TikTok Boom
I recently vacationed with friends. As we were wrapping lunch one day, my friend said, “Watch this.” His 11-year-old son walked to the couch and lay on his side. With his arm extended in front of him cradling his phone, he … went vacant. For the next hour, he was comatose. No signs of life other than his open eyes and an occasional finger swipe. “We have to make him stop, pull him out, every time,” his dad said. My head filled with images of opium dens in China. Something about the stillness, the lying on his side.
Elon Musk’s manic toggling between shit-posting and falsehoods have distracted us from what is the ascendant tech firm of 2022. TikTok now commands more attention per user than Facebook and Instagram combined. Downloaded more often than any other app for each of the past five quarters, it was the world’s most visited site in 2021. TikTok has 1.6 billion monthly active users — more than Twitter, Snapchat, and LinkedIn combined.
TikTok bills itself as a social media company, and the app is disrupting Meta by virtue of usurping attention. But that’s not all it’s doing. You can like, comment, and share, but these features exist as leverage points for one thing: watching videos. TikTok is a streaming platform, and the testicles being kicked over and over by TikTok belong to another company, Netflix. Over the past four years, ByteDance (parent company of TikTok) has gone from half the revenue of the original gangster of streaming to double. Six months ago Netflix was worth more than $300 billion — today it’s at $80 billion. And at its last valuation event, ByteDance was valued at, wait for it … $360 billion.
We’ve been watching the streaming wars for the past few years, but we were looking in the wrong place. “Video-based social media” was the Trojan horse. The gatekeepers of the content kingdom were being vanquished while we obsessed over subscriber growth at Disney+. The new occupant’s ascent to the Iron Throne was financed with a different currency — not monthly subscriptions or cable packages, but attention. Specifically, our youth’s attention.
Signal Liquidity
Facebook and Google also are using a new armament in their business war: data. You can sell data to advertisers to inform algorithms so their products and services are more attractive and addictive. But data on its own is a shapeless block. Signals are the mallets and chisels that bring form and utility to the algo. (Note: Re-reading the last sentence, I have to wonder what the half-life of edibles is.) Anyway, if data is the new oil, algorithms are the refineries, and signals make the oil lighter, sweeter, and more valuable.
Cable is heavy, high-sulfur-content crude, as its only signals are weekly Nielsen ratings reports. Netflix gets signals directly, but just a few: what you watch, how long you watch, and whether you recommend the program. In aggregate, that data set can be refined into a powerful recommendation algorithm. But on a per-session basis, when we watch an average of two episodes, the number of signals registered from a typical user is likely no greater than six — so the refining process is slow, arduous work.
Then there’s TikTok, where the average session lasts 11 minutes and the video length is around 25 seconds. That’s 26 “episodes” per session, with each episode generating multiple microsignals: whether you scrolled past a video, paused it, re-watched it, liked it, commented on it, shared it, and followed the creator, plus how long you watched before moving on. That’s hundreds of signals. Sweet crude like the world has never seen, ready to be algorithmically refined into rocket fuel.
With great signal liquidity comes great content. Specifically, unique and personalized content. Netflix suggests ’80s war movies for me, which I knew I liked. What I didn’t know I liked: chiropractors confidently adjusting patients, hot people lecturing me on social justice issues, bloodhounds running in slow motion, and crocodiles ruining the days of befuddled animals looking for a drink of water. Watching Netflix is like going to Universal Studios Florida because you loved Disney. Watching TikTok is going on Safari.
Talent Liquidity
Just as algorithms require large pools of signals, content production requires large pools of talent. For a hundred years, video talent congregated in a few geographies: Los Angeles, Hong Kong, London, and Mumbai. Every HR manager knows there are talented people populating every corner of the Earth. But geography still matters, and the majority of platforms and talent do not find each other. YouTube and Instagram recruited talent faster than any business in history. Until TikTok. Fifty-five percent of TikTok users create their own videos on the platform. That’s a talent pool the depth of the Mariana Trench: 870 million people, or 1,000 times the number of people employed by the entire film and TV industry.
The world’s largest reserve of talent also has a near-zero cost of extraction. The top eight U.S. media firms will spend $115 billion on original content this year. Netflix alone will spend $17 billion. TikTok produces its content for almost nothing — the company’s payout to top creators is a rounding error, at $200 million per year. The primary incentive it offers is social expression, and the company’s A&R team is the app itself. Users are never more than a few taps from creating their own content — TikTok streamlines the creation process, with an option to create a video at the center of its UI, simple tools for recording and manipulating those videos, and a huge library of licensed music available for the creator’s use. On YouTube and Netflix, there are creators and consumers. On TikTok, they are the same person.
