Last fortnight, TikTok stepped into a maelstrom of a ratings collapse, being ripped off by a clone and getting uninstalled for being a “Chinese” product.
All Your Attention Base Are Belong to Us
Zhang Yiming was a young software engineer, graduating from Tianjin’s Nankai University in 2005.
Post his undergrad, Zhang joined a travel website, Kuxun and rapidly rose to be a Technical Director within a year. However, Zhang didn’t stay at Kuxum for long.
In search of a better career opportunity he joined Microsoft in 2008, but left soon feeling that his creativity was being stifled there.
During the next few years Zhang went on to establish multiple start-ups, one among which was 99fang.com, a real estate search portal which was showing some promise. Zhang, almost ephemerally, left yet again to find something bigger.
The ethos of rapid experimentation till something compelling was found would become key to Zhang’s outlook. It would also result in a double edged “do first, apologize later” mentality.
Zhang had an innate sense of identifying latent unmet consumer needs. During his stint at Hainei.com, Zhang had begun fostering a deep understanding of something that would become core to his future endeavours.
Zhang began understanding human needs in short attention spans.
He realised that the sole source of news for his countrymen was the state-controlled, highly-regulated media houses. Not only was their content uninteresting in its presentation and lengthy and cumbersome to read, their websites were suboptimal for mobile browsing.
A strong believer in providing a superior user-experience, Zhang harboured the simple but powerful idea of a mobile app which made reading news compelling.
He built an app that had crisp content, was mobile first and underpinned with algorithms which offered a personalized news service.
But like most legendary startups, the world’s most valuable startup today didn’t fly with investors. After falling flat with the bulk of China’s venture investors, Zhang eventually secured a seed round in 2012.
ByteDance was born.
Toutiao, meaning ‘Today’s Headlines’, was launched in 2012 as ByteDance’s flagship app. This was around the same time when the Chinese giant Tencent launched a little app called WeChat.
That little app reached a record breaking 100MM users in one year.
China was leapfrogging to mobile apps, but there was a void in personalised social media offering. By 2014, Toutiao already had 15MM DAUs, as it plugged this gap.
Between 2014 and 2016 ByteDance forayed into multiple short media mobile apps including Helo (an Indian social media app), Vigo Video (formerly Hypstar), BaBe (an Indonesian news and content app) and Huoshan (a Chinese short-form video app), Flipagram, Xigua Video and Huashan Zhibo.
With such high momentum ByteDance was already competing head to head with other enduring tech giants like Alibaba, Baidu and Tencent.
But ByteDance’s crowning glory lay in something more ephemeral.
China’s Dame Tu Cosita
In 2016, ByteDance launched Douyin in China.
Douyin was conceptualized as a platform that allowed users to create and watch funny short videos.
Douyin’s concept wasn’t unique. Players like Tencent backed Kuaishou, Weibo backed Miaopai and Baidu backed Haokan Shepin were prominent players since 2012.
Despite that, Douyin, which was developed in 200 days, managed to rack up 100MM users by 2017 with more than 1 Bn videos viewed every day.
Why did DouYin work?
DouYin’s game changing feature was its interface. While competitors like Kuaishou were asking users to click on videos, DouYin had a more addictive “swipe” interface.
The addictive delivery of content made it a huge success. DouYin provided titillating news content with videos, GIF and live streaming shows.
DouYin also perfected its app by including a wider choice of filters, stickers and effects which could be added to the videos to make them more engaging.
With growing community engagement, the app started exploring monetization opportunities. In September 2017, it ran its first advertising campaign with sponsored videos from Airbnb, Harbin Beer and Chevrolet. But September 2017 would also mark another massive milestone.
DouYin was launched as TikTok in the international market.
This would be a milestone not only for ByteDance, but also for Chinese tech. TikTok managed a feat that the Tencent-backed WeChat couldn’t achieve, which was expansion outside China. In a few months, ByteDance merged US-based short-video app rival Musical.ly into TikTok.
This acquisition is rarely talked about, but was the cornerstone of TikTok’s expansion.
TikTok gained access to the US accounts on Musical.ly and most importantly a key to unlock the global market. One unlock that ByteDance didn’t expect would come not far from home, where Musical.ly had just started making inroads.
That unlock would be India.
Rickrolling into India
In 2017, India was going through its own Digital Revolution.
Powered by Prime Minister’s Digital India initiative and Reliance Jio’s low tariff-4G debut, India had become the prime market for a huge scale online disruption.
Jio & smartphone accessibility was showing significant impact on Indian internet users. New users from smaller cities of India fuelled the growth.
