TikTok Business Model: The Rise Of
Creative Social Media Powered By AI
Business / By Gennaro Cuofano / April 11, 2022
TikTok is the Chinese creative social media platform driven by
short-form video content enabling users to interact and generate
content at scale. TikTok primarily makes money through
advertising, thus making it an attention-based business model or
attention merchant.
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Contents [hide]
TikTok short business model breakdown
AI-based company
The Chinese newcomer in the creative social media space
TikTok business dissected
ByteDance, the company behind TikTok
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What is ByteDance’s mission?
The content hub is powered up by machine learning
TikTok merge with Musical.ly accelerated growth
How much is ByteDance worth?
How does TikTok make money?
Inside TikTok For You Feed?
TikTok growth plan
TikTok’s two-sided network effects
Related Case Studies
Related To TikTok Business Model
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TikTok short business model breakdown
TikTok is the Chinese creative social media platform primarily driven
by short-form video content.
It launches challenges of various types to tap into the creativity of its
users and generate engaging (if not addicting content) accessible via
an infinite feed.
TikTok primarily makes money through advertising:
We describe the TikTok business model via the VTDF
framework developed by FourWeekMBA.
TikTok
Business
Model
Description
Value Model:
Creative AIBased Social
Media.
TikTok’s mission is “to inspire creativity and bring joy.” With a short-video
format, a continuous feed can provide content by learning what users like, at
scale, with a built-in AI, and hook users around content that can be built
based on interactions (things like challenges, duets, and more).
Technological
Model: Twosided
network
effects.
TikTok works like a two-sided network. For each additional average power
user joining (what on the platform is known as “TikToker”), the more the
network will become valuable for average users, and the more power users
will want to join the platform. As more TikTokers generate content, this
content becomes viral, generating many interactions and new user-generated
content. That makes the TikTok platform increasingly valuable,
Distribution
Model: UserGenerated
Content,
Power Users,
Brand,
Growth
Engine, Fast
Product
Development,
AI-Driven
Features.
The main challenge for TikTok is to keep improving its platform at scale,
thus making it viable and able to manage a large amount of traffic and
interactions. The more features will be added, and the more the platform will
enable creators to build content, the more this will make the user-generated
content valuable at scale.
Financial
Model:
Advertising
Engine.
TikTok primarily monetizes its business through its advertising machine. As
the company managed to monetize the traffic on top of the platform many
times over, the more the advertising machine can generate revenues at scale.
AI-based company
TikTok challenges are accompanied by compelling music tracks
embellished via effects and filters, and powered by AI algorithms that
optimize both content creation, curation, and recommendation.
The company had grown exponentially and reached over five hundred
million users at the beginning of 2018. Facebook has taken notice and
might be building its own version, called Lasso!
The Chinese newcomer in the creative social media space
TikTok might be defined as a creative social media or a
content platform that taps into the creativity of its users through a set
of challenges of various types, to generate engaging content. TikTok
has a few main characteristics:
Classic social media platform leveraging on the willingness of
people to share their content
 Combined with compelling music tracks as the companion to the
challenges set on the platform
 A set of compelling filters and effects that can be applied to the
videos
 And an Asystemem as content curation and recommendation
In short, it is a mixture of Instagram, Facebook,
and YouTube powered by AI.
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Bytedance has been a unicorn for years now. Yet, as of 2021, thanks
also to the success of TikTok, it has become a multi-billion dollar
company, worth anywhere between 300-400 billion dollars!
What’s so unique about a company that has racked up over half a
billion users globally? Which has become among the most valuable
Startups, owned by a Chines tech company?
TikTok business dissected
As pointed out on the TikTok site, “TikTok is a destination for shortform mobile videos. Our mission is to capture and present the world’s
creativity, knowledge, and precious life moments, directly from the
mobile phone.
TikTok enables everyone to be a creator, and encourages users to
share their passion and creative expression through their videos.”
That doesn’t seem to be anything special about it, if not the fact that
TikTok’s aim is really to tap into people’s creativity.
Yet to understand why TikTok might be unique, we’ll need to look
under the hood, at the company that controls it: ByteDance.
ByteDance, the company behind TikTok
ByteDance was founded by Yiming Zhang, which the ByteDance
website defines as “A lifelong entrepreneur before ByteDance Yiming
founded several ventures including a real estate search portal.
Previously, he served as the Director of Technology at Kuxun, then
the dominant travel and transportation search engine in China, where
he led a team of more than 40 engineers. Kuxun was later acquired by
TripAdvisor.”
The real-time network calculator from Forbes assigns Yiming Zhang a
net worth of $49.5 billion in 2022, making him among the wealthiest
Chinese people. One of the most incredible aspects of this rise is that
ByteDance has been able to get so far, even though it didn’t get
money from China’s duopoly Alibaba-Tencent.
