At this point, everyone knows the name TikTok, if not ByteDance. Most Gen Z/millennials have used it, while most boomers have heard of it.
Love it, hate it, or just be surprised by how some videos rack up billions of views, one cannot deny TikTok’s popularity. The application has cemented itself firmly in pop culture, and its results are proof of that.
The app was the most downloaded one of 2021, now serving over a billion users. According to e-Marketer, it has tripled revenue this year to US$12.0 billion. This makes it bigger than Twitter and Snapchat combined.
While truly a global phenomenon, the company has been actively targeting the Southeast Asian market in recent times. This is not only true for its core app usage, but also for its broader ambitions in e-commerce.
So what makes this app so special, and why is it such a threat to incumbents in Southeast Asia and globally?
Around this time, a decade ago
Born in 1983 in the southern Chinese city of Longyan, Zhang Yiming, the only son of civil servants, came from a typical middle class Chinese family. An ambitious and enterprising graduate, he soon quit his cushy job at Microsoft, exclaiming that it was ‘so boring, I worked half the day and read books in the other half’.
In 2012, when artificial intelligence was yet to become mainstream, Zhang and his team decided to venture out on their own to build an app that would push relevant, ad-free content to users by using AI based recommendations. However, investors were sceptical, with little confidence in a locally trained engineer’s ability to outsmart social media behemoths like Tencent and Google.
Yet, the team persevered and launched Toutiao, a news aggregation app, working out of a 4 bedroom apartment in Beijing. With careful curation, the app gained popularity quickly, growing to 13 million active users within two years. In the same time span, Zhang’s repeated efforts finally bore fruit, securing 5 million USD in funding from the venture capital arm of Susquehanna International Group, a US based financial services firm. With a growing user base, the tables soon turned, with a 100 million USD follow up round from Sequoia Capital.
With fresh funding, the team turned their eyes from news aggregation towards short-video platforms. In 2015, they launched the first version of TikTok and its Chinese twin, Douyin. The product was an instant hit with Gen Z and millennials worldwide, rapidly gaining in popularity within months after launch. Unlike other Chinese founders, his vision was to create a borderless app, usable by everyone across countries.
With rapid growth, ByteDance, TikTok’s parent company, soon attracted large investments from SoftBank, KKR and Tiger Global. Securing funding from global investors was an unlikely departure from the typical route taken by Chinese start-ups till then, many of which are engulfed by the larger Tencent and Alibaba ecosystems.
Soon after, ByteDance bought Musical.ly, a Chinese app that allowed users to lip-sync songs and integrated it into TikTok. The merger instantly grew the app’s user base, making it one of the most popular apps around the world.
Surpassing Google and Facebook to become the world’s most visited website
By 2018, post the merger, TikTok was available in 150 markets and offered in 75 different languages. By the second half of the year, TikTok soon climbed to become the most downloaded app in the US. Yet, the addictive app didn’t stop there – the app skyrocketed to 1 billion monthly active users, with Cloudflare ranking it as the world’s most visited domain, surpassing the likes of Google and Facebook in 2021.
Despite the growth in users, the app has been able to maintain a healthy engagement, with the average user spending 52 minutes on the app everyday.
Roadblocks around the world
However, the road to dominance has been quite a bumpy one in other markets. In the US, the Trump administration banned Tiktok, over concerns of national security. The founder, Zhang, was described as a ‘mouthpiece’ of the Chinese Communist Party in a filing by the US Department of Justice, alleging that the company has close ties with authorities in Beijing and does not protect an individual’s privacy.
In 2021, the Biden administration overturned this decision, committing to support a vibrant global digital economy, while simultaneously protecting sensitive data from foreign adversaries.
In a similar vein, TikTok was banned in India, along with 58 other Chinese-created apps by the Ministry of Electronics and Information Technology, with a statement that said these apps are ‘prejudicial to sovereignty and integrity of India’. Many viewed this as a retaliation against Chinese military encroachment on Indian territory.
However, this paved the way for them to look at South-East Asia.
Dominance in SEA
While China and the US together account for 70% (~750 million) of TikTok’s active user base, the app has established a strong presence in SEA markets as well.
ByteDance’s focus on growth in Indonesia and Southeast Asia is a welcome balance in a world dominated by western social media apps. With product features developed keeping in mind the SEA demographic, the app is soon becoming a natural preference amongst social platforms in the region.
SEA’s younger demographic compared to the West reinforces its allure in the region, with its user base skewed to Gen Z and millennials. Across Indonesia, Vietnam and Philippines, countries which have a median age of ~30, users aged between 18 and 24 account for nearly 60% of the total user base compared to ~40% on average around the world. All three countries, along with Thailand feature amongst the top 10 markets for TikTok, and together account for a total of 240 million monthly active users. To put it in simple terms, 1 in 3 people in SEA spend nearly an hour everyday on TikTok.
TikTok’s Evolution into a Shopping Destination
TikTok’s main revenue stream has been paid advertisements, where brands promote their products through in-feed videos, hashtag challenges, and branded effects or filters.
TikTok Shop takes this a step further, enabling merchants, brands, and creators to showcase and sell products directly on the platform. The company entered Indonesia in 2021, followed by official entries into Thailand, Vietnam, and Malaysia.
It is a move that makes sense too – Douyin, the Chinese version of TikTok, clocked in an impressive US$26 billion in volume in 2020.
The big change that TikTok has made with regards to its e-commerce ambitions was to enable in-app shopping on its application. Previously, users had to click on links that would re-direct them to the likes of Lazada, Shopee or brand websites.
However, by enabling users to now checkout on the app itself, TikTok Shop can increase conversion and therefore, sales. This eventually helps content creators who wish to earn higher commissions.
Brands and e-commerce enablers alike have jumped to partner. Sirclo, a Shopify-like player in Indonesia, has already partnered with the company to onboard brands such as L-Oreal.
Lip-syncing application to possible super-app
TikTok’s meteoric rise is unprecedented, with the app becoming a cultural force faster than any other platform in history. Now, aligning entertainment videos with increasing preference of video-based shopping has become a killer strategy for TikTok and gives them a significant advantage over its peers.
This has also made incumbents in Southeast Asia such as Lazada and Shopee take notice. A note from Bernstein claimed TikTok Shop in Indonesia generated ~US$500.0 million GMV in 2021 alone. While still relatively small compared to the volumes generated by the incumbents, it does pose a threat.
But in order to become a shopping destination, TikTok Shop will not only have to confront the same challenges as incumbent e-commerce players – like complicated logistics and uneven adoption of electronic payments – but also convince small business owners that they can be short-video superstars, and persuade consumers to see the app as more than just entertainment.
There’s a lot of fundamental room for growth for TikTok in relation to the e-commerce platforms, and it is now more a matter of execution.
However, what is undeniable is TikTok’s potential. The app can no more be described as a frivolous one, and is poised to be a force to be reckoned with for years to come.