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TikTok doesn’t make you laugh. It’s serious

“WHEN YOU gaze 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…

“WHEN YOU gaze into TikTok, TikTok gazes into you,” wrote Eugene Wei, a tech blogger, in 2020, explaining the almost clairvoyant nature of TikTok. The algorithm can see what you are seeing as it looks into your columnist, a novice user. A random feed will deliver tips on how to make a ball gown, Rod Stewart holding a hankie, and (phew! Maya Angelou reciting “Phenomenal Woman”.

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Schumpeter is quite clear, however, about what he sees in TikTok. He can’t help but notice the seductiveness and bustiness of many clips. It’s the serious money changing hands. It is the unmistakable thrill and excitement of creative destruction.

About time. TikTok claims that it has more than 1bn monthly users just five years since its inception, despite being banned in India. On January 12th App Annie, a data gatherer, said TikTok caught up with Facebook 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 success appears to mock the argument that Facebook is impregnable.

TikTok derives its magic from its algorithm and the data on which it is trained. TikTok’s one-video interface is simpler than Facebook’s rolling feed. This means that it knows exactly what the user is seeing. Because clips are very short, viewers can see many of them at once, which allows for a lot more information. The algorithm can match users with content creators who actually entertain them, thanks to this and a few family members not clogging the feed. Videos can be made by anyone, as they are mainly shot with a smartphone. There are no barriers to entry. The level of virality is high.

A big question remains. Is TikTok able to win business just as it does with wooing eyeballs? Its history has shown that it can. It is born out of ByteDance, a privately held Chinese powerhouse that some think generated more than $40bn in revenues in 2021. Douyin, its sister app, has been thriving in China’s highly competitive social-media market. This makes Silicon Valley seem stale by comparison. TikTok has a lot of commercial experience.

So far its revenues, though growing fast, are reportedly low (it discloses no financial information). This is not surprising. Donald Trump’s abortive attempt in 2020 to ban it on national-security grounds scared away advertisers. Further chaos ensued from a failed sale, management turmoil and uncertainty about ByteDance’s relationship. These obstacles now seem to have been overcome. TikTok, in the absence of any further geopolitical turmoil could change the business model for social media in America. This would not only impact the user experience but also the business model.

There are several ways it could do so. Advertising is the first step. Google and Facebook were the first to use pay-per-click. TikTok is taking this concept further by inviting brands to collaborate with creators to create potentially viral content. For example, skateboarders sipping Ocean Spray juice to the tune of Fleetwood Mac. Sometimes, a brand’s presence is only visible through a hashtag.

Second, e-commerce. TikTok, like other American social media platforms, now allows viewers to purchase goods by simply tapping a shopping tab in a video. To bring more merchants to the site, it has partnered with Shopify, an online e-commerce platform. Social commerce, including live streaming, is much more popular in China than it is in America. Jeremy Yang from Harvard Business School believes that TikTok could draw on Douyin’s expertise in this area to boost its online-shopping business.

Third, the creator economy. It is not just that, according to Forbes magazine , TikTok’s seven highest-paid stars earned a total of $55.5m from work on and off the platform last year, triple the sum it counted in 2020. TikTok recently added the ability for users to give tips and gifts to their favourite creators. This has increased the incentive to produce new material and paid fees to TikTok. These practices were first introduced in China.

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