless of their knowledge in editing. Creating and consuming content in Tik Tok is a seamless activity for the users as it takes a short time to create and watch content on the platform. The Tik Tok challenge is another element that enables videos to go viral. These challenges are themed Tik Toks in the app, which allows and encourages users to demonstrate their creativity to create videos matching the theme of the challenge. A key element in the themed challenges is the background music that helps challenges spread among users. In regard to revenue generation, Tik Tok generates revenue from ads and in-app gift purchases. Advertisers select their target demographic, and the platform places the ads on the screens of the desired audience. In-app gift purchases are used by creators to convert tokens in exchange for real money. Tokens vary in price, but 100 tokens are valued at 99 cents.

Business Model Strengths

Marketing strengths

Creating a hashtag challenge is one of the marketing strengths, as it provides businesses with an excellent way to increase their engagement and brand awareness without inputting many efforts. Marketing companies use influencers for marketing their products, and these challenges go viral, allowing the adverts to reach many users who might be potential customers. Through this, Tik Tok enjoys a greater marketing strength.

Operational strengths

Tik Tok enjoys a wide selection among users due to its availability and simplicity in use. The platform is global, which means it has a strong fan base. Users are able to select various contents from the platform through the search icon. There are limited navigation icons in the platform, which allows users an easy way to navigate across the platform in search and creation of content. Users can select influencers of their choice, and through this, they can access adverts posted by their favorite influencers.

Financial strengths

Tik Tok generates revenue through two major ways that include in-app purchases and Tik Tok for business. Tik Tok for business allows a brand to engage and connect with audiences across the globe. These brands pay good money to the platform, allowing it to generate reliable revenues. The platform is able to generate millions of dollars. For example, in 2020, the company made a fortune of around 1.9 billion dollars, a 457% increase compared to 2019. A large part of the revenue, 79%, comes from China, 8% from the United States, and 3% from Turkey. Another financial strength is that Tik Tok’s parent company, Byte Dance, is one of the world’s wealthy companies. The company has more than doubled its annual revenue to around 34.3 billion dollars, an 111% increment from the previous year. Based on this, Tik Tok can be said to be enjoying a strong financial muscle.

Strategic strengths

Tik Tok enjoys exceptionally high engagement figures in the platform, and therefore, it beats other platforms when it comes to engagement levels across accounts of all sizes. Also, the platform is really good at keeping users engaged in the app, with most users spending more than 45 minutes in a day. This provides advertisers with more than enough time to get the attention of users through influencers on the platform. Another strategy strength is based on the platform’s recommendation in which it recommends its users content they want to see. Based on these recommendations, the platform provides advertisers with an opportunity to select their demographics and select influencers based on the demographics who will engage their viewers with the respective adverts.

Business Model Weaknesses

Marketing problems

Despite Tik Tok having a strong marketing strategy, the platform is subject to fake accounts and scams. The platform gets attention from every one, with some ungenuine users who use the platform to impersonate or misuse their rights. For example, most users have reported being redirected to adult dating scams, and considering that the app has no age restrictions, it has become a major concern, especially for young children.

Operational problems

One of the major problems associated with the platform is that it is strictly video-based content, which means it is subject to the limitation of the medium. In this case, users cannot post any other content other than videos. Texts and photo posts are not allowed on the platform, making it a weakness in regard to user expression. In addition, Tik Tok is more of a reaction platform where views only interact with the comments. However, the platform lacks private chatting, which reduces connectivity.

Financial problems

Funding is one of the major issues that the platform faces. Despite generating massive revenues and having a wealthy parent company, the platform has presented numerous funding problems to content creators. As a result, Tik Tok has come under heavy criticism for low payouts. Also, the minimum balance to withdraw from the platform is too high, and there is no guarantee of how much funding content creators can receive from the platform. In addition, the platform offers fewer monetization options compared to other social media platforms.

Strategic problems

Despite the fact that Tik Tok enjoys high engagement figures that facilitate advertisements, the platform lacks an ad performance history, making it hard for a user to account when the advertisement was made. The lack of competition in the platform ad space is a double-edged sword as it lacks enough data to help advertisers and other users determine the validity of the content. In addition, most of the content available becomes viral due to the Tik Tok challenge; based on this, users may not have a chance to get the original content in which ads were presented. By this, it lacks a real-time marketing strategy.