For creators who are in it for more than just expressing themselves, the real TikTok money comes from brand endorsements. And when your total addressable market is 1.6 billion users, your 15 seconds of fame on TikTok can be lucrative. The top creators make as much money as a Fortune 500 CEO or an iconic Hollywood actor.
I Don’t Know, You Pick
The average American adult makes 35,000 decisions every day — from what we wear to what size coffee we order. Each decision puts some degree of strain on our mental capacity. As the day goes on, we get tired and stop wanting to make decisions. It’s called decision fatigue.
The biggest mistake we make in marketing is believing choice is a benefit. No, it’s a tax. Consumers don’t want more choices, they want more confidence in the choices presented. TikTok has taken this to a new level by eliminating the burden of choice entirely. Its content is a continuous stream of videos where the decisions are made for you. Your only choice: what not to watch.
This creates a spiraling effect that welds people — especially young people — to the platform for hours. The prefrontal cortex is responsible for decision-making and impulse control, but this part of the brain doesn’t fully develop until the age of 25. Surprise: Kids can’t stop watching TikTok. TikTok, to its credit, now reminds younger users to take breaks to go outside or get a snack. This is an attempt to differentiate the brand from Meta, which has cemented itself as institutionally incapable of acknowledging or addressing the broader effects of its apps on society.
Compare the TikTok doomscroll to the Netflix experience, where you skim infinite thumbnails trying to figure out what to watch. Then you have to focus for 40 minutes. A big commitment these days. Parents report their kids can’t sit through feature-length films because they’re too slow. I notice with my 10 year-old, when he’s exposed to uninterrupted, quick-hit media, he has a difficult time afterward doing anything that requires focus … including being civil to his parents. Expect an emerging field of academic research looking at the effects on behavior, and the developing brain, of rapid-fire media.
Risks
This attention-arbitraging streaming juggernaut shows no signs of slowing. But there are real risks that could interrupt the company’s trajectory to becoming one of the five most valuable businesses in the world.
For one, competition — rip-off products by Facebook, Instagram, Twitter, YouTube, Snapchat, and Netflix. Of these, Facebook and Instagram are best positioned to compete thanks to Meta’s massive coffers of data and captive audience. But TikTok has years of short-form video data, as well as a grasp on the Holy Grail of social media: Kids think it’s cool. Zuckerberg is understandably anxious — Meta mentioned TikTok five times on its February earnings call.
Another risk is China, specifically the threat that the CCP could weaponize the platform — putting a gentle thumb on the algorithm, for example, to shape minds with content critical of America, capitalism, or the CCP’s detractors.
And then there’s regulation. This is the hallmark risk for corporate businesses, though it’s becoming increasingly irrelevant as our regulatory institutions continue to get derided and trampled. A federal judge in Florida told the CDC it couldn’t mandate the wearing of masks because they don’t “actively clean” the air, and the 5th Circuit has decided the SEC cannot enforce its own rules. That’s for another post. The externalities of any tech firm that grows this fast are severe, because these companies tend to blow by any stop signs as the speed blurs the license plate. Already, the app appears to be linked with eating disorders and depression, and it may even cause motor and verbal tics among teens.
A threat to the well-being of our youth should logically be a catalyst for swift and severe action. It hasn’t been. But TikTok’s Chinese ownership may be the siren America’s regulatory bodies need to register a real threat. In sum, as Josh Brolin said in Sicario, the government’s job is to “overreact.” So far, Uncle Sam hasn’t done his job. So, will TikTok become one of the most valuable companies in the world, or prove to be yet another tech firm whose profits and addictive qualities outpace our ability to govern it? The answer is likely yes.
Life is so rich,
P.S. I’m doing an exclusive AMA with Section4 in June. Become a member by the end of this month to reserve your seat. Ask. Me. Anything.
So TikTok is the problem and the reason for the short attention span of kids but Facebook and Instagram are not the problem because they are American?
TikTok content “critical of capitalism” – in the immortal words of Emperor Diocletian, LOL. The reality itself is critical of capitalism, and TikTok only distracts from it. But look at the bright side, Scott: it’s not the old farts who learned PChem and linear algebra from books, but the young people with brains scattered around by TikTok, who are going to be replaced by robots.
