how does tiktok make money

Ever wondered how TikTok became a hit, produced overnight stars, and continues being one of the most used apps in the world?

This article will let you know how TikTok rapidly climbed its way to popularity and show you how it makes money.

In 2017, TikTok was released and became viral among social media users. Since its launch until 2019, it has become one of the most installed mobile apps. It has more than 1.9 billion app downloads and hundreds of millions of monthly users.

Even the launch of Facebook’s Lasso in 2018, a social video-sharing app similar to TikTok, could not catch up to the social media craze of TikTok. This shows only an estimated 70,000 downloads from its release until 2019. Facebook closed down Lass in 2020.

Though TikTok grew exponentially in 2020, it has been around for almost five years. The app recently climbed its way up to the U.S. market and caused a frenzy among social media influencers and TikTok users.

So how did TikTok itself become viral? 

Related: you may also want to check out ways you can make money using TikTok.

How Did TikTok Start?

Most of you have probably watched a video from TikTok and wondered how this app became famous. TikTok is an app where you can create and share short video clips for the community of users to enjoy. It was first released in China under the name Douyin to focus on the Chinese market. A year after it made ByteDance, it changed its name to what we are now more familiar with – TikTok.

ByteDance is a Chinese company, similar to Facebook, that develops several other popular social networking apps. It was established in 2012 by CEO Zhang Yiming, who is a former Microsoft engineer and entrepreneur.

Over 500 million active users have been using the app.
And because of its swift success, it became the top 4 mobile apps available to download for free globally in 2018. 

When talking about TikTok, you may be reminded of a similar app that was popular in the U.S. market – Musical.ly. Musical.ly, launched in 2014, is an app that allows users to create videos while lip-syncing to music. 

ByteDance, the parent company of TikTok, bought Musical.ly at the end of 2017 and run Musical.ly and TikTok simultaneously.
In 2018 Musical.ly and TikTok merged into one social media platform.

TikTok ranked the most downloaded Chinese app in the U.S. with over one billion app downloads.
With the greatest number of installs from India, whose country is big on social media usage, there’s no question how TikTok got popular and soared its way up the app charts.

Let’s Get To How TikTok Makes Money

Watching TikTok videos gives us entertainment, but how does TikTok benefit from it?

Trends in TikTok can be viral overnight, and that is why TikTok has hooked many marketers and entrepreneurs in the app. It does not require you to have thousands and millions of followers. The zooming number of views draws companies to the platform. The reason why businesses are jumping into the popularity opportunity that TikTok has now.

Here are ways TikTok earns money:

TikTok Ads

Hashtags are not just for organizing content on social media. On TikTok, influencers’ video challenges can be sponsored by companies to promote their message and products to the TikTok community. Because of the app’s popularity among the younger generation, companies have shown interest in posting their ads to maximize their audience reach. 

TikTok’s current business model charges sponsors and advertisers depending on the CPM (Cost Per Thousand Impressions), quite similar to other social media platforms. However, TikTok is now drawing out a self-serve advertisement model, which is on its beta-testing stage, to make buying promotional slots easier for marketers without directing to the sales team of TikTok.

TikTok Coins

In TikTok, there are virtual coins available for TikTok and its users to earn. When you reach a thousand followers, you can receive virtual gifts from your followers through hosting live videos. These virtual gifts and coins are the in-app currency of TikTok. However, they are purchased using real money, so followers give them to their idols or content creators with high-quality content. They give them as a token of appreciation or tip. 

The gifts received from followers convert into diamonds. Each diamond is valued at 50 cents.
TikTok charges half the total amount you will earn with the commission fee. If a TikToker converts a diamond value of $100, the $50 goes to TikTok and $50 is credited to the TikToker’s account. 

Aside from these, TikTok also started a beta-testing on shoppable ads back in November 2019. In this model, creators may link their products or business websites on their posts while users purchase within the app. Still, this model of promoting ads has no further updates as it is being tested.

TikTok’s Revenue

TikTok produced a $176.9 million revenue in 2019, with almost $90 million in its last quarter. This is primarily because of the combined use of in-app purchases and ads. Before this, TikTok’s revenue was generated only with in-app purchases. According to Sensor Tower, source of app analytics, around $3.5 million of the payment were brought in by 2018- an apparent increase of 275% in their revenue compared to their 2017 record.

TikTok’s Biggest Investors

In 2018, SoftBank Group Corp. led a funding round to seal a $3 billion fund for TikTok with companies like KKR & Co. and General Atlantic. The valuation of ByteDance during the funding round raised to $75 billion.

Tiger Global Management is the most recent venture firm that invested stocks in TikTok back in March 2020. The stake building occurred in a Secondary Market round, but the company has not yet revealed the investment amount. After ByteDance placed their shares for sale on the aftermarket, Financial Times reported that the company now has an implied valuation of $90 billion and $100 billion.

Wrapping Up How Does TikTok Make Money

TikTok is an app that indeed serves its purpose of entertaining people. The app may have started solely for China’s market, but it reached this level of popularity globally and can now help its users earn from the app, and TikTok makes money from it. A win-win situation, if you may. The platform is not only a social media app, but it has also become a venue for businesses to establish themselves in the digital age. So while TikTok is in its prime, think about how you will take this opportunity to put your company out to the TikTok community.

If you’re also interested in finding more ways to make money, here are ideas on how you can make an extra $1000 a month with a new side hustle.

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Author J Lipsky

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