It has been a few years since TikTok became a hit and produced viral personalities overnight.
While it was only globally available in 2017, nobody expected its popularity for the next few years that came.
It is one of the most used programs worldwide, with billions of app downloads and millions of monthly users.
If you want to know how TikTok makes money, it is through receiving commissions from in-app purchases and ads.
The business model of TikTok is easy to follow; if you want to learn more, this article will share everything you need to know.
How Did TikTok Start?
Nowadays, almost everyone has a TikTok app or has watched a video from TikTok at least once.
You may be wondering how this app suddenly became a trend.
Before it entered the global market, TikTok used to be Douyin, its Chinese name when it first appeared in China.
ByteDance, the company that developed Douyin, launched the app for most outside markets in 2017.
But in 2018, the app became TikTok and became available for global usage when it merged with another similar app called Musical.ly.
Musical.ly was the trend in 2014, where users create short videos and lip-sync to music while editing it.
After its merging, TikTok dominated the world as more users installed the app all over Asia and the US.
How Does TikTok Earn Money?
While there are similar apps to TikTok that entered the mainstream market, they still need to catch up to TikTok.
You may have yet to hear of Lasso, a Facebook feature that lets you create and share short clips.
However, it closed in 2020 because it could not compete with the social media craze of TikTok.
Even a few years ago, TikTok was already famous in most countries, but it suddenly climbed up to the US market in 2020.
But while you scroll down the app and enjoy its contents, do you wonder how TikTok continues to operate and make money?
You’ll be surprised that TikTok follows a straightforward business model that mainly includes marketing, commissions, and more.
Because the app can turn anyone, even you, viral overnight, many brands promote their brands on the app.
If you are an entrepreneur, TikTok can be an excellent platform to endorse your services because there are millions of app users.
You don’t need to have a lot of followers, but the number of views and likes can get you by in the app.
It is also one of the many ways TikTok earns, and this section will introduce the different ways TikTok makes a profit.
Ads
There are different ads available in TikTok, but the common ones you’ll see are the short ads in between viewing videos.
You can find these on the For You page, and you may notice them only sometimes because they are short clips too.
You’ll see a “Sponsored” sign at the bottom, so you’ll know that these are ads from different brands.
They also have top-view ads that appear when you first open the app and can last up to 60 seconds long.
It immerses you in the viewing experience so you can watch their ad without overlapping content.
Related Reading: How To Monetize Your TikTok Account – Find Out Here.
Commission From In-App Purchases
The primary source of revenue for TikTok before their business solution was in-app purchases.
If you are a content creator with at least a thousand followers, your fans can give you virtual gifts when you do live broadcasts.
These gifts or tips are virtual coins with equivalent real money when you cash out from the app.
The gifts can cost anywhere from $0.99 or more, and they turn into diamonds, another currency in the app.
If you want to withdraw these diamonds in exchange for real money, TikTok will take a 50% commission.
So aside from earning commissions from the withdrawal, TikTok also makes when a fan purchases in-app gifts.
Brand Takeover Ads And Hashtag Challenge
TikTok introduced “TikTok for Business” in 2020 to help brands promote their products and services on the app.
They have brand takeover ads you usually see on your “For You” page after opening the app.
These full-screen ads are typically three to five seconds videos or images that will direct you to a landing page.
If you are a user, you can only see this ad once a day which means you have no other competition, but it is pricey.
These ads are best for making a buzz about your brand, launching a product, and driving traffic to your site.
Meanwhile, you can also find the branded hashtag challenge, one of TikTok’s most profitable income streams.
Brands pay TikTok to have their hashtag challenge appear on users’ discovery pages which directs them to their main page.
These hashtag challenges cost at least $100,000 for the first few days and a few more hundred dollars to promote them.
Branded Effects
Brands can create customized effects or stickers with their logo and launch an ad campaign using them.
These AR filters and custom stickers can last up to ten days, allowing the brand to reach more users.
TikTok can earn when the brands buy these effects, which are engaging enough to connect with global users.
When brands customize the effects, they can also create an AR of their product, giving users a better view of them.
These branded effects are highly customizable, so you can play around with the design depending on your brand elements.
How Much is TikTok’s Revenue?
TikTok makes a hundred million dollars in revenue yearly, but the company made over $4 billion in 2021.
Most of their revenue streams are from advertising, which is slowly booming for the years to come.
There is an expected $12 billion in revenue for 2022 because of the combined income from ads, commission, and in-app purchases.
Who are TikTok’s Investors?
The listed investors of TikTok are ByteDance, K3 Ventures, Goodwater Capital, DCM Ventures, and Musical.ly.
ByteDance, the parent company of TikTok, is a technology company developing several apps in China.
Before Musical.ly became TikTok, it raised more than $150 million in funding from different backers like GGV Capital and GX Capital.
Meanwhile, ByteDance raised more than $7 billion from investors like SoftBank, Tiger Global Management, and more.
Then, the company merged with Musical.ly, where ByteDance acquired the latter for about $800 million.
To this day, ByteDance has a value of nearly $300 billion because of the continuous popularity of TikTok.
What Will Happen to TikTok in the Future?
TikTok is rapidly becoming more popular, and its revenue growth has continued to increase over the years.
While other social media apps try to release their version of TikTok with similar features, nothing can beat its popularity.
With millions of users and app downloads, you can be sure that TikTok will continue to thrive.
The app can have almost 20 million users by 2024 because of the different tools the app launches.
Even now, TikTok started to release its TikTok shop, allowing users to buy and sell within the app.
More brands will flock to the app and promote their products and services because of more users.
But while the future of TikTok is successful, you may have heard of some controversies surrounding it.
It is almost impossible for a company to experience lawsuits, banning, and propaganda with TikTok.
The most recent news is that India banned TikTok because of concerns about data and other lawsuits.
But TikTok reassures the government and its users that the app is safe and secure as they clear the allegations.
Don’t worry because it is not the end for TikTok; you will see more of it and its innovative tools soon.
Several companies like Microsoft, Walmart, and Oracle want to acquire their US operations.
Related Reading: How Much Do Sponsors Pay YouTubers – Get To Know Here.
Summing Up How Does TikTok Make Money
You may be one of the few who enjoy using TikTok because of the entertaining short clips you see on your page.
It might not be possible if it weren’t for the demand in China’s market and the acquisition of Musical.ly to reach the US market.
With its popularity worldwide, not only will TikTok make money, but you can also do it.
It differs from your usual social media app because you can earn money as a creator and brand.
Meanwhile, TikTok can earn money from commissions, ads, shops, and other features they have added over the years.
So while TikTok has reasonable projections for the upcoming years, use this opportunity to grow your brand in the community.
