Generation TikTok

Quantum physicist and author, Michio Kaku, writes about the Cave Man Principle in his book, Physics of the Future. He argues that modern humans, despite many advances, still think like our caveman ancestors. Whenever there is a conflict between modern technology and our innate preferences, technology loses out and is not fully adopted. Case in point: remote working (in the pre-pandemic world) did not take off because we prefer interacting with our fellow humans in the flesh.

Corollary to the Cave Man Principle… there will be a premium placed on gossip, social networking, and entertainment.

Michio Kaku, Physics of the Future

With an estimated 800 million monthly active users, TikTok has found the secret sauce that appeals to our primitive caveman brain.

The big idea 💡

For the uninitiated, TikTok is a short-form video platform. Think YouTube but shortened. TikTok videos are capped at 60 seconds – short enough to be digestible but long enough for creative flexibility.

It is not a new idea. Vine, the first such platform, was popular in early 2013. Twitter bought it and discontinued it 4 years later due to dwindling monetisation opportunity and increasing competition from Snapchat and Instagram.

TikTok itself is not new. Its parent company, ByteDance, has been operating a version called 抖音 (Douyin) in mainland China since 2016. The app was iterated upon and perfected before launching worldwide in 2018 following its merger with Music.ly, a lip-syncing video app. As TikTok is engineered to appeal to our caveman desire, its popularity outside of mainland China should not be a surprise.

Unlike Snapchat, which is mainly the domain of digital native Gen Z, TikTok is intuitive and user-friendly, making it accessible to an older audience like myself. Having used TikTok casually for the past few weeks, it’s easy to see the appeal. Its popularity can be boiled down to:

  1. It’s super easy for users to discover compelling content;
  2. It’s fun for content creators.

The above creates a powerful network effect. New users are attracted to interesting content, which in turn draw in talented content creators who want access to a sizeable audience.

Optimised for you

TikTok videos range from the silly (e.g. lip-syncing, dance challenges, pranks etc.) to the informative (e.g. tutorials, short-form documentaries etc. #learnontiktok). The overriding theme is that you will find these videos engaging.

The keyword is “you” 👈. TikTok’s “For You” page (#FYP) is a continuous feed of videos which its recommendation engine has optimised based on an amalgamation of data you feed the app. The end result is a stream of highly digestible morsels of pure entertainment.

Netflix and Amazon Prime Video would benefit from TikTok’s secret algorithm; more time is spent looking for content than watching content on these video streaming platforms.

Cosying up to creators

A social media platform lives or dies by its pool of content creators. One of the reasons Vine failed was the exodus of creators to other platforms. TikTok attracts the best creators by:

  1. Making it fun – Hank Green (one of the earliest YouTubers and one of those rare breeds who has had a long-running career as a content creator on the internet) has said that as a creator, he’s found TikTok to be very fun.
  2. Providing the fund – TikTok has been courting creators by paying them to create content regularly.
  3. Making content discoverable – Unlike traditional social media platforms (e.g. Twitter, Instagram), TikTok creators do not need a large group of followers to reach an audience. TikTok’s recommendation engine ensures that good content gets seen.

Monetisation

TikTok’s main business model is advertising. With 800 million monthly active users, TikTok is prime real estate for brands. The very same recommendation algorithm that provides users with engaging videos is likely being used to serve up highly targeted ads. Advertisements on TikTok are seamlessly integrated into the video feed. Some are extremely well done and are entertaining in their own rights.

A potential growth area is live-streaming which is hugely popular in mainland China (Viya, a popular Chinese livestreamer, once sold a rocket launch) but has yet to fully take off in the rest of the world. Creators on TikTok with at least 1,000 followers can broadcast livestreams. TikTok sells an in-app currency called “Coins”, which users exchange real-world money for. These TikTok Coins are then used to buy virtual gifts to reward/tip livestreamers. TikTok has not disclosed the cut it takes from these virtual gifts but it’s safe to assume that this is a profitable side business.

Microsoft ⚭ TikTok

TikTok, like most apps, collects an inordinate amount of data on its users. Its parent company is based in Beijing where it could be subject to demands from the government to hand over data. On national security grounds (and in part geopolitical posturing), Donald Trump issued an executive order in August 2020 that would ban “any transactions” with TikTok’s parent company. Overnight, TikTok’s operations in the U.S. has become a distressed asset that needs to be sold.

Microsoft has emerged as a likely buyer. Buying TikTok would be an uncharacteristic move for Microsoft. The acquisition courts scrutiny and attention, which goes against the modus operandi of CEO Satya Nadella. It is a purchase that only ex-CEO Steve Balmer, with his brashness, could fathom making. Social media is also a toxic business to be in, with a multitude of minefields (e.g. users’ data protection, content moderation, hate speech/harassment monitoring etc.).

With its increasing cash pile (more than US$100 billion), however, there is no better way for Microsoft to deploy capital than to acquire a fast-growing and exciting social media platform. If the deal does happen, Microsoft will have in its portfolio a new golden goose. If anyone understands the value of owning a platform, it is Microsoft (having dominated the industry in the past with Windows).

What’s next?

TikTok’s success has spawned countless imitators. Some of them are real contenders. Facebook, with its characteristic “let’s-steal/incorporate-all-good-ideas”, has launched a replica of TikTok on Instagram called Reels. Instagram, with its huge installed base, poses a serious threat to TikTok. Smaller competitors like Triller and Byte are also gaining traction.

TikTok, however, has achieved critical mass and a certain degree of brand affinity among users (for now at least). It has perfected the delivery of short-form videos with its uber personalised recommendation algorithm. It is like crack to our caveman brain.

Download the app and start scrolling through your “For You” page to see what I mean. I dare you.


The bottom line: TikTok is a compelling product. Its proprietary recommendation algorithm serves up irresistible and digestible morsels of pure entertainment.