ByteDance found itself in a legal battle where it alleged Tencent and
Baidu to have unfairly competed against one of its most popular apps
in China, called Toutiao.
What is ByteDance’s mission?
As announced on its site, the mission ByteDance:
Our vision is to build global creation and interaction platforms –
we aim to not just deliver information but serve as a creative
hub, hosting and nurturing creators. This belief guides
our strategy in product development. Alongside our flagship
product Toutiao, the largest content discovery and
creation platform in China, we have also developed a diverse
portfolio of products that are popular around the world, most
notably musical.ly and TopBuzz.
ByteDance offers a series of products, and in China, its most popular
one is called Jinri Toutiao (“Today’s Headlines”), which is a news
aggregator.
The company claims that it uses AI to tap into the habits of users and
to curate content from publishers. While it’s hard to verify how much
AI is really at the core of Toutiao’s success, the company kept growing
at and fast pace.
And ByteDance has become among the largest content platforms
globally.
The content hub is powered up by machine learning
One of the main features of social media is the content generated by
its users. In short, a large number of users create a vast amount of
content for free on the platform:
ByteDance has accumulated a vast amount of content and
social media created by people and rich engagement data
across our various products. This massive data is fed into our
machine learning algorithms, which further refines the quality of
users’ content feed and enhances the content experience,
which in turn encourages more engagement and generates
more data to be fed back into our algorithms. We use this
virtuous cycle to optimize every stage of the “content
lifecycle”—creation, moderation, curation, recommendation and
interaction.
In short, the ByteDance platform claims to use machine learning and
AI on both sides of the content spectrum. In terms of consumption
things like feeds, channels, apps, and entry points are assessed and
assisted by the AI. In terms of content creation, AI supports the
production of articles, images Q&As, videos, and live sessions.
The mechanism is summarized below:
Source: bytedance.com/ai
Thus, the AI works on several phased of the content experience
lifecycle:
Creation.
 Moderation.
 And interaction.
TikTok is known in China as Douyin, and it allows users to create
unique 15-second short videos, by applying effects that get shared
across the world.
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TikTok merge with Musical.ly accelerated growth
In 2018, TikTok merged with Musical.ly, a popular mobile platform for
short-form video. When the merge happened this is how Bytedance
announced it:
We are delighted to welcome musical.ly to the Bytedance
family. Louis, Alex and their team have built a hugely powerful
and engaging platform, and we see immediate and exciting
opportunities to build on the obvious synergy with our business.
y integrating musical.ly’s global reach with Bytedance’s massive
user base in China and key Asian markets we are creating a
significant global platform for our content creators and brands to
engage with new markets. At the same time, our global-leading
AI technology will help musical.ly to accelerate their incredible
pace of innovation in mobile video creation.
How much is ByteDance worth?
Bytedance made $51 billion in 2021 and it might be worth well in the
range of 300-400 billion dollars!
How does TikTok make money?
TikTok makes money through its advertising platform, the TikTok Ads
Manager. From there, brands can kick off their branding campaigns
over TikTok. While we don’t know for sure how much money TikTok
makes.
We know that Bytedance, TikTok’s owner made as much as $51
billion in 2021.
TikTok made instead $4.6 billion in revenue in 2021 (142% increase
year-on-year).
It did that, by creating a whole new category: user-generated hype.
In fact, Hype Houses (the houses where kids get organized, to
develop short-form content for TikTok) have become the content
farms for the platform:
A few potential monetization strategies might be:
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Advertising revenues are generated via targeted ads (similar to
YouTube).
Allowing content creators to monetize their content as a usergenerated platform is critical to the platform’s long-term success.
A subscription model for original, more extended form content from
the platform that assembles the best short-form content.
In 2021, TikTok built its creator fund, by committing £231 million
over a 3 years time frame, devoted to the top creators.
Inside TikTok For You Feed?
In an attempt to make its algorithms more transparent (people’s
concerns about TikTok being owned by a Chinese company has
pushed the company in various directions, among which hiring a US
CEO, who was the former Disney’s head of streaming) TikTok shared
some details about its For You Feed.
The recommendation system is the tip of the iceberg and a window
into how TikTok is redefining social media, into an ultimate meme
machine, which power lies outside the social network.
TikTok (as we’ll see) is mostly interest-driven (both what you like and
don’t like) and it has a capacity for customization that is extreme. If
Facebook made us live inside filter bubbles, TikTok will make us live
inside superbubbles. As TikTok explained:
When you open TikTok and land in your For You feed, you’re
presented with a stream of videos curated to your interests,
making it easy to find content and creators you love. This feed
is powered by a recommendation system that delivers content
to each user that is likely to be of interest to that particular user.
