TikTok: from economic boom to judicial doom?

After several prosperous years in terms of growth, TikTok appears to be caught up by legislation all around the globe following a growing number of claims regarding the risks posed by the platform for its users, and for the countries’ national security.

In a 180 pages report released on July 6th, the French Senate urges the State to ban the social platform unless TikTok provides enough guarantees in terms of data protection, transparency, and independence regarding Beijing. The senators emphasized “the strong contradiction between TikTok’s transparency claims and the reality of a deliberate opacity”.

On April 14th, Montana voted to ban TikTok’s application and website within the borders of the state, with effect on January 1st, 2024. If enforcing this ban raises several questions, both legally and technically, this new decision from a US authority highlights how the pressure over Bytedance and TikTok has increased in recent years, especially in Western Countries.

All these legal actions contrast with the outrageous economic wealth of the Chinese app around the globe and the outstanding growth the company has been experiencing since 2020, making it a singular player in the social media landscape.

A spectacular expansion since COVID-19

Since the end of 2019, Tiktok has almost tripled its user base, hitting the one billion users mark in 2021, before the ban of the platform in India, making it one of the fastest growth ever experienced in the social media landscape.

Contrary to the expansion route followed by most of the players in the market, TikTok’s adoption occurred in most of the different regions of the globe at once, in North and South America, Europe, and Asia-Pacific. Hence, as of today, the leading countries in terms of monthly active users (MAUs) are the USA, Indonesia, Brazil, Vietnam, Mexico, Russia, the UK, and Turkiye.

If the significant increase in revenues witnessed in 2021 and 2022 can be partly attributed to the straight increase in users, numerous other factors have contributed to driving TikTok’s revenues higher.

TikTok allows advertisers to reach younger audiences who are nowadays out of the scope of traditional media, leading to higher CPMs. According to various surveys conducted in the UK and in the US, a quarter of TikTok’s active users are younger than 19, and almost half the user base is younger than 29.

Contrary to most algorithms developed by its competitors, Tiktok’s recommendation system does not focus on providing content from creators that are already part of the user’s ecosystem, but instead provides a wider diversity of unknown creators. Although this choice could have been risky, it finally led to a strong increase in time spent on the platform. Hence, according to polls conducted in the US, the average time spent on TikTok reached more than 90 minutes per day.

Although TikTok has increased the video length for recordings from 7 seconds to up to 10 minutes, most of the content consumed on the platform still comes from short videos. Hence, according to TikTok’s internal data shared with creators at the end of 2021, the optimal video length in terms of reach and engagement was in the 24 to 31 seconds window, up from 11 to 17 seconds less than a year before. If this figure increases over time, it remains significantly shorter than other video-sharing services such as Youtube for instance, where most of the uploaded videos range between 2 to 12 minutes. This shorter format allows TikTok to maximize its advertising window, hence leading to higher revenues per user.

On top of that, TikTok changed its advertising policy in 2021, making commercials mandatory on the platform. A measure that seemingly has not impacted the platform negatively, as TikTok users find ads “fun and entertaining” according to polls.

A reconfiguration of the competitive landscape

From being a challenger, TikTok managed to become one of the leading platforms in the social media landscape, pushing other platforms to adapt their content strategy or diversify their assets to find other sources of revenue. Numerous platforms have hence copied TikTok’s recommendation tool and video format “For You Page”, such as Instagram with Reels, Youtube with Youtube Shorts, or Snapchat.

The impact of TikTok now goes beyond the traditional social media landscape, influencing other streaming services such as Spotify for instance, which announced in March 2023 a revamp of its app with a vertical discovery feed surprisingly similar to Tiktok's. The risk for other social media platforms is to be left behind an app that not only gathers a growing number of users but also aggregates a wider variety of content from music to entertainment, threatening after a few years the business model of companies that took a decade to build.

However, if TikTok has experienced the fastest growth ever both in terms of revenues and ARPUs in the social media landscape, the trend witnessed over the last year brings some nuance.

First of all, TikTok still lags far behind its main competitors such as Facebook and Youtube in terms of revenues generated, which generated respectively USD 67 billion and USD 29 billion in 2022. The company did not meet its revenue target in 2022, fixed at USD 12 billion, and finally lowered by 20%, demonstrating that TikTok is not immune to the economic turmoil experienced by most of the tech players for a year now.

For Bytedance: the shade of legal actions across a growing number of countries

What could put a more definitive halt on TikTok’s growth is the risk of a ban discussed in several Western countries. The Chinese app already faced this situation in 2021 when it was banned from India, losing 140 million monthly active users in the country, and could face a similar situation in Europe and North America, starting with the US.

Since the ultimatum given by the Trump administration in August 2020, Bytedance has managed to avoid the acquisition of TikTok by an American company, at the cost of migrating all TikTok data from US users to Oracle servers, known as Project Texas.

Although this agreement was set to ease the concerns of US representatives regarding the risk of data breaches, US administrations have multiplied actions to increase the pressure on TikTok, ordering the ban of WeChat in the country (finally suspended by a Californian judge recently), urging Walmart and Microsoft to partner to acquire TikTok, and, more recently, the ban from all US House of Representatives managed devices followed by the congressional hearing of TikTok CEO Shou Zi Chew.

This escalation of legal procedures reached a climax in March when the Biden administration officially asked Bytedance to sell its shares on TikTok to avoid a US ban. This decision followed the recommendations of the Committee on Foreign Investment (CFIUS), after two years of investigation and discussion with the Chinese giant. To thwart CFIUS’ decision, TikTok opposed the USD 1.5 billion invested in Project Texas. It is not clear yet if the CFIUS would consider Project Texas to provide enough guarantees, but in case of a rejection, the CFIUS would have to justify its decision by providing the insufficiencies of such an investment plan.

This decision could have a massive impact on Bytedance’s operations, as it could imply not only a sale in the US but also in many other territories at once, such as the UK, Australia, or New Zealand.

In Europe, due to potential GDPR infringement and the lack of measures in terms of child protection, the conclusions of the French Senate might find echoes in the European Parliament as well. Last February, the European Commission had already banned TikTok from all official devices, following policies implemented by European administrations for their staffs, such as the UK, France, Norway, Belgium, and Denmark.

Pressure is also increasing in Asia: in 2020 India completely banned Tiktok among other Chinese apps, including WeChat, following a clash with Chinese troops at the Himalayan border, while Taiwan banned the service within the administration last December. Australia and New Zealand followed European practice this Spring, taking similar measures in their countries.

In the end, TikTok’s future could rely more on the fate of ongoing legal procedures than on its actual economic health.

This research highlight is based on our data coverage of Online and Online media and advertising worldwide. Please contact us to get a demo and see the depth of our service. Discover Nextv Series Berlin - IFA edition, the event that brings together TV operators, Smart TV vendors, retailers as well as technology suppliers for one full day of conferencing. 

Thibault Giry

Senior Analyst

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Published on: Thursday, 13 July, 2023

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