In 2018, India had 390MM mobile internet users and daily time spent on smartphones was more than 3 hours.
Social media apps were the first ones to capture the boom as 90% of the time was spent on mobile apps and approx 326MM users used one or the other social media platform.
It was a highly competitive landscape.
Facebook ruled the late adopters segment or older generation. Instagram satisfied the social needs of the younger population. YouTube & Whatsapp with their strong use case were universal and had a very large user base upwards of 200M. Twitter and Linkedin, liked by a niche audience of 25 M+ users while Snapchat was at best an urban phenomenon.
The scales were massive and it was very competitive.
But, as more users from smaller towns of India joined the internet with Jio, they asked for unique products. Voice, video and vernacular were exploding and there was an opportunity up for grabs.
TikTok benefitted the most from these tailwinds, and even launched “Helo” in 2018 to compete with the local upstart Sharechat.
Tiktok’s success in attracting a vast portion of the rural population could be attributed to its simplicity. The fact that TikTok was fully equipped to create content through tools that worked with cheaper smartphones.
But perhaps the most important reason was the ability to create and earn social capital, or status, with ease.
Unlike YouTube or Instagram, there is lesser work to be done on TikTok to create “good enough” content that will earn social capital. Unlike Facebook, Twitter or LinkedIn, you didn’t need to have friends or followers to start.
TikTok removed the barrier where you had to be significantly talented to publish content.
The short videos were not meant to be a medium to showcase long-term honed talents. Here, the quality of a video is unidimensionally linked to user engagement prowess. The viewership would not be limited to ‘friends’ but the entire TikTok Universe.
The local Indian celebrity was unleashed. The TikTok paparazzi showered you with instant gratification. Users were literally becoming overnight TikTok celebrities.
TikTok had a clear and unique proposition, to make “Every Second Count”.
Look Ma, No Social
TikTok’s democratization of social capital collapsed any social strata differences on the platform.
One of the early success stories was that of an account named gima_ashii with two girls dancing to the tunes of “Bohat Hard, Bohat Hard” which became an instant hit. Not only did this video make the creators popular, it also made Emiway Bantai’s songs popular.
Soon there were songs and tunes being created just to get them trending on TikTok!
This was just one of the many stories and soon there were many TikTok creators who became popular with fan following swelling in millions. TikTok also took good care of the top creators, paid them well, helped them upskill and hosted exclusive parties in the best hotels.
Soon the charm of a celebrity life, regular earnings from TikTok and the dream of instant success was lucrative enough to lock a large pool of content creators, which became a strong moat for TikTok. A moat, which even Facebook would find difficult to beat.
The videos are addictive.
Even before you judge a video—good or bad, the next one is already there to hook you. Much like the incessant Facebook/Instagram feed, here users just swipe up to keep discovering more endlessly.
The ease of onboarding added to the wildfire-like spread of TikTok. TikTok’s usage of humanity’s best storytelling format, video, only exacerbated its popularity.
TikTok had a much simpler take on social media. In fact, it wasn’t even “social” media, it was simply just “media”.
Digging deeper, you realize social is not the secret sauce that made TikTok popular and helped it garner 200+ million users in India.
TikTok does not work on a social graph like Facebook, Instagram or Linkedin. Many other social media platforms ask you to make an investment of adding friends or followers first before delivering results. But TikTok’s core product is something else.
Its product is artificial intelligence.
The Data Driven Success Kid
Over years, Bytedance has built insane capabilities when it comes to AI.
Something that works like a powerhouse at the backend feeding an algorithm that knows what you like even before you can yourself tell.
All it needs is some data, and that’s what they get.
As TikTok videos are just 15 seconds, by the time a ‘typical’ session is complete, a user would have seen 200+ videos generating hundreds of data points around likes, swipe, watch length and so on.
Compared to a YouTube session where a user will watch only 3-4 videos or checking 50 to 60 tweets, TikTok is 10X superior in delivering an algorithm based experience.
That’s what a user starts loving as they watch more and more videos they would love to watch without any curation efforts.
After getting users hooked, not only did TikTok leverage the fanbase of its creators on other social media platforms like Instagram, it also made sharing available without any login. This completely took away the hassle of login/OTP/Email ID which new Indian mobile users absolutely loved.
For TikTok & Bytedance, 2018 was a breakout year as their user base kept growing exponentially and this translated into a market valuation of $75B. Bytedance was now the world’s most valued startup, even ahead of Uber.
