TikTok, the short form video platform, has experienced rapid growth. If we take a look at the numbers, it took the social media platform just about five years to amass more than 1 billion users (an achievement it met last year). That user based has helped set the platform up nicely to benefit from ad spending. TikTok is expected to net around $11 billion in U.S. ad revenues by 2024, outpacing YouTube.
Now, we’re seeing other companies playing catch up, attempting to compete with the new social media standard TikTok has set.
Marketplace’s Sabri Ben-Achour wanted to see where this race for users stands and what exactly is at stake.
He spoke with Sara Fischer, a media reporter at Axios. The following is an edited transcript of their conversation.
Sabri Ben-Achour: So we know TikTok’s growth is, objectively, massive. But can you give us a sense of how much of a threat TikTok has become to other big social media companies?
Sara Fischer: Yeah, so most social media companies make money on advertising. And in particular, they make money on what’s called direct response advertising. And what TikTok has done masterfully, is they’ve been able to build a really compelling user base, over a billion people worldwide, but also a really compelling pitch to direct response advertisers who are looking to sell stuff. And that’s started to create a really big competitive threat to companies like Snapchat, like Meta, who sell the same types of ads that TikTok does.
Ben-Achour: Other social media companies have been trying to compete, trying to keep up. Instagram had Reels, that kind of didn’t go super well. YouTube is sharing more ad revenue. Are these efforts effective?
Fischer: They’re trying to be. Everyone’s trying to create this type of TikTok magic. But the challenge that they’re facing is they don’t have a first commerce advantage. And really, the thing to watch is, it’s not that they’re necessarily competing with TikTok because they think TikTok is not going to be the dominant player forever, it’s because there’s so much regulatory pressure against TikTok realistically there could be one day a challenge to their existence in the U.S., if regulators think that they continue to be a national security threat. And so what they’re actually building is what could be the replacement.
Ben-Achour: Oh, wow. You know, we’ve been talking about this ongoing battle to attract users. But what exactly is at stake here in terms of revenue?
Fischer: Sure. So the global advertising market is expected to hit about $1 trillion by 2025. And a majority of that is going to be digital ad revenue. Now, obviously, the United States is by far the biggest ad market in the entire world. And so to attract ad revenue there, they’ve put a ton of money into marketing in this country. And ironically, they spent a lot of money marketing on their rival platforms. And so what’s at stake? It’s not just billions of dollars in ad revenue, but it’s many billions of dollars, possibly trillions of dollars, in market cap for the way that Wall Street values these companies based off of their ability to grow mobile ad revenue, that TikTok is now starting to dominate.
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