TikTok on the Clock

Few companies, maybe outside of Zoom, relished the peak pandemic days like Bytedance, the Chinese conglomerate behind TikTok. Prior to the pandemic, the redoubt of content-trash reported around half a billion monthly active users, but by September 2021, that number had doubled, and, for a moment, TikTok’s traffic surpassed Google’s. Everyone, it seemed, but especially those under thirty, had flocked to the app for its algorithm-curated buffet of viral dances, challenges, fast-fashion micro-trends, tutorials, and niche aesthetic communities. An army of fresh-faced vloggers and influence-peddlers arose to replace the haggard YouTube stars of yore. Many installed themselves in so-called TikTok mansions and set about establishing brand partnerships and producing the next viral trend. It wasn’t long before august publications like the New York Times and Harper’s descended to assess the first major disruption in the Western social media landscape in years.

Of course, Facebook and Google still tower over TikTok, but among younger users, the latter has become their primary means of engaging with the internet. Qustodio, a parental control software company, places TikTok usage among users under the age of eighteen at 107 minutes a day: 40 minutes higher than YouTube, and more than double any other streaming or social media site. In a business where Netflix founder Reed Hastings famously characterized the main competition as sleep—a basic necessity of life—this level of engagement-cum-addiction has naturally drawn attention from TikTok’s foes.

Concern over younger users’ drift toward TikTok spurred an aggressive campaign by competitors to reverse engineer their own version of the app. Instagram made Reels, YouTube pushed YouTube Shorts, and Spotify recently debuted a TikTok-like homepage. The public relations teams of these firms have been tripping over themselves to broadcast their own seemingly impressive usage numbers (50 billion views for YouTube Shorts!) to try and convince investors, advertisers, and perhaps themselves of the viability of mimicking TikTok. But all of this is a distraction, one meant to forestall potentially more sober assessments of each of these company’s business fundamentals as the era of endless tech cash comes to its inglorious end.

TikTok’s trajectory is not without precedent in the so-called creator economy; they’re just moving at hyper speed. YouTube, founded in 2005 and bought by Google just over a year later, created the template for modern online video platforms. After creating a large-scale search system and monetizing it, Google needed an equivalent for video. The creation and maintenance of a global online video advertisement marketplace took time. YouTube reportedly wasn’t profitable for its first decade of existence, a fact Google didn’t loudly promote. In 2014, the company launched its first subscription service, YouTube Music Key, which offered ad-free music listening, but it was replaced the following year by YouTube Red (later renamed YouTube Premium). For years, YouTube filled the service with largely forgettable original content until pulling the plug early last year. In the midst of all this came the first “adpocalypse.” In early 2017, controversies around major advertisers being placed next to hate speech and racist videos led companies like PepsiCo., General Motors, and Starbucks to pull their spending from YouTube, sending ripples of panic across the company. Brands returned and revenue bounced back, but not every platform has proven as resilient to the vagaries of advertising dollars.

Enter: Vine, the six-second video app that launched in January 2013 and quickly rose to prominence. In many ways a proto-TikTok, Vine helped catapult songs like “Gas Pedal” and “Watch Me (Whip/Nae Nae)” onto the Billboard charts and launched the careers of many influencers and comedians. The company at one point claimed to reach over two hundred million people. But there was a problem. Vine wasn’t making money from all this attention: the company took nothing from the advertising deals creators made, and it struggled to build up a short-form video advertising market. This explains why Twitter, its owner, shut it down by 2016.

These challenges weren’t unique to Vine. Over a decade after its initial release, Snapchat still cannot generate robust advertising-based revenue—but not for want of trying. Last year, the platform added a subscription service in hopes of offsetting weaker ad revenue, though it took around two months to reach a million subscribers, and the march to two million took far longer. Facebook’s much-maligned “pivot to video” in 2015 revealed the same fundamental issue. Three years into Facebook’s vaunted revolution, the company was found to have been manipulating view counts to entice advertisers and persuade publishers to create content on the platform. In the end, little money was made, and Facebook largely abandoned the effort. TikTok’s rapid growth suggested the platform might sidestep such difficulties.

In 2017, Bytedance reportedly spent between $800 million and $1 billion to acquire the lip-synching app Muscial.ly, which it merged with TikTok. In August of the following year, it became available worldwide. In an era of easy venture capital cash, Bytedance easily found backers for its vision of addicting the globe to algorithm-curated feeds of bite-sized videos. Years after YouTube laid the groundwork, TikTok slotted into an already existing digital advertising business and a narrative for how it, too, could become profitable—even though TikTok did not possess a clear plan for doing so. It simply did not need to substantiate pie-in-the-sky claims of its potential “value.” Over the next several years, Bytedance raised some $5 billion from the likes of KKR, Softbank, and Sequoia Capital. In 2021, Tiger Global Management, perhaps the most volatile of tech investors in recent memory, bought shares that valued the company at nearly half a trillion dollars. All of the money allowed the company to rapidly expand their operation.

