TikTok: What It Is, How It Works, and Why It’s Popular

With more than 2.5 billion downloads, TikTok is a very valuable app

What Is TikTok?

TikTok is a popular social media app that allows users to create, watch, and share 15-second videos shot on mobile devices or webcams. With its personalized feeds of quirky short videos set to music and sound effects, the app is notable for its addictive quality and high levels of engagement.

Amateur and professional creators alike can add effects like filters, background music, and stickers to their videos, and can collaborate on content and create split-screen duet videos even if they’re in different locations.

Key Takeaways

  • TikTok allows users to watch, create, and share short videos online.
  • The app was launched in 2016 by the Chinese technology company ByteDance.
  • Now available in more than 150 different markets, TikTok has offices in Beijing; Los Angeles; Moscow; Mumbai, India; Seoul, South Korea; and Tokyo.
  • The app saw about 1 billion global daily users by early 2022.
  • Despite political pressure on operating in certain places such as the United States, it continues to gain in popularity.

Understanding TikTok

TikTok is a social media app dedicated to short-form videos created for and consumed by users. The length of videos is 15 to 60 seconds.

The format lends itself to entertainment and comedy. However, it is increasingly used for infotainment. So-called influencers who gain a steady audience on TikTok offer snippets of advice and tips along with self-promotion. Beauty, fashion, personal finance, and cooking are all popular topics for informational videos. Increasingly, the format is used to promote and sell products.

Launched in its present form in 2018, TikTok joined the ranks of social media giants in record time. It had about one billion active monthly users worldwide by September 2021. A 2022 marketing report by data.ai (formerly App Annie) predicted that TikTok will break three billion downloads worldwide as well as users spending $3 billion across iOS and Google Play by the end of the year.

Like all social media companies, TikTok has been the target of persistent concerns about the potential use or misuse of the private information that it gathers about its users. The difference is that the majority of TikTok is Chinese-owned.

TikTok LIVE allows users and creators to interact in real time. Users ages 16 and older can launch LIVEs, and those age 18 or older may send and receive gifts during a LIVE.

TikTok’s Launch

The name TikTok is meant to suggest the short format of the videos. Launched in September 2016 by the Chinese startup company ByteDance, it’s known there as Douyin. Its stratospheric growth in usage really began in late 2017, when it acquired a rival app, Musical.ly, and ported over its 200-million-account list to TikTok.

ByteDance was reportedly worth up to $140 billion by mid-2020, based on the private sale of a small stake in the company. TikTok alone was said to be worth about $50 billion. That would make it the most valuable startup in the world.

TikTok’s Business

Marketing on TikTok is still maturing, but a growing number of agencies are eager to help brands create the kind of quirky content that gets clicks on TikTok. Conventional advertising that stresses a product’s superior qualities doesn’t work. Light, fun campaigns set to music hit the spot. The ultimate goal is to go viral on the site and spur imitations by TikTok users.

Some of the successful marketing campaigns on TikTok:

  • The Chipotle restaurant chain ran a Halloween “Boorito” coupon giveaway campaign encouraging TikTok users to dress up for the holiday and post their images. The campaign scored four billion views.
  • e.l.f. Cosmetics teamed up with a few social media influencers to create an online reality show and contest called #eyeslipsface. The ad campaign had 9.4 billion clicks as of July 2022.
  • The NBA signed up for an account and scored more than 15.8 million hits as of July 2022. Its aim is to enhance global awareness of the NBA, particularly among young people.

TikTok has offices in Beijing; Berlin; Jakarta, Indonesia; London; Los Angeles; Moscow; Mumbai, India; Seoul, South Korea; Shanghai; Singapore; and Tokyo.

Other TikTok Revenue Sources

Like many other social media sites, TikTok also makes money from in-app purchases. Users can buy coins priced from 99 cents to $99.99 and use them to tip their favorite creators on the platform.

The company grossed $80 million from in-app purchases globally, according to a 2019 industry report. In the first quarter (Q1) of 2019, user spending reached an estimated $189 million globally—222% more than the app grossed during the same period in 2018. That amount ballooned to more than $2.3 billion in 2021, helped in part by the COVID-19 pandemic, which increased social media usage amid lockdowns and other restrictions. As of June 2022, TikTok has earned an estimated $5.5 billion in total lifetime revenue.

TikTok only started running display advertising in 2019. Instead, brands open user accounts on TikTok and, just like any of its users, create and post mini-videos. They can pay to promote their videos to other users. The ultimate goal is to go viral and spur takeoffs, drawing in a huge audience for their brand’s message.

Since January 2014, more than 900 apps have launched worldwide hoping to capitalize on TikTok’s popularity.

TikTok’s User Base

TikTok is one of the world’s most popular social media apps and is available in more than 150 markets and more than 35 languages. The app has seen more than 3.5 billion downloads worldwide, making it one of the most popular apps ever.

Here’s a breakdown of some of the app’s most notable demographics:

  • About 40% of users are ages 18 to 24.
  • 56% are female.
  • About 141 million active users are from the U.S.
  • Its users spend an average of 46 minutes per day on it.

TikTok and Politics

Like most social media sites, TikTok is not immune to controversy. TikTok and many other Chinese-made apps were banned in India in mid-2020 as a danger to the nation’s sovereignty. The move came amid growing tensions between the two nations.

TikTok is banned in Bangladesh. It was also briefly banned in Indonesia for “pornography, inappropriate content, and blasphemy.” The ban was overturned a week later after the company promised to take all objectionable content off the platform and set up a local office to monitor and sanitize content.

In February 2019, the company paid $5.7 million in the U.S. to settle allegations that it illegally collected personal information from children. It is the largest civil penalty ever obtained by the Federal Trade Commission (FTC) in a children’s privacy case.