Forecast/ Recommendations

Marketing problems

Fake accounts and scams are a major challenge in the platform as they increase impersonation and violation of user rights. As noted, these impersonators tend to lure users to inappropriate sites such as adult content. Based on this, it is recommended that the platform impose restrictions on the type of content uploaded and block certain sites that might be considered inappropriate. Also, to comply with child guidelines such as YouTube, Tik Tok has to regulate the content being posted to become age-sensitive.

Operational problems

Tik Tok only allows videos to be posted on the platform, hindering texts and photos that are also means of communication. The essence of the platform is to promote creativity, which means that painters and other content such as poetry are not welcomed. A recommendation for this is that Tik Tok should reconsider its creative purposes and allow texts and photos to be part of the creativity. Also, there is no direct contact between users and viewers, which means that a follower cannot communicate with the content creator in private but only on public comments. A recommendation for this is that Tik Tok should reconsider creating a private chat box to allow more connectivity.

Financial problems

One of the major challenges faced by the platform is funding. The minimum withdrawal limit is too high. Tik Tok has received great acceptance from rural and poor regions, which means it is a source of income for poor youths. Based on this, Tik Tok should consider revising the minimum withdrawal limit to favor people from poor backgrounds.

Strategic problems

A major problem identified is that the ads lack performance history, making it difficult to obtain real-time information such as posting dates to determine the validity of the content. For example, if it was a promotion, the promotion might have expired by the time some users see the content. A recommendation is that Tik Tok should avail vital data such as posting time to allow users to validate the ads.

Part II:

What is the current valuation of this business? Is this appropriate? Why or why not?

Tik Tok is currently valued at 250 billion dollars, and this makes it the most valuable privately held company in the world. The valuation is appropriate as Tik Tok is a global platform with more engagements than any other social media platform, making its revenues much higher as people try to create new content and perform challenges. Also, the platform has a partnership with other business companies that use the platform for advertising, which earns the platform a fortune.

What is Tik Tok’s value proposition, and how did it create this? How is this different or better than its current competitors (you have to research them)?

Tik Tok aspires to inspire creativity and bring joy to the users as they lead the entertainment landscape by creating and viewing short clips on their mobile devices. The platform is multi-sided, consisting of creators, viewers, and brands, which helped create the value proposition of the platform. Brands contact content creators who, in turn, advertise their products to their followers. Based on this, users can get entertained while at the same time obtaining knowledge regarding certain products and brands. In return, content creators can earn through adverts as a way of appreciation. Most of the social media platforms have a similar value proposition, in which influencers are used to advertise brands based on their demographics.

What are the economics of this business? Please explain in detail how revenue is generated and costs are kept down. Has this worked out for them recently?

Tik Tok generates its revenues through two major ways; In-app purchases and paid advertisements. The platform offers businesses a chance to promote their brands through paid advertisements. Based on this, brands can use Tik Tok for business to enhance their marketing solutions by using the platform’s features such as in-feed video ads, brand takeover ads, branded effects, top view ads, and hashtags. These revenue generation streams have worked effectively as they have generated billions for the company, making Tik Tok the most valuable privately-owned social media platform across the globe.

What are the concerns about Tik Tok use in the United States? Does your research lead you to conclude that the concerns are justified or not (please explain in detail)?

The United States government perceives Tik Tok as a national security risk, which is why former president Donald Trump chose to ban the platform in the United States. However, Tik Tok is just a social media platform for silly pranks and dance moves. Based on this, the app has nothing to do with security threats as it bases its content on entertainment. Therefore, the U.S government’s claims to national security concerns are thinly veiled protectionism, considering that the platform traces origin from China, a big competitor of the United States.

What improvements would you make if you were made the CEO of this company today? (Please research some likely valuable attributes instead of listing a number of superficial ideas…)

One of the major improvements that I can make is I were made the CEO of the company is putting on filters to separate content such as entertainment versus educational content. Currently, the platform has a randomized feed that brings all types of content to the screen, leaving users with conflicting types of content. Some people prefer educational content, while others are in Tik Tok purely for entertainment. It would be great to have such filters integrated into the platform to enable users to search content based on their preferences.

Who are Tik Tok’s most dangerous upstart competitors, and what makes them so dangerous?

Tik Tok is a social media platform which means that it faces stiff competition from other social media platforms. Facebook, Instagram, and YouTube are some of the major competitors of Tik Tok. The reason for this is that they provide almost every feature offered in Tik Tok, such as paid advertisements, videos for entertainment. However, the three competitors offer other features such as text and photo posts, making them distinct. Also, Facebook and Instagram allow for private chats, which enables not only entertainment and reactions but also enhances connectivity with users and content creators.