The ad business: How TikTok broke social media
Whether or not it is banned, the app has forced its rivals to adopt a less lucrative model.
Is TikTok's time up?
As the social-media app's chief executive, Shou Zi Chew, was getting ready for a grilling before Congress on March 23rd, after The Economist went to press, TikTok's 100m-plus users in America were fretting that their government was preparing to ban the Chinese-owned platform because of security fears.
Their anguish contrasts with utter glee in Silicon Valley, where home-grown social-media firms would love to be rid of their popular rival.
With every grumble from Capitol Hill, the share prices of Meta, Pinterest, Snap and others edge higher.
TikTok's fate hangs in the balance.
But what is already clear is that the app has changed social media for good--and in a way that will make life harder for incumbent social apps.
In less than six years TikTok has weaned the world off old-fashioned social-networking and got it hooked on algorithmically selected short videos.
Users love it.
The trouble for the platforms is that the new model makes less money than the old one, and may always do so.
The speed of the change is astonishing.
Since entering America in 2017, TikTok has picked up more users than all but a handful of social-media apps, which have been around more than twice as long.
Among young audiences, it crushes the competition.
Americans aged 18-24 spend an hour a day on TikTok, twice as long as they spend on Instagram and Snapchat, and more than five times as long as they spend on Facebook, which these days is mainly a medium for communicating with the grandparents.
TikTok's success has prompted its rivals to reinvent themselves.
Meta, which owns Facebook and Instagram, has turned both apps' main feeds into algorithmically sorted "discovery engines" and launched Reels, a TikTok clone bolted onto Facebook and Instagram.
Similar lookalike products have been created by Pinterest (Watch), Snapchat (Spotlight), YouTube (Shorts), and even Netflix (Fast Laughs).
The latest TikTok-inspired makeover, announced on March 8th, was by Spotify, a music-streaming app whose homepage now features video clips that can be skipped by swiping up.
(TikTok's Chinese sister app, Douyin, is having a similar effect in its home market, where digital giants like Tencent are increasingly putting short videos at the centre of their offerings.)
The result is that short-form video has taken over social media.
Of the 64 minutes that the average American spends viewing such services each day, 40 minutes are spent watching video clips, up from 28 minutes just three years ago, estimates Bernstein, a broker.
However, this transformation comes with a snag.
Although users have a seemingly endless appetite for short video, the format is proving less profitable than the old news feed.
TikTok monetises its American audience at a rate of just $0.31 for every hour the typical user spends on the app, a third the rate of Facebook and a fifth the rate of Instagram.
This year it will make about $67 from each of its American users, while Instagram will make more than $200, estimates Insider Intelligence, a research firm.
And it is not just a TikTok problem.
Mark Zuckerberg, Meta's chief executive, told investors last month that "Currently, the monetisation efficiency of Reels is much less than Feed, so the more that Reels grows…it takes some time away from Feed and we actually lose money."
The most comforting explanation for the earnings gap is that TikTok, Reels and the other short-video platforms are immature.
"TikTok is still a toddler in the social-media ad landscape," says Jasmine Enberg of Insider Intelligence, who points out that the app introduced ads only in 2019.
Platforms tend to keep their ad load low while getting new users on board, and advertisers take time to warm to new products.
"You can't really wave a magic wand and declare that your new ads are 'premium' without any performance history to back it up, so they start at the end of the line," says Michelle Urwin of Skai, an ad-tech firm.