Global rush for buying TikTok – explained
TikTok is buzzing despite being banned or on the verge of being banned. Tiktok post its launch in 2016, has seen its popularity charts scaling new heights. Its presence in 150+ countries has helped it become a global phenomenon. Despite all its shortcomings on privacy invasion, there is a huge rush to buy out TikTok. Let’s find out why mega technology companies have lined up their cash to acquire a toddler star.
A brief History of TikTok
Chinese engineer and serial entrepreneur Zhang Yiming started a company called ByteDance. ByteDance’s initial product was Toutiao (Chinese for Headlines), which is a news headlines aggregator. Zhang always wanted to have a border-less product, which was truly global. Bytedance further in 2016 introduced TikTok, a short video format consumer app. For the uninitiated, TikTok basically allows users to create 15-second videos using a huge repository of lip syncs. These lip syncs would generally include famous songs and dialogues. Consumers on the other end, could endlessly binge-watch these videos, which were combination of these lip syncs and a small act shot usually on phone. The endless in the last statement is not an exaggeration.1 Million+ videos were watched daily, for over a year on TikTok.
Growth stage of TikTok
Within a year of its launch, TikTok acquired a similar offering from US counterpart Musical.ly for a whopping 1 billion USD. Musical.ly was swiftly folded and packed in TikTok. Since then, it has seen more than 2 Billion downloads of its app with a staggering 800 million-plus monthly average users. To give context, Youtube is viewed by 1.3 Billion users. TikTok is racing closer to YouTube viewership levels. A significantly important point here is that Youtube has existed for more than 15 years now, TikTok is yet to turn 5. TikTok is comfortably in the top 5 in most charts including the top downloaded apps. TikTok truly became border-less by limiting language usage and maintaining one Chinese and one English version. It spread its wings to more than 150 countries.
TikTok’s strong performance boosted its valuations too. The company in 2018, was valued at an astonishing $78 Billion. Yes, it did have big global VCs to fuel its growth including Sequoia, SoftBank, KKR, Hillhouse, and SIG. HBR went on to say that ByteDance has a different relationship with the Chinese government and its grip on state-owned conglomerates.
And then one fine day in 2020, the music stopped. TikTok was capturing data from every keystroke of what you typed, a report mentioned. This is irrespective of whether you send or not. This is considered a huge privacy invasion. On top this app did not allow to restrict this data capturing. The USA government stepped in on this occasion and added fuel to their ongoing trade war with China.
The USA Government alleged TikTok with claims of (quoting) “potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage,”.
As per orders from the USA government, TikTok would be banned by September 20 . If they did not find an American buyer, app would be banned. India, on the other hand, which accounts for roughly a third of its users, banned the app with immediate effect even before American action. Around the same time, Tiller also alleged a case of patent infringement against TikTok. Their newly appointed CEO, Kevin Mayer, left the company amid this crisis.
So why are tech companies rushing to buy an alleged data stealing app
Microsoft has been a consistent contender to grab the app, post acquisition orders. Oracle, Walmart, and Softbank are the other names doing the rounds. What amuses many is, why can’t tech companies replicate this app. For that matter, most of the tech companies have the know-how of consumer apps and it should not be a humongous effort to replicate a 4-year-old app. TikTok has built a strong brand in the last 4 years, some key insights pointing towards the rush are as follows.
- TikTok has a brand-name, which has connected well with the audience globally. No competitors have been able to replicate the TikTok model despite trying out various offerings.
- The average time spent by the users has been close to 50 minutes daily. 90% of the users opened the app several times during the day. On its Android app alone, 68 billion hours of content was viewed.
- Just before the storm erupted for TikTok, it launched a Corporate platform as well. This platform suggested, stop creating ads and instead make TikTok. If the experiment succeeded, it could pull away easily 5% of the global ad revenue, thus disrupting multiple industries at once.
Tragedy hit TikTok at a wrong time. TikTok certainly has built a strong economic moat for itself.
Economic Moat of TikTok
TikTok built short videos that were quick and fun to watch. The fast-moving content and short attention span of human beings, is a match made in heaven. With the advent of social media, attention span is reducing and users do not really want something too elaborate. Hence this short fun content published helped attract many consumers to its platform. However, what helped it glue the customers was the algorithm building the feeds for users. Basis the likes and dislikes of the users, it built an algorithm that would show users content that would fit the interest. As per Andreessen Horowitz, the product for TikTok is not a consumer app, but it’s AI algorithm. Watching TikTok became similar to binge watching, without a remote. Their algorithm in the future could taste similar success like Google’s search algorithm, groundbreaking in itself.
Apart from its AI, TikTok has connected well with the poor segment of India and China. This is a unique segment to the Digital universe, mostly since it is an untapped segment. They could connect with users in this segment, since the users need not come on screen for publishing a video. For many coming on screen for 15 seconds wasn’t a massive thing, unlike an elaborate YouTube video. TikTok simplified its consumer app both for the producer and consumer.
Immediately after it’s launch, Tiktok saw early success. Many laughed it off considering it as a fad. It has survived beyond being a fad and set a trend, a trend that is here to stay. Though at a time when there were talks of dividing many technology conglomerates, TikTok became an unlikely scapegoat, possibly because of its wrongdoings. This could be a potential early sign for those technology companies to be careful of privacy invasion. TikTok will see its own fate soon, and the same could happen with many.