TikTok was spreading like wildfire in India and reached an active user base of 110 MM by 2018. By now TikTok was already showing signs of becoming a challenger for the Facebook led ecosystem. Almost after a decade of enjoying an undisputed leadership position in the engagement space, Facebook had to find an answer for this new competitor.
In November 2018, Facebook quietly launched a TikTok competitor app called Lasso to capture this new social behaviour, highly popular with teens.
It was a catch up game and Facebook did not seem confident enough to do a big launch. The pilot did not work for them well.
TikTok was well ahead in the game and even a deep pocketed player like Facebook could not find an answer.
Easily fending off competition, TikTok was soon moving towards the next phase of journey from user base growth to monetization in India.
An Engaging Philosoraptor
One is tempted to wonder how TikTok’s focus on being easy to create, edit and share content was giving it a tangible advantage over incumbents like WhatsApp, Facebook and YouTube.
The numbers told the entire story.
TikTok had 500mn+ app downloads in India, ~60% of which came in early 2019 (320mn+), making it one of the most downloaded apps of the year. It witnessed highest year-on-year growth (25%+) in downloads among all applications.
India led the charge in fuelling the bulk of this growth, and would become the biggest market for TikTok outside China.
This would be driven by a trifecta of factors which were the Jio led video explosion, the world’s largest millennial population and an under penetration of online social/media formats.
India alone comprised close to half (45%) of the new downloads for the company and contributed ~25%-30% of these lifetime downloads.
These downloads indicate exploding popularity of the app, generating a strong top of the funnel. But what about engagement metrics, platform stickiness and retention?
Within 3 years of launch, TikTok has 800MM monthly active users worldwide, a number that took Instagram almost twice as long (6 years) to reach.
This is quite impressive for an application, which one can argue, is not solving an essential need such as communication in case of WhatsApp.
Constant rise in active users is mirrored by deeper engagement per user.
Indian users clocked 5.5bn hours on TikTok in 2019 compared to just 900M hours in 2018, registering a ~6x growth in time spent. On average, an Indian user spends ~35 min on TikTok, only 10 min behind the time spent on Facebook.
Latest estimates reveal that ~320mn Indians are engaged on social media, spending 3.4 hours per day. This means that 1.5 year old app TikTok is already at ~17% attention share. It is no wonder then that TikTok users say it is addictive.
But they say that if you go up fast, you can come down equally quickly.
Delete Your Account
Tiktok’s popularity resulted in allegations that it promoted sleazy content, hate speech and violence.
It is a problem that every UGC (user generated content) platform has to face as they grow big and they must build enough checks and balances to ensure policy compliance.
But this also spoke to the Tik Tok “do first, apologize later mentality”
TikTok as it grew rapidly, knowingly or unknowingly, missed keeping its platform clean and it soon became rampant with objectionable content. Though it faced a ban in Indonesia earlier, a bigger challenge was coming.
By Jan 2019, voices in Tamil Nadu started to highlight TikTok’s negative impact on Tamil culture and children in particular. There was a demand to enforce an immediate ban.
By April 2019, TikTok was banned by the Madras high court on grounds of objectionable content. Following the High Court’s order, Google and Apple removed the TikTok app from Play Store and App Store immediately.
The image of TikTok as a “Chinese app attacking Indian culture” negatively impacted the brand and popularity it has built in the last couple of years. It had to take immediate action.
TikTok assured that they have revised the policies, removed inappropriate content and addressed all their concerns.
Post their assurance, the ban was lifted from the app and it was once again available in the Google Play Store and Apple App Store. During the ban, TikTok witnessed a slump in revenues of around 33 per cent. The company revealed in a statement that it lost over $500,000 for every day when TikTok was banned in India.
Having learnt a regulatory lesson, TikTok decided to make changes in the way they operated and started focussing more on local norms and content moderation. In “asking for forgiveness” mode, The Bytedance backed app also announced that it will invest $1B in India over the next 3 years and generate local employment.
The app was back in action and the growth continued, but the persistent undercurrent remained.
Haters Gonna Hate
TikTok’s use cases exploded as fast as its traction.
It started monetising in India in mid 2019 and was competing with Google and Facebook for advertising dollars.
However, TikTok has unique advantages over its bigger competitors.
Firstly, it provides companies access to a larger pool of non-metro population that would otherwise be very costly to reach. This pool, in addition to being mobile-first, is in the process of experimenting with multiple uses of the internet such as online shopping, online learning, online lending etc and the first companies to address their demands can create significant lifetime value for themselves.
