If you add up the revenue of Twitter, Snapchat, Zoom, Lyft, Dropbox, Airbnb, and Spotify all together, it still wouldn’t be as big as Bytedance. The company is a behemoth.
And Bytedance’s biggest product, by far, is TikTok. This year, TikTok crossed Twitter and Snapchat for US users.
Yet, as recently as two years ago, TikTok’s future in the US was not even certain. Then president Donald Trump had signed two executive orders that sought to force TikTok to divest its US operations.
Then, the fate of TikTok was held in limbo for months, as a deal to sell its US operations to Oracle and Walmart was held up by Chinese regulators.
Kevin Mayer, TikTok’s new, American CEO, abruptly departed after three months on the job.
It was not until Trump lost the presidential election, the Biden administration came into power, and then suspended legal actions against TikTok that its fate in the US was even clear.
Then, as soon as the road ahead was looking brighter for TikTok, its founder-CEO Zhing Yiming was removed from his post by the Chinese government.
TikTok could not have endorsed a worse string of luck. Meanwhile, big tech was rolling in with the copycats. Instagram launched Reels, YouTube launched Shorts, and Snapchat launched Spotlight.
Suddenly, everyone was playing TikTok’s game, and it had lost its leading man. Yet, against all these odds, TikTok has emerged like a phoenix rises from the ashes.
It took its horrible string of luck on the china and proceeded to:
- overtake YouTube in average watch time in the US
- surpass Google as the most popular site in the world
- more than double Netflix in total watch minutes
- surpass Snapchat MAU in the US
How has TikTok managed to do so well in the past year post-Zhing? It’s been a combination of 5 key factors.
But before we get there, let’s start with a quick history catch up.
History: Losing Zhing
ByteDance is a legendary company, and its founder Zhing Yiming is legendary as well.
ByteDance was founded 15 months after Zhing watched, “The Social Network.” He was deeply moved by the story of Facebook. In the early days of ByteDance, he was known to ask:
Why don’t we follow the example of Facebook?
So, the company started with a news feed. It launched Toutiao. After having massive success with Toutiao, and growing it to 100M DAU, Zhing did not let up. Instead of moving into fancy offices, he pushed the company to have a drive to compete.
In 2016, the company built and released Douyin with a team of 8 in 200 days. It was squarely focused on short video sharing. Within a year, Douyin grew to 100M downloads. It was a massive success.
But Zhing, again, was unsatisfied. He wanted Douyin to be a massive international product that did not stop growing.
He took a personal role in the incubation of such a product. As the team was going through names and A/B testing them, they began to lean against the name TikTok. But Zhing felt that it was the right name. It was easy to pronounce. He wanted the product to be ready for global domination, not just Chinese domination.
It can be pronounced in every corner of the world, in every language, in much the same way!
After releasing internationally as TikTok, the app quickly rose to the top of the rankings in countries like Thailand. Of course, Zhing was happy.
But he was also hungry for more. He wanted to dominate Western markets. So, in November 2017, Zhing led Bytdance to purchase a Western app similar to Douyin to catalyze its user base: Musical.ly for ~$1B USD.
The acquisition worked. It led to an explosion of usage of Tiktok in 2018. Celebrities like Jimmy Fallon and Tony Hawk used the platform. For the following three years, the company enjoyed a nearly unstoppable ascent. In spite of US and Chinese governmental hangups, metrics kept going up.
Then, abruptly, in May, 2021 Zhing announced he was stepping down. The Guardian minced no words pointing at the culprit: “As the Chinese government tightens its control of China’s tech sector and maintains pressure on the industry’s domestic entrepreneurs.” He was removed by the Chinese government, because he was getting too powerful. Like Jack Ma, he was quieted.
Despite TikTok having lost its legendary founder, it has emerged in the past year as stronger than ever. New CEO Shou Zi Chew has managed a Tim Cook-like succession.
How has TikTok done it?
5 Key Factors Driving TikTok’s Product Growth
Just like ByteDance is not just TikTok, ByteDance is not just Zhing Yiming. Five particular product growth strategies stand out as having driven the platform’s continued success since the loss of Zhing.
1. The Legendary “Middle Platform”
Whereas some companies build isolated products, ByteDance has purposefully built a central user profile interest graph.
This was particularly important for the early growth of Douyin (China’s TikTok) in the early days. In many cases, Douyin was able to leverage information from Toutiao. This helped TikTok get off to an explosive start.
By aggregating the data of over a billion users and power services across apps, Bytedance has been able to generate a best in class central user profile interest graph.
The middle platform is not just restricted to this interest graph. The middle platform extends to all sorts of critical layers in the tech stack. This includes businesses, data, and video.
The entire ecosystem around app creation within ByteDance is a series of shared services. Video communication, basic video codec service, data platform, and other critical parts of the stack are all internally developed for competitive advantage.
One of the particularly powerful technologies in ByteDance’s middle platform is a shared recommendation engine. Between Douyin (640M users) and Toutiao (200M users) to TikTok (660M users), today this recommendation engine leverages the collective power of over a billion users.