Part of the magic of TikTok is that there’s no one For You feed
– while different people may come upon some of the same
standout videos, each person’s feed is unique and tailored to
that specific individual.
Therefore, the For You feed reflects preferences unique to each user
based on:
User interactions (videos you like or share, accounts you follow,
comments you post, and content you create).
 Video information (captions, sounds, and hashtags).
 Device and account settings (language preference, country
setting, and device type).
But if TikTok doesn’t know anything about you, how does it learn?
Let’s look at the workflow TikTok uses to go from an un-personalized
For You feed to a tailored one, at scale:
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TikTok starts by offering a generalized feed of popular videos. From
there based on the first set of likes, comments, and replays it will
learn your tastes and start recommending more.
 As you enjoy and use the app, TikTok will learn from any interaction
happening on the platform.
 You can also “long-press” to add a video to your favorites (that
indicates clearly what you like), or you can long-press on a video
and tap “Not Interested” (which will help the system learn quickly
about your tastes).
In such a personalized system, filter bubbles can be a real problem to
address the TikTok For You Recommendation system tries to interrupt
patterns (by for instance no recommendation by the same creator
might be done twice in the same session), by showing videos that are
outside your usual preferences, so that the recommendation algorithm
can itself adjust to that.
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TikTok growth plan
By 2021, TikTok had passed 1.2 billion monthly active users. For
some context, it took Facebook 8 years to pass 1 billion monthly
active users.
TikTok passed a billion monthly active users in five years.
Its growth has been so fast that Facebook has taken notice.
Indeed, Facebook – now Meta – has been building over the last years
its own clones of TikTok.
Given TikTok’s presumably multi-billion firepower, it won’t be easy for
Facebook to stop TikTok growth.
As of the time of this writing, TikTok seems to be following users of
specific demographics around the web via paid ads. Be it
a YouTube, Google, or Facebook ad, TikTok appears to be
ubiquitous.
This is blitzscaling in action. In an industry, where a few players like
Facebook dominate, having relentless growth is critical to gain enough
momentum to survive a possible attack.
As Facebook is also investing in its own creative social media app, it
makes sense that TikTok is pushing so much on growth.
However, this strategy is also hazardous, as when fuels start to run
over, either the company will be able to get another round of investing
and keep better monetizing its products, or it might risk falling.
What’s most important about TikTok is its research lab, what
ByteDance calls “AI Lab” which claims expertise in several areas, from
natural language processing (NLP), computer vision, machine
learning, and more:
Source: ailab.bytedance.com/research
For instance, in the NLP areas, ByteDance has created applications
like:
Byte Translator: the machine translation service for all ByteDance
products
 Xiaomingbot: a robot writer for sports, finance, housing, worlds
highlight, etc.
 Search for Toutiao and Tiktok (Douyin)
Will TikTok be able to sustain its growth to the point of becoming the
dominant creative social media?
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I heard in the past couple of years people talking about how TikTok
was different from this or that app.
However, I would like to remind you that as an evolution to social
media TikTok will over time become a competitor to all the
entertainment apps and websites (from YouTube to Facebook,
Instagram, and also Netflix).
As new generations get used to new formats and content types, what
once seemed sticky content formats will be replaced – over time – by
something else.
TikTok’s two-sided network effects
A platform business model generates value by enabling interactions
between people, groups, and users by leveraging network effects.
Platform business models usually comprise two sides: supply and
demand. Kicking off the interactions between those two sides is one of
the crucial elements for a platform business model’s success.
TikTok is a hype machine. A platform, with native short-form video
content, delivered at scale, through an endless feed, powered by AI.
This feed’s objective not only is to show addicting short-form videos.
It’s also to incentivize users to generate other content on top of it.
Thus, the two-sided network starts with power users (those generating
hype) who by producing engaging/addicting content, publish it on the
platform.
In turn, TikTok amplifies the content through its algorithms and
incentivizes other users to create their own version of the same
content, thus making the user-generated content scale more easily.
TikTok combines music, video, and interactions to create a
compelling/if not addicting experience, thus bringing validation to
another level. Whereas Instagram was about validation by posting
filtered pictures.
TikTok is about hyped validation, by posting dances, challenges, and
memes.
Which new content categories can we expect from TikTok? And what
sorts of people will be successful on the platform?
Dances.
 Songs.
 Memes.
Based on the above, three categories of people will become the main
driver of TikTok’s success:
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Entertainers.
 Artists.
Those are the fields TikTokers might disrupt. Just like Instagram
created the “influencers” who are power users, which became the
gatekeepers in various fields (fashion, cooking, beauty, gaming, and
more).
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TikTok is creating a new type of influencer, who, through dances,
songs, challenges, and memes will become the new gatekeepers for
many brands to gain visibility online!