When we talk about social media, we often refer to companies like Facebook, Instagram, Twitter, and LinkedIn. However, in the past few years, another company has emerged as a huge player in the social media space. This company has created an application that is known for having high levels of user engagement. The application being talked about is TikTok.

TikTok has taken the world of social media by storm. This is because millions of people are using this application to create content. This application is very successful amongst the younger target audiences. As a result, Bytedance, the Chinese company which has created TikTok has become the most valuable start-up in the world. The company is valued at close to $280 billion.

However, despite its high levels of user engagement, TikTok seems like an application that is not meant for entertainment only. Most people around the world are not clear as to how TikTok generates revenue and how it has become one of the most valuable applications across the world.

In this article, we will explain the business model of TikTok which enables it to generate significant amounts of profitability.

Revenue Streams of TikTok

The business model of TitTok is that it allows users to create, watch and share 15-second videos. These videos can be made catchy since TikTok allows the users to choose from various background filters and various sounds. The application has been downloaded and installed more than 315 million times across the globe!

Even though TikTok is a free app from the consumer's point of view, it still has various revenue streams which it can draw upon. TikTok has developed various forms of advertisements that it uses to make money on its application. Some of the most prominent revenue streams have been listed in the article below:

• In-Feed Video Ads: Like other social media giants, TikTok also generates the bulk of its revenue from advertisements. TikTok charges companies money if they want the users to view in-feed video ads. These ads are the videos that users have to watch in between the free user-generated content that they view on the application. It works exactly as advertisements work on other companies such as YouTube.

• Brand Takeover Ads: TikTok has been quite innovative with regard to how it allows brands to advertise. They have created the concept of brand takeover ads. Under this ad, as soon as a user opens an application, they see an interactive video ad. Since this ad is shown the moment the user opens the application it gains more attention and has a deeper impact. Such ads help TikTok generate more revenue for its parent company.

• In-App Purchases: TikTok provides a facility for a user to show appreciation for the content created by other users by giving them monetary gifts. This is done by selling TikTok coins. These coins can be purchased in various denominations and gifted to users. TikTok charges a certain commission and transfers the balance amount to the users. In-app purchases have emerged as a major source of revenue for the company.

• Branded Effects: TikTok also provides unique branded effects to many of its advertisers. These include custom stickers and augmented reality filters. Users can add this to their videos which helps the create popular content. These branded effects are largely used for the promotion of movies and other television shows. This is because it is easier to create filters with popular dialogues or hook steps.

• Top View Ads: Top view ads are like in-feed video ads. However, they do not appear as content in the feed of the user. Instead, these ads stop the content in order to gain the complete attention of the viewer. These ads last for longer periods of time. Some of these ads last for sixty seconds. Top view ads help TikTok generate a lot of revenue from advertisers.

• Hashtag Challenges: Branded hashtag challenge is a way for companies to create viral content. These companies create some organic content and then pay TikTok to make their hashtag more visible to all users. As a result, the content starts appearing in the feeds of more users. These users are then likely to interact with this content. Some other users are likely to create similar content which helps the company’s objective of creating a viral ad campaign that looks organic and hence benefits the company more than regular advertisements.

TikTok has been tight-lipped about the profit that it generates. The company does not share too much information. Also, since it is based in China, there is even more opacity as information shared for regulatory purposes is also not known. However, some estimates show that TikTok derives most of its revenue from China.

Estimates suggest that the company generates 80% of its revenue from China. However, the company is now trying to diversify into the global marketplace. The company faces a significant challenge as it has been banned in several countries because of the fear that it may be sharing user-generated data with the Chinese government.