If any one thing has been the biggest driver of ByteDance’s success, its shared recommendation engine would be it. The data offers compounding advantages between the apps. Copycats like Reels have to reckon with the collective user base. Meta does not centralize its recommendations across products like Instagram and Facebook the same way.
Via the middle platform, ByteDance has taken a page out of the AWS playbook. Instead of developing technology that is only useful for one product, each service is built for the corporate parent. The company multiplies small advantages across every layer of the tech stack to create a durable advantage. These days, operating in the ByteDance ecosystem is like operating in its own technology world.
The lesson for product people is to decouple ML services. It’s tempting, for speed, to build separate technology for every product. But abstracting services helps the company build an enterprise edge in that technology, instead of just in one product.
2. Recommendation Applied to Casual Content
TikTok has developed a unique approach to social media entertainment content. It broadcasts casually created content to a wide target audience. No one else does that.
Nathan Baschez has created an ingenious 2×2 to represent the uniqueness of TikTok’s position in the market. There’s almost nothing like it when it comes to casually created content for a wide target audience.
Image: Nathan Baschez
On the vertical axis, TikTok rivals Messages and Snapchat for ease of making content. Compared to the befuddling and slow process of uploading videos to YouTube after editing them in Premiere Pro, TikTok creation is downright joyful. And, of course, it is much easier than Netflix or Disney.
Both TikTok and Snapchat have easy to create content. The difference is that the easy to create content on TikTok is then leveraged for a wide target audience. Snapchat’s main use case is one to one communication. TikTok’s main purpose is one to main communication.
It’s easy to create a 2×2 to make any startup look good. As any VC investor knows, every startup pitch deck has one. But TikTok’s unique position is rooted in a particularly deep insight about content.
There is a really long-tail of casually created content that social media and search had completely ignored until TikTok. TikTok is playing in the long tail of casually created content.
This content has traditionally existed outside the sphere of recommendation algorithms. That’s why it’s been so hard for YouTube, Facebook, and others to copy the ‘shorts’ format. TikTok has a head start with hundreds of millions of users’ data over the years. And, every day, the algorithm is getting further ahead because of TikTok’s higher usage.
The proof is in the results. Each year, TikTok’s average watch time goes up. In January 2022, American teens spent an hour and 25 minutes in the app, opening it 17 times a day.
The lesson for product people is that TikTok applied recommendation algorithms to data that other people did not. Building a differentiated ML-driven product is often about exploring spaces of data others haven’t.
3. Creator Friendly Content Flywheel
TikTok is, first and foremost, a creator product. While we have spent the article talking about its amazing milestones on the consumer side, the company is a behemoth for creators.
It has enabled anyone from your 5 year-old to the most sophisticated internet teenagers to create potentially viral videos. There’s even a section of TikTok dominated by grandparents. It has combined creator-friendly product tooling with an insane content flywheel.
This is how it works. It releases a feature to improve creation of videos. This leads to a better creators experience. This drives viewers to spend more time in the app. This increases the viewer to creator conversion rate. This creates a larger and more varied content pool. This drives a better user experience for the long term.
Notably, TikTok’s content flywheel drives its data flywheel. More users spending time in the app drives enriched user profiles. This leads the algorithm to better match users and content. This drives a better user experience, and, in turn, more users spending time in the app.
Remarkably, Tiktok has galvanized this content flywheel at a fraction of the cost of competitors. Its content creator budget was $200M last year. Netflix’s context budget was 85x bigger at $17B.
And that doesn’t mean that creators on TikTok are not doing well. the top TikTokers earn as much as much older movie stars and CEOs. 18 year-old Charli D’Amelio earned over $17M in 2021. That puts her ahead of Tom Cruise and Keanu Reeves, as well as the median S&P 500 CEO.
S&P 500 CEO is about as high paying a job you can get in the corporate world. And it usually takes a long career to get there. These teenagers are playing a different game – and winning big.
TikTok is there to support them. It recently announced a new ad product that offers a 50% revenue share to creators. As the “creator wars,” heat up between TikTok, YouTube, Instagram, and Twitch, the company is coming ready to play.
The lesson for product people is that building features for creators or the provider side of a marketplace often drive multiplicative benefits on the consumer side. TikTok’s creator flywheel is powering its legendary middle platform (Factor 1) and recommendation algorithms (Factor 2).
4. Building Developer Products
A few of the big launches for TikTok that went unnoticed because it was around the time Zhing was forced out are the new TikTok developer kits. In May, 2021 it released Sound Kit and Login Kit.
Sound Kit enables other audio creation apps to easily share music on TikTok. Imagine you are a teenager who wants to upload a dance to the new song you made on the LANDR app. Sound Kit makes it a one click process to import your song into TikTok to dance on top of.
Sound Kit has helped TikTok go from consumer product to platform. As audio apps like Audiobridge, Rapchat, and Yourdio continue to grow, they will help funnel their users to TikTok.
This shift from social network to social platform is a profound one. Along with Sound Kit, TikTok also announced the launch of Login Kit. It allows users to ‘login with TikTok’ on other websites.