How can an American complain about Chinese censorship lol
I’m on romanian Tiktok, but I see a lot of british and european content. There are thousands of videos with americans who complain about the life quality in US and how great is Europe. If US did a cultural invasion on Eastern Europe using Hollywood, China is definitely trying to destroy the “West as a Heaven” image. Also they have some propaganda videos about how great is China, but they look as done for a school project.
I really don’t know how the cultural war, that China is having with the West looks like in Africa and the rest of Asia.
Another negative consequence I’ve noticed is that kids have lost their peripheral vision. Both of my step-kids can only see things directly in front of them, anything off to the side is ignored. I absolutely blame phones and screens of all kinds for kids walking around with horse blinkers on so they can only see what’s immediately in front of them.
This is why your husband left
A brilliant contribution, thank you Mr. Dingle.
Then why did Meg Whitman and Quibi fail?
“TikTok produces its content for almost nothing — the company’s payout to top creators is a rounding error, at $200 million per year. “
Quibi spent how much? And produce almost nothing…
Over paid for big names and under delivered.
Because Quibi wasn’t cool. By definition, cool is not top-down corporate-produced content. Cool is the opposite of what your parents and the white men in suits are doing. Businesses have been trying (and failing) to buy cool forever.
Oh and on top of that, Quibi was stupid about sharing clips. No virality = death in the attention economy.
So the risk is either that the government will intervene because it will classify TikTok as a dangerous drug or china, thinking long term, will look forward to the west being populated by dumb blobs with no attention span and therefore no education.
Your insight is valuable, but why not use it to do something about the issue rather than just rant about it?
Must he do everything?
As I said in a recent meeting, “We have all become fleas on cocaine and the cocaine is what our phones and TikTok or Meta tell us.” Thanks for your insight Scott.
This is singularly the best analysis and articulation of the “attention wars” playing out betwixt streaming and social. Kudos (and Crudos) to Scott.
This perspective is excellent.
If you consider what’s next and evolve what you are doing to support it, you win. There is a choice in using Tik Tok. We also see it with our kids and their comatose, zombie-like eyes. Is it good? It’s not. But this new “drug” of choice just needs some real competitors in the market doing useful and interesting things. Meta has proven to be a lost leader, not reinventing itself quick enough (just stealing ideas). Twitter is a non-business. While it is well-liked, it doesn’t make any money. Youtube similarly hasn’t quite figured out how to get to the profitability space yet either.
So the real answer here seems that we need new creators to start inventing new platforms that do good instead of evil. Who is up for the challenge?
I am almost 40. I grew up on video games, movies and Internet. When my friends have kids and we talk about the current activities of their children, I am sometimes baffled that they think all is the same as our childhood. It’s much more aggressive and targeted now then before.
I keep finding myself recommending them to force their children to be active rather than passive when they put a screen in front of them and on top of that, force them to play offline video games rather than online.
Tiktok and similar attention-grabbing apps are affecting the attention span of the developing youth but the online games with micro-transactions are creating gambling habits in massive scale.
In 10-to-20 years, we’ll have generations after generations who are made of gamblers with attention span issues and that is a recipe for dystopia.
I actually joined TikTok not too long after completing one of your first Section4 strategy sprints (thanks for that!).
One of the things I had done during that sprint (again, this is before I had joined the company) was that TikTok was much much closer to YouTube or Netflix than Instagram. My logic was just as a consumer I didn’t talk to people on TikTok or watch anything from my friends, I just watched great content, much like YouTube, but shorter and with an algorithm 100x better. This is something I found out made sense once I read The Attention Factory by Matthew Brennan (he made a book on ByteDance last year) as I don’t believe Google have made any noticeable improvement to YouTube in over a decade now (2012 was last big algo update I think it said in his book).
In a completely personal consumer capacity, I think this comparison to Netflix is very valid and made me think back to the strategy sprint where I only mentioned it briefly.
Nice analysis and logic, excited to see how it all turns out.
“Another risk is China, specifically the threat that the CCP could weaponize the platform.”
Scott, China HAS weaponised the platform. Kids who are diligently shaped into dopaminated tokheads from their pre-teens are almost certain, given what we know about the neurological effects of internet use, to have worse life outcomes (relative to anything that requires the investment of meaningful amounts of time) than kids who do not have their developing, still-plastic brains mangled by this kind of thing.
American kids who can’t concentrate, aren’t interested in anything beyond a time limit of eight seconds, can’t make their own decisions, are not going to be competitive in the world that the CCP has envisaged and is very carefully and deliberately trying to bring about. TikTok in China is NOT the same as it is in America – inane content is carefully restricted to two hour-long windows in the day, and educational content prevails otherwise.
