How Does TikTok Make Money?

How Does TikTok Make Money?

This is the featured image for our blog post on How TikTok makes money. We have shown an illustration of TikTok app and dollar bills around it

If you’re a teen or a millennial, chances are you’re well aware of this short-video platform. From your neighbors to your friends, everyone seems to be using it. 

As you might’ve guessed, we’re talking about TikTok. 

Since its launch, TikTok has taken the world by storm. With more than 1 billion users worldwide, its craze is spreading like a wildfire. 

On one hand, the platform has allowed people to show their talent by creating short videos, skits, musicals, and more. On the other, it has given brands a chance to magnify their outreach. 

However, one question that interests many of us is how TikTok generates revenue. If it’s something you’re wondering too, you’re in the right place! 

In today’s blog, we’ll decode TikTok’s revenue model and explore how it makes money.

What are we waiting for? Let’s dive in!

The Rise and the Rise of TikTok

TikTok was initially launched under the name of Douyin by ByteDance in the Chinese market in 2016. Its popularity forced the makers to launch it in the international market under the name of TikTok in 2017. 

Since then there’s no looking back. ByteDance acquired Musical.ly and integrated it with TikTok. Today, with a massive user base, it has joined the ranks of social media giants like Facebook, Instagram and Snapchat. Currently, the app is available in more than 150 countries and 75 plus languages.

How does TikTok make money?

As per some stats, TikTok generated a whopping revenue of $4.6 billion in 2021. How? Let’s see! 

TikTok Ads

TikTok for Business is the major source of revenue for TikTok. Today, many businesses are investing in TikTok ads to increase their brand’s awareness and acquire more customers. 

From collaborating with influencers to creating branded hashtag challenges, TikTok is allowing brands to level up their game. 

Here are the few types of TikTok ads that brands use to increase their outreach: 

  • In-feed Video Ads

These are short video ads that pop on a user’s “For You” page. Similar to those that appear in Instagram Stories, In-feed ads blend perfectly with TikTok’s feed. 

  • Brand Takeover Ads 

Have you ever seen an ad the moment you opened the TikTok app? Probably, yes, right? That’s a brand takeover ad. These types of ads help brands to put across their message to their target audience, create mass awareness and drive sales. 

  • Branded Hashtag Challenges 

Here, brands can create a unique hashtag and pay TikTok to ensure it appears on people’s discovery feed. TikTok creators then take part in the challenge and post their videos with that specific hashtag. It’s a fun and interesting way to increase brand awareness. 

  • Top View Ads 

Unlike brand takeover ads that appear as soon as a user clicks on the TikTok app, top view ads appear after the user has been using the app for a few minutes. These ads may last for 60 seconds giving brands a chance to improve their brand awareness. 

  • Branded Effects 

Brands can also create customised stickers and filters on the TikTok app. These branded effects can go live for 10 days giving enough time to the businesses to interact with their potential customers.

In-app Purchases 

In-app purchases are another source of revenue for TikTok. The platform allows users to buy TikTok coins ranging from 100 coins for $1 to 10,000 coins for $100. 

Later, users can use this in-app currency to buy and send gifts to their favourite content creators on TikTok. 

TikTok charges a 50% commission from every creators’ virtual gift that they receive from their fans. 

E-commerce Integration

As per some sources, TikTok is working to integrate eCommerce features within its app. In 2019, it tested infusing eCommerce links on its short videos. Later, it also offered live-stream shopping events and a Shopify integration to display product ads while streaming. 

Right now, it’s said that TikTok is working on ways to sell products directly to millions of people on their app. However, it’s yet to be confirmed by the platform. 

If this feature goes live, TikTok may generate revenue by charging a percentage of the sales amount to brands for acting as an affiliate. 

Pricing Model of TikTok Ads

TikTok offers a variety of pricing options to brands for advertising on its platform. Here’s what they look like: 

  • Cost Per Click: TikTok charges the brands as per the number of clicks its ad generates. Suppose, if an ad generates 10,000 clicks, the advertiser will be charged accordingly. In CPC, it doesn’t matter whether the user fulfilled the purpose of the ad (i.e. by signing up for a newsletter or purchasing a product). 
  • Cost Per View: Also, known as Cost Per Mile, here, the advertiser may pay TikTok for every 1000 impressions of its ad on the platform. 
  • Cost Per Action: This is a critical pricing model for businesses. Here, TikTok charges the advertisers every time a user performs a certain action due to the ad. The action could be subscribing, installing the app, making a purchase, etc. 

In short, the short video giant, TikTok, generates almost all of its revenue from ads and in-app purchases. 

TikTok Revenue & User Base

In 2021, the social media giant recorded a whopping 140% YoY growth in its revenue. TikTok’s revenue stood at $4.6 billion in 2021. It approximately has about 1 billion active users worldwide. Since its launch in 2016, TikTok has earned a mammoth 3 billion downloads. It is the only app after Facebook to reach the milestone of 3 billion downloads. As of the 2021 year end, Bytedance was valued at $300 billion.

Apart from China, Indonesia, US and Brazil are TikTok’s biggest markets. Bytedance, TikTok’s parent company also has other apps like Toutiao, Xigua Video, Douyin and Byteplus.

Bottom Line

TikTok has paved the way for social media video content. From the grassroots level of society to elite class, TikTok has encouraged everyone to become a content creator. Even other similar apps like Tiktok come in with a lot of features, good user base and have good growth potential.

Short video platforms are in trend. Even in terms of business, these apps promise a good profit and a high return on investment. If you’re willing to develop an app similar to TikTok, check out our TikTok Clone App solutions now and get started. Our mobile app development experts can develop and customise the app as per your requirement.