The platform’s massive reach and the power of its algorithms—backed by a boatload of venture capital—presented a gold rush for marketers. Amateur and professional creators, along with their support staff, were primed to use a decade-plus worth of knowledge about “going viral,” sponsored content, and the other methods of micro-monetization to milk TikTok for all they could. Acting more like an entertainment company than a traditional tech platform, TikTok worked to connect brands and creators; it also hired talent scouts to expand the influence of their platform in hopes it would redound to the benefit of their bottom line. The strategy paid off: between 2019 and 2022, TikTok’s annual ad revenue ballooned from $340 million to over $11 billion. Headlines boasted of triple digit user growth and how top-ranking influencers like Charli and Dixie D’Amelio were earning more than S&P 500 CEOs. But as “devious licks” and the “Da Vinki” twins beguiled the country, TikTok was simply repeating the steps of previous technology firms.

Tech companies—and their loyal boosters—may love to portray older industries as wildly out of step with their plucky innovators, but quite often these firms walk hand-and-hand into the future. Executives across major film, TV, and record companies weren’t ignorant of YouTube when it first popped on the scene. The early success of shorts like SNL’s “Lazy Sunday” helped Hollywood studios see potential in YouTube and its peers for promotion. Major record labels were more trepidatious, concerned that their vast array of copyrighted material wouldn’t earn a high enough return in the wilds of YouTube and its ilk. In response, Google created ContentID in 2007, a system that tags video with copyrighted material to properly pay rights holders. Though not without its flaws, ContentID helped direct over $6 billion to music rights holders between June 2021 and June 2022. In conjunction with the establishment of licensing agreements with major and independent record labels that promised a cut of ad revenue, relations between YouTube and the recording industry are far cozier, exemplified by a revolving door of sorts between the two: YouTube hired former Warner Music executive Lyor Cohen to head music at the company back in 2016, and last year, former YouTube head of business Robert Kyncl left to head Warner Music Group.

TikTok’s relationship with the music industry remains far more antagonistic. Unlike YouTube or other streaming platforms like Spotify, the Chinese company avoided cutting deals that would guarantee a certain percentage of revenue to music labels in exchange for use of their catalogs. Instead, the labels accepted large cash lump sums when TikTok first debuted, which has left them with buyers’ remorse. Recently, the platform announced it would limit access to music for its Australian users, largely seen as a move to deprioritize the IP of the major labels. The perceived negotiating tactic could also signal an admission that the company isn’t interested in, or capable of enduring, the financial strain labels desire to see placed on it. Late last year, Universal Music Group, Sony Music Entertainment, and Warner Music Group all began negotiating with TikTok in hopes of getting the platform share the advertising revenue and increase the royalties it pays them for rights. Though certainly not intentionally, TikTok was given a framework to negotiate with multinational firms that hold the valuable intellectual property required to generate viral lip sync videos. It took time, but an eventual détente was reached between YouTube and the major labels; with TikTok, things seem more uncertain.  

The platform also faces more familiar headwinds. Controversies over the power of social media to promote eating disorders, depression, anxiety, loneliness, et al. have generated headlines and handwringing for years, but TikTok seems to inspire a more acute anxiety, perhaps because the platform seemingly prompts teenagers to develop Tourette’s-like tics and engage in dangerous, possibly fatal, exercises like surfing on top of subway cars. The speed with which TikTok became the most-used social media app among Gen Z is also a factor. Whereas previous social media platforms took years to fully develop and attract a sizable user base, TikTok’s rapid ascension occurred almost overnight. Panic over the corrosive effects of social media isn’t new, but the pandemic-induced convergence of over a billion users onto a single app only amplified concerns about the mass social experiment underway. 

The experiment continues, but the results are already fairly conclusive: exposure, especially prolonged exposure, to social media is bad for your health. Even Instagram’s own internal data, leaked by whistleblowers, reaffirms this. Paternalistic paranoia around TikTok isn’t misplaced, especially as the number of hours users spend on the platform only increases—but outrage has not yet sustained itself to counteract the platform’s growth.

For our fearless leaders on either side of the aisle, the most pressing threat of TikTok lies elsewhere. In 2019, Republican senator Marco Rubio helped spark a bipartisan outrage over the purported risk the Chinese-owned app posed not to the mental health of its users but to national security. Then president Donald Trump happily seized upon and escalated Rubio’s rhetoric, repeatedly threatening to outright ban the app, but he never followed through. President Biden, though previously noncommittal, now sees the home of Addison Rae and cottagecore as a key battleground in the existential war against Chinese supremacy.

In February, the federal government required all its employees to delete the app from government-issued phones. The Justice Department then announced it was investigating Bytedance over concerns it’s been using TikTok to spy on American journalists, security concerns that lawmakers of both parties echoed when they grilled TikTok’s CEO, Shou Chew, for nearly five hours late last month. The Biden administration is now clamoring for TikTok to be sold—or else face a complete ban, something Americans support by more than two-to-one, according to a recent poll from Pew.

TikTok, however, may not need the push. The platform’s once sunny financial forecast has turned grim. Despite its ubiquity, the Wall Street Journal reported that TikTok’s parent company, Bytedance, lost $7 billion in 2021. Then late last year, the Financial Times reported that TikTok was on track to miss its 2022 revenue targets by $2 billion, a trend echoed by both its antecedents Snapchat and YouTube in their public Q4 2022 filings. The drop in revenue was, in part, the consequence of plummeting ad spending amid concerns of a recession, and while spending may be on the rebound, amid the broader tech downturn, the truth becomes clear: Bytedance and its competitors are nothing more than the latest merchants of distraction, biding their time before boredom settles in and the crowd moves on.