How Does TikTok Make Money?

TikTok app
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You’ve probably heard of the popular video-sharing app TikTok. It is one of the fastest-growing social media platforms, offering millions of users entertainment in short-form videos.

Since the app is more focused on building an interactive experience for users, it’s largely unclear to many how the platform makes money. Let’s take a look at what exactly this mystery app is that millions among younger generations can’t seem to get enough of.

What Is TikTok?

TikTok, one of the world’s most popular social media apps, allows users to create, watch and share 15-second videos using a smartphone. The app is notable for its high levels of engagement, from addictive short videos set to background music to sound effects, filters and custom stickers. Users can also create split-screen video duets with other users in different locations.

Launched in 2016 by the world’s most valuable startup, ByteDance, TikTok has since then joined the ranks of social media giants, such as Facebook, Instagram and Snapchat. In the first quarter of 2020, the Chinese-owned social app had over 315 million installs across Google Play and the App Store, according to Sensor Tower. TikTok is currently available in 150 markets and 75 languages.

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How TikTok Makes Money

If you’re wondering how TikTok makes revenue despite being a free app, here are some of the ways the video-sharing app makes money.

TikTok Ads

TikTok For Business, which was launched in June 2020, is an avenue for TikTok revenue. Like YouTube, TikTok offers paid advertisements for brands to promote their products and services. Brands can use TikTok For Business to enhance their marketing solutions through features such as in-feed videos, brand takeovers, hashtag challenges and branded effects. Here’s a look at these and other features:

  • In-feed video ads: In-feed ads are short-form videos that appear in between users’ feeds as they scroll through the For You page. These ads are typically the same as those that appear in Instagram Stories.
  • Brand takeover ads: If you’ve ever opened TikTok and received an ad immediately, that’s a brand takeover ad. Brands can use this type of ad to deliver a message right away to their target audience.
  • Top-view ads: Unlike brand takeover ads that pop up right when a user opens the app, top-view ads appear once the user is already using the app and may last for up to 60 seconds.
  • Branded hashtag challenges: In a branded hashtag challenge, brands create their own hashtag challenge and pay TikTok so their tag shows up on people’s discovery pages. TikTok users can participate in the challenge and then post with a specific hashtag. While it’s fun, it also creates brand awareness.
  • Branded effects: TikTok also offers users branded custom stickers, augmented-reality filters and lenses to add to their videos. Each branded effect can go live for up to 10 days, long enough for users to interact with a brand.

When brands purchase these ads to reach their global audiences, TikTok makes money.

In-App Purchases

Like many other social media platforms, TikTok generates revenue through in-app purchases. The app provides from 100 to 10,000 virtual coins that range in price from 99 cents to $99.99.

TikTok coins are an in-app currency that people can buy as long as they are at least 18 years of age. Users can use the coins to purchase virtual gifts for other users to show appreciation for their content.

TikTok’s Revenue

Since TikTok is in its infancy, the company hasn’t revealed much about its monetization strategy. However, TikTok already generates revenue using in-app purchases and TikTok For Business, which allows brands to engage and connect with audiences around the globe.

Good To Know

TikTok saw more than $110 million in user spending between February 2020 and February 2021, according to a report from Sensor Tower. The report also noted that roughly 79% of TikTok’s revenue came from Douyin in China, while 8% came from the U.S. and 3% was from Turkey.

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According to Forbes, Zhang Yiming, the founder and CEO of ByteDance, has a net worth of $35.7 billion as of April 23.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Lydia Kibet has been writing professionally since 2017. Her passion for helping brands in all aspects of content marketing flows through in the expert industry coverage she provides — personal finance, investing and healthcare. Her work has been featured in The Motley Fool, Investor Junkie, Green Market Report, and Medical News Today. When she’s not writing, she’s either reading, playing guitar or catching up with nature. Follow her on Twitter.

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