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ANALYSIS: Banned or not, TikTok has completely changed social media

2023-04-30 08:41:12Aktualitet SHKRUAR NGA REDAKSIA VOX
ANALYSIS: Banned or not, TikTok has completely changed social media
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Whether banned or not, the app has forced its rivals to adopt a less profitable model, writes The Economist

Is TikTok's time over? As the head of the social media app, Shou Zi Chew, prepared to be questioned by Congress on March 23, TikTok's 100 million-plus users in America were worried that their government was preparing to ban the platform. Chinese-owned, due to security fears.

Their anxiety contrasts with the great enthusiasm in Silicon Valley, where US social media companies would like to get rid of their popular rival.

With every dispute on Capitol Hill, the stock prices of companies like Meta, Pinterest, Snap and others rise.

The fate of TikTok is uncertain. But it is already clear that the app has changed social media for the better and created a more competitive and challenging environment.

In less than six years, TikTok has disconnected the world from old-fashioned social networks and seduced it with short, algorithmically selected videos. Users love it. The problem for platforms is that this kind of new model makes less profit than the old one and it can last forever.

The speed of change is truly astounding. Since entering America in 2017, TikTok has attracted more users than all but a few social media apps that have been around much longer.

Among new users, TikTok crushes the competition. Americans aged 18-24 spend an hour a day on TikTok, twice as much as on Instagram and Snapchat and over five times as much as on Facebook, which these days has largely become a means of communicating with grandparents .

The remodeling

TikTok's success has prompted rivals to reshape themselves. Meta, which owns Facebook and Instagram, has turned the main resources of both apps into algorithm-based "discovery engines" and created Reels, a TikTok copycat, that has been incorporated into Facebook and Instagram. Other similar products have been created by Pinterest (Watch), Snapchat (Spotlight), YouTube (Shorts), and even Netflix (Fast Laughs).

The latest TikTok-inspired upgrade, announced on March 8, was from Spotify, a music streaming app whose homepage now features swipe-up video clips, just like TikTok. (Chinese TikTok-like app Douyin is making a similar impact in its home market, where digital giants like Tencent are increasingly showing short videos).

As a result, short videos have taken social media by storm. Of the 64 minutes the average American spends watching such services each day, 40 minutes are spent watching video clips, up from 28 minutes just three years ago, the Bernstein firm estimates.

However, this change comes with a drawback. Although users have a seemingly endless appetite for short videos, the format is proving less profitable than the old news feed.

Less profitable

TikTok monetizes the US audience at a rate of just $0.31 for every hour a typical user spends on the app, a third of Facebook's rate and a fifth of Instagram's rate.

This year, it will earn about $67 from each US user, while Instagram will earn more than $200, estimates research firm Insider Intelligence.

And this isn't just a TikTok problem. Mark Zuckerberg, Meta's chief executive, told investors last month that "right now, Reels' profit yield is much smaller than Feed's, so as Reels grows ... it takes time away from Feed and we actually lose money."

The most comforting explanation for the earnings gap is that TikTok, Reels and other short video platforms are still immature. "TikTok is still a baby in the social media advertising landscape," says Jasmine Enberg, of the firm Insider Intelligence, who points out that the app only started showing ads in 2019.

Platforms typically keep a low ad load while attracting new users, and advertisers need time to warm up to new products. "You can't wave a magic wand and declare your new ads are 'premium' without having a track record," says Michelle Urwin, of tech company Skai.

Meta points out that he has experience in this field. The Instagram Stories section took a while for advertisers to sign up for, but now it's a huge source of revenue. The meta is increasing its earnings from Reels and expects to stop losing money around the end of this year. But the company admits it will be a long time before Reels is as profitable as the old news feed.

"We know it took us several years to narrow the gap between ads that appear in Stories and in Feeds," Susan Li, Meta's chief financial officer, said last month. "And we expect this process to take longer for Reels."

Will the earnings gap close?

Some wonder if the earnings gap will ever close. Even mature apps that feature short videos can't compete with legacy social networks when it comes to monetizing users' time.

YouTube, which has been around for 18 years, earns less than half the money per hour from users than Facebook or Instagram, Bernstein estimates.

In China, where short videos became popular several years earlier than in the West, their ads turned into monetary profits at a rate of only 15% of ads on other local apps.

The ad load on short video platforms is inevitably lower than on a news feed with text and images. If you watch a five-minute clip on YouTube, you might get three ads; if you browse Instagram for five minutes, you can see dozens.

Watching videos also appears to make consumers more passive in purchasing than online communications with friends, making them less likely to click on an ad to make a purchase. Also, advertisers themselves think that ads displayed on video are less likely to attract clicks overall, compared to other social platforms.

Auctions for video ads are less competitive because many advertisers have not yet created ads for video formats.

Big advertisers value video ads (and report record engagement on TikTok, where products have been made viral by the hashtag #TikTokmademebuyit).

But many small businesses find that video ads are complicated to produce. Just over 40% of Meta's roughly 10 million advertisers use Reels ads, the company says. Trying to get the remaining 60% to create video ads can be made easier by Artificial Intelligence.

A company manager imagines a near future where a retailer can create a custom video ad using just voice commands. It still takes a long time to reach that point.

Apps with short videos are also hampered by weaker targeting. For many users, TikTok and its many imitations are attractive because you don't have to do anything but watch videos, and if you find them boring, just swipe up.

The algorithm uses this to learn what kind of videos (and therefore ads) users like. But this algorithm is no replacement for the detailed personal data collected by previous social networking apps, which convinced users to fill out a lengthy profile, including everything from education to marital status.

As a result, many advertisers still treat short video platforms as places for ads without precise targeting, i.e. simply to increase general awareness of their product, rather than direct and personalized (and more valuable) ads ), which appeared in older applications.

Here at least, TikTok imitators have an advantage over TikTok. Using a trove of data built up over a decade and a half, when there were few rules against tracking user activity across the vast web, Meta already knows a lot about many of the users who watch its videos and can make educated guesses about the rest.

For example, if a new and unknown user watches the same videos as a group known to be wealthy, educated women with children, there is a good chance that the new user has the same profile.

TikTok says it has made major investments in direct ads, including new tools for measuring their effectiveness. But there is still work to be done. "Meta is using its own history," says Mark Shmulik of the Bernstein firm.

Social apps won't be the only losers in this new, more complicated advertising environment. "All advertising is about the question of what is the best alternative," says Brian Wieser of the consulting firm Madison and Wall.

Most advertisers set aside a set budget to spend on ads on a given platform, he says, and "a budget is a budget," no matter how far it goes.

If social media advertising becomes less effective across the board, that will be bad news not only for the platforms that sell those ads, but also for the advertisers who buy them.

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