TikTok and the Trump Administration

Starting in July 2020, then-President Donald Trump launched a public attack on TikTok, threatening to ban it from the U.S. on the grounds that the Chinese Communist Party could use data gathered on its users to spy on U.S. citizens. He demanded that TikTok be sold to U.S. interests to eliminate the threat.

Concerns about social media companies’ use and misuse of private information is a bipartisan issue in Washington, so the concern gained some traction. However, by September 2020, Trump had declared that he had solved the problem. TikTok’s U.S. operations would be severed from its Chinese owner, ByteDance, and incorporated as a U.S. company.

The proposed deal would have created a new spinoff company, TikTok Global. Oracle would own a 12.5% stake in the company and become its cloud provider in the U.S. This may have been intended to alleviate concerns that China was using TikTok to gather data on Americans, but apparently, the real change is minimal. TikTok data on U.S. users was always held in the U.S., so it’s just moving from one cloud to another.

Meanwhile, Walmart tentatively agreed to buy a 7.5% stake in TikTok Global. It plans live-streamed shopping events hosted on TikTok. The remaining 80% would remain owned by ByteDance.

The tentative deal has been stalled by numerous court challenges, and the future of the proposed deal remains uncertain under the Biden administration. During a White House briefing on Feb. 10, 2021, then-Press Secretary Jen Psaki denied that President Biden had set any new policy on the app.

“So it’s not accurate to suggest that there is a new proactive step by the Biden White House,” Psaki said. “I will note, broadly speaking, we are comprehensively evaluating...the risks to U.S. data...including from TikTok, and we’ll address them in a decisive and effective fashion.” Psaki declined to set a timetable for when such a review would conclude.

Latest Developments

TikTok faces an uncertain future in the U.S. and the European Union (EU). Efforts by U.S. lawmakers to ban the use of TikTok outright have failed on several occasions due to the popularity of the app and aggressive lobbying efforts by the parent, ByteDance.

The app is under fire due to the potential for the Chinese government to mine U.S. users’ data and to potentially influence them through the “For You” function on the app. The fear is that the algorithm of the “For You” function, which remains a mystery, could be used to manipulate users’ behavior and potentially transmit political messaging, possibly interfering in U.S. elections.

The most likely outcome will be for ByteDance to divest a minority portion (20%) of its ownership to U.S. entities, with Oracle and Walmart being frequently mentioned as the most likely U.S. partners. Just such a proposal was made in 2020, where Walmart and Oracle would each buy 10% of a newly created entity called TikTok Global.

TikTok Global would be U.S.-based and subject to U.S. laws and regulations. The belief is that such an arrangement would safeguard the potential for data mining and influence exerted by the Chinese government. As of 2021, the deal is still under review by the Biden administration.

TikTok is also facing scrutiny by the EU and needs to come into full compliance with the EU’s Digital Services Act (DSA), which seeks to vigorously protect users’ private data. The EU has set a Sept. 1, 2023, deadline for TikTok to come into compliance with the DSA rules and regulations.

Failure to meet the EU’s deadline could result in a ban on TikTok in the EU, according to EU Commissioner Thierry Breton. The EU has some of the most stringent privacy rules, and TikTok will be subject to audits of its efforts to stem potential data manipulation and filter content to protect the lives and safety of internet users. Failing an audit could cost the company up to 6% of its total revenue in fines and a potential outright ban in the EU.

In short, TikTok’s popularity has made it a target for digital privacy monitors in multiple jurisdictions, not the least of which are the U.S. and the EU.

What company owns TikTok?

The majority owner of TikTok is ByteDance, a Chinese technology company. In late 2020, following pressure from the then-Trump administration, ByteDance agreed to create a new company, TikTok Global. In this proposal, ByteDance would continue to own 80% of TikTok Global, with Oracle and Walmart as its minority owners and U.S. partners. According to The Wall Street Journal, the deal is on hold pending review from the Biden administration, as of February 2021.

How do I invest in TikTok stock?

You don’t, because TikTok is privately owned 100% by ByteDance. The prior deal to create TikTok Global remains on hold. This includes any plans for issuing an initial public offering (IPO).

Is TikTok a publicly traded company?

TikTok is not publicly traded as of this writing. Stay tuned for the announcement of an IPO for TikTok Global.

Is TikTok banned?

As of 2022, TikTok is banned in India and Pakistan. It was briefly banned but restored in other countries including Indonesia and Bangladesh.

TikTok was threatened with a ban in the United States by then-President Donald Trump in 2020, but he backed off after an agreement with owner ByteDance to spin off TikTok as a separate entity, TikTok Global, with minority ownership held by U.S. companies Oracle and Walmart.

When did TikTok come out?

TikTok was first released in September 2016.

The Bottom Line

TikTok is an astronomically popular web app, with more than 3.5 billion downloads worldwide. TikTok allows users to make short videos, roughly 15–30 seconds in length, and distribute them within the app’s following. Most of the videos are based on entertainment, hijinks, and comedy. The site is particularly popular with the under-24 crowd, with about 40% of its users falling in the 18–24 age range.

At this time, TikTok is wholly and privately owned by a Chinese parent company, ByteDance, which has raised fears of TikTok being used to collect and manipulate users’ data by the Chinese government or related entities. TikTok is banned in India for national security concerns, and is banned on U.S. federal and most state governments’ web devices.

The U.S. and the EU are both cracking down on TikTok over privacy and ownership concerns, potentially resulting in a ban on the app in those jurisdictions. TikTok has indicated that it will make every effort to meet EU guidelines, while the situation in the U.S. revolves around the ownership by a Chinese company, suggesting that ByteDance may have to sell a portion of TikTok to yet-to-be-determined U.S. partners.

Article Sources
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