Insofar as this difference prevails, TikTok may be the most effective instrument of soft power China have ever devised.
The two hour restriction is actually very easily circumvented by changing the settings, and the “rest” window is just 15 minutes, so the negative effects on teens (and grownups/elderly) are similar in China. Bytedance is a business after all.
This thing with the social media and focus and attention has been observed like 15 years ago and extensively studied by Manfred Spitzer who also coined the term Digitale Demenz. The lack of attention span is having grave consequences – we are not really able to do deep thinking anymore.
This was a key point:
“The biggest mistake we make in marketing is believing choice is a benefit. No, it’s a tax. Consumers don’t want more choices, they want more confidence in the choices presented.”
I do wonder how we allow TikTok to operate in the US when the CCP bans Google and Facebook from operating there. They use our freedom and open system against us.
A few business commentators on other business news channels think Meta’s Reels is ready to beat off TikTok. I thought ByteDance moved their corporate offices to the USA, or at least split off their China division from the rest of the western world division? My problem with your thesis is that social media success seems to have a half-life of maybe 7-10 years, so I think it is just as easily for a standalone social media group like TikTok to go out of favour as the next generation of 8-18 years old favours something else. TikTok will have some success, but the Apple iPhones they view TikTok on will remain successful for much, much longer
Apple is the quintessential big-corporate madam-of-the-night who belongs to/with No Country and behaves exactly like it.
Just thinking this morning that we have an entire generation (and all that follow) so screwed up… It is bad enough for me as a person in their mid-50s who admittedly can get sucked into the internet rabbit hole from time to time… Wish we could shut the internet off for a couple of months and reset as a society…
I’ve been thinking the same thing for awhile and I am a developer who lives on the internet. Shut this shit down for awhile but alas, there is to much money involved now for that to happen. I am in my early 50s so I’m a gen x’er that has grown up in both worlds (pre and post internet) and I long for the days of pre sess pool, I mean internet. I guess every generation starts longing for the past but this is just getting out of control.
I’d bet the going away speech in which you told the people you laid off to “Man up, bulk up, and go work on a construction site” was a real hit, Scott!
Congratulations, Scott! Soon, you’ll have minted some new lonely young men or incels or whatever you’re calling us.
Don’t you have anything better to do than troll Scott’s blog comments, Jason Calacanis?
Prof G,
I spoke truth to your power, which make me suspect that you’re probably the “We know it’s you Jason” guy. Frankly, I don’t know who Jason Calacaris is, and I didn’t know you existed until I read your CNN column full of advice you shudder at when it comes back at you.
Trying to make sure people don’t dismiss and marginalize “lonely young men” is kind of important right now, so no, I don’t have anything better to do.
Scott,
I have a hunch your personal political philosophy is liberal democrat. Therefore, I believe you made a spineless attempt to see/explain a much larger risk to the U.S. from THE greatest external adversary post-WWII in the form of the CCP; Chinese Communist Party:
“……..Another risk is China, specifically the threat that the CCP could weaponize the platform — putting a gentle thumb on the algorithm, for example, to shape minds with content critical of America, capitalism, or the CCP’s detractors.“
Great piece. Among the things I love, it’s not an outright condemnation (you even reveal your own proclivities) despite the opening scene. But the concerns are there, the possible dangers, weaved into the reality of the overall developments. Comatose kids, loss of focus, etc etc? I see it with my own. Yet, I also see inspired minds… and some pretty goddamn good dancing. I keep going back to: so much power rests in the hands of these companies. When friends tell me they really like TikTok, that the algorithm offers things they “actually want,” the promise of the Internet itself (you know, with the good, noble citizenry) seems to appear. But then… business. Power. Domination. How can we trust anything these days, despite our deeper desires? The Facebook/Meta revelations and fallout from The Social Dilemma cast such a major shadow.
you forgot mentioning the “yellow peril”
I thought TikTok was being forced to sell out of CCP oversight during the last admin… Seems like gvmnt was trying to limit it’s influence.
That was what Trump suggested, but like most other things he was too busy golfing and tweeting to follow through.
JBull & Ed,
Both of you need to wise-up learning the facts before you both reveal your factual knowledge on this subject.
The CCP has already weaponized TikTok, pushing trans content on our kids while banning it for theirs. Drop the Elon sniping, it’s so obviously driven by jealousy. Seems you have enough time to do everything except run your own company, maybe that’s why you just laid off 25% of staff while on vacation.
hello, quanale dingle here, reheheheh