One of the notable launch partners for Login Kit was PUBG. For kids these days, they’re more likely to have a TikTok account before they can read, and then graduate to using that in video games. They don’t start with a Gmail or Facebook account and login with that.
Login Kit is part of ByteDance’s plan to grow into a full-fledged tech behemoth to rival Google and Meta. It signals the ongoing opening up of TikTok’s middle platform for external developers.
A month after the launch of Sound and Login Kits, TikTok announced the launch of TikTok Jump. Whereas the kits were products for purely technical developer partners, Jump is a “developer” feature for the everyday creator.
It enables creators to embed “mini programs” in their TikToks. Users can click a button to open up a destination, like the Rotten Tomatoes website, inside TikTok. This helps reasonably technical creators like Rotten Tomatoes to be able to direct traffic to their owned sites.
Why would TikTok be okay with sending people away from their property? This only makes TikTok more attractive to brands. They don’t just get upper-funnel awareness, they also get the ability to drive direct response to their property. It is TikTok encroaching on the direct response of Facebook Ads.
A month later – as you can see, TikTok ships fast – TikTok announced a further upgrade to its Video Kit offering. This allowed apps from web, desktop, and consoles all integrate and share directly to TikTok. With this feature, TikTok continued to integrate deeper into the life of their young user by leveraging the power of other apps.
Between the Kits and Jump, TikTok has made a full press towards enabling technical creators and other apps. The lesson for product people is to build out a platform on top of your core product. This enables creative developers to enhance the reach and usefulness of your product.
5. Encroaching on Long-Form
The other big move for TikTok since Zhing’s leaving is its sprint into long form content.
As early as January 2020, the vast majority of top TikTok videos were 11-20 seconds. It was a platform that catered to the short attention spans of youth.
Then, in July of last year, the company announced the option for creators to, for the first time, create videos longer than a minute. Videos were allowed up to 3 minutes. It was an interesting, but controversial, move that left some analysts scratching their heads.
Product Manager for the feature Drew Kirchkoff explained it from a creator-first lens. Creators often had shared with the team that they desired more time. They wanted to show cooking demos, beauty tutorials, and educational lessons that didn’t fit into a moment.
Creator behavior also matched this expressed sentiment. Many videos would often point users to a ‘part 2’ and ‘part 3’ at the end of their existing videos. But, the dropoff from video to video was stark.
Due to solving these pre-existing problems for creators, the strategy seems to have worked. Longer than 1-minute videos have started to find their way into the algorithm’s rankings. In February of this year, TikTok followed up to allow videos of up to 10 minutes on the platform.
With 10-minute videos, TikTok has essentially extended to full competition with YouTube, which allows accounts to upload videos up to 15 minutes (verified accounts can upload videos up to 12 hours). And TikTok seems to be winning the competition. Average TikTok watch time surpassed YouTube this year.
Nevertheless, TikTok’s overall reach is still substantially less than YouTube. Compared to YouTube’s 195 million MAU, TikTok’s 90 million sounds small. It has mainly caught on with the younger generations.
Longer-form content is a much better fit for older audiences. These audiences are more used to watching videos longer than 15-60 seconds. Meg Zen, a TikTok researcher at the University of Zurich explains that, for mature TikTokers, “who are more used to watching longer content on YouTube and less interested in participating in dance challenges or recreating memes, long videos could be suitable products to keep them entertained.”
Longer-form content is also lucrative. As Zeng says, “it allows TikTok to work with institutional partners to produce content with product placement.” That has certainly been the trend in China. Douyin has begun co-product variety, reality, and talent shows with professional production houses. As TikTok makes the shift to more longer-form, it will also make the shift to more professional production.
Finally, long-form content is a better fit for screens beyond the phone. TikTok recently released smart TV apps. It is looking to make the jump from your phone to your TV screen. Screens like TVs don’t have the swipe, so longer form is a better fit.
Nevertheless, TikTok is still very early in its journey with long-form. YouTube still dominates Google SEO for long-form informational content. It has a much more widely used TV app as well.
For TikTok to win against YouTube will require mounds of content. That is a journey the company is only just beginning. A cursory look at the profiles of top TikTokers like Charli D’Amelio shows the majority of their videos are still dances, memes, and other types of shorts.
But, the company is well on its way. And there’s a lesson for product people buried there, too. Dominate your own private niche first. Then slowly creep towards the part of the market where there is more competition.
Signs For the Future
Unlike Netflix, the growth story for TikTok is not a Covid-specific one. Propelled by the five key factors, it has seen its revenue continue to skyrocket. ByteDance’s 2021 revenue still grew at 50%+, compared to Netflix’s 20%.
Image: Scott Galloway
Clearly, TikTok is not at the part of its growth story that is slowing down.
This momentum is reflected in TikTok’s enterprise value. ByteDance was last valued at 4x Netflix ($320B). If you put together the enterprise values of Twitter, Snapchat, Netflix, it would still be less than ByteDance.
The market clearly has high hopes for ByteDance. Given the flywheels it has generated, I wouldn’t bet against them.