Secondly, with India having the largest millennial population, TikTok becomes a relevant platform for hundreds of B2C companies who are trying creative ways to capture the young consumer’s attention amidst rising competition.
It offers multiple ad formats which have received quick acceptance from businesses. Ad revenue is already picking up with traditional FMCG companies such as Pepsi, Britannia, Oreo and new-age companies such as OYO, Snapdeal taking advantage of the newer formats to deepen their reach.
More importantly, it provides the largest ad screen due to its video focused, byte sized content.
For the quarter ending December 2019, it earned ~Rs 25Cr revenue in India, and is targeting Rs100Cr of revenue by Q2FY20. From the Dec-19 ARR of ~ $14MM, this would imply 4x growth to reach $55MM+ ARR.
However, this is still small compared to ~$130MM revenue that was earned by Facebook in India in FY19 As Facebook begins to play a big game in India through its push on Whatsapp and Jio, it is clear that it means business.
For TikTok, India is simultaneously its largest market, and a crowning glory domestically if it wins.
Becoming a Ceiling Cat
TikTok is now at crossroads in the Indian market.
On one hand, it has become the voice of a young, new to internet population. Its engagement is unparalleled, with only Whatsapp able to lay claim to something better.
On the other hand, TikTok’s explosion has exposed fault lines, that are simultaneously a class war, mobile v/s desktop, short from v/s long form. All it needed was a roast to spiral out of control.
You don’t need to look any further than religion to see that its new avatars are TikTok, YouTube and Instagram. The new proponents are stars, celebrities and influencers.
With the world’s soon to be largest population in addicted attention, TikTok has multiple ways to go. As a primarily interest driven app, with an increasing social nature it finds itself in a unique place.
With Facebook venturing into mobile commerce, TikTok is well-positioned to monetise its highly engaged user base through in-app purchases.
We earlier spoke about the likes of Meesho, Shop101 etc. However, unlike these start-ups, TikTok is far ahead in terms of its community, one that is already trained in terms of creating videos.
TikTok could enable the process of discovery for goods and services. For a population that is likely to stay at home, live streaming e-commerce could be the new norm.
That would put TikTok in direct competition not only with Facebook, but also with Amazon.
As entertainment in India explodes, TikTok has shown that it is capable of winning and playing big. With threats to legitimacy coming from both competition and regulation, it has shown that it is capable of fighting.
TikTok could endure India’s entertainment explosion, and in the process become Bharat’s commercial laden television.
By Abhinav, Abhinay, Mitali, Rohan, Saloni and Aviral.
Well written. Great Insights as well.
Never installed TikTok but have seen stories on Whatsapp. It actually gives anybody to become a star, showcase their talent and as you said the ability to reach a wider audience that other paltforms fail to provide.
It would be interesting to see how it pans out and would there be any other competition to it?
What if Youtube comes up something similar like Youtube Shorts ?
Totally, i think it’s not the technology front that would hold google / youtube to roll out a similar app just like the way Facebook (https://www.theverge.com/2018/11/9/18080280/facebook-lasso-tiktok-competitor-app) did.
But from the lessons lessons learnt from allo, google+ i believe they would consider acquiring early rather than building ground up.
Any thoughts ?
Great insights. Really liked the emphasis on AI part. How this one single aspect has been the game changer in so many ways that it could fend away Facebook backed app. Shows the algorithm really understands the human needs and how its attention works.
Although hated by many, it has successfully making inroads as one of the most addictive product.
Really great to see such analysis. Good work. Cheers !
The major x-factor about Tiktok is its algorithm. Tiktok’s algorithm catches user’s likes and dislikes by whether the user remained on the video or swiped up.
Great article! As a Chinese that watches the TMT field for a long time (and a longtime subscriber for AJVC), this is indeed a great article for both Indian and Chinese Investors/entrepreneurs! I noticed a difference in the viewpoint of Chinese investors and Indian investors for Tiktok– Chinese investors seldom take Tiktok/Douyin as a social media platform as WeChat monopolies this market and every mobile phone user will first install WeChat, you give such an interesting insight that Tiktok indeeds plays a social media role! Bytedance is a great company that understands the power of AI and utilizes every inch… Read more »
It is insightful article! One questions is: as for the data about the MAU of each app, May I know what is the data source? Personally think it is a little unacceptable about the MAU of Tiktok.
Well Written and wonderful insights/view points. Wondering if the outlook also considers recent trends pertaining to the Chinese apps – these trends may seriously affect the monetization drive and the critical mass required to have a momentum towards network effects.
Well, just like CID the case got closed with one tight slap :p