- What is TikTok, and how does it work?
- How does TikTok make money?
- In-app purchases
- 50% Commission from content creators
- TikTok Ads
- Partnerships, licensing deals, and royalties
- TikTok’s profit and revenue
- What is the TikTok business and revenue model?
So you use TikTok and wonder “How does TikTok make money?” Here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as TikTok’s business models, their year-over-year revenue, and how TikTok works.
What is TikTok, and how does it work?
TikTok, also known in China as Douyin, is a video-sharing social networking app used to make personalized short-form videos most commonly known for dancing, comedy, and lip-syncing voiceover skits.
It’s owned by the Chinese company ByteDance who also purchased the lip-syncing music app, Musical.ly, for as much as $1 billion U.S dollars in November 2017.
Since being developed in 2016 and merging with Musical.ly in 2017, TikTok has caught fire in a viral way that has led to the booming success that followed in the years following with their dance videos, comedy, and lip-syncing voiceover skits.
How does TikTok make money?
With all of the viral success and downloads TikTok has had, how does that translate into revenue for the company?
Well, to put it into the context of just how much success its seen over the past few years – the TikTok app has been downloaded over 2 billion times on the App Store and Google Play, with 800 million being active users worldwide.
Below is a breakdown of how TikTok monetizes their 800 million active users – including price breakdowns and how much money it makes them.
Here are the 3 ways how TikTok makes money (in 2021):
TikTok has a revenue model that makes money in three (3) ways.
#1. In-app purchases
TikTok Coins is an in-app virtual currency that is bought with real money.
Coins can be used to buy virtual items, known to TikTok users as “gifts” and “diamonds,” which can then be sent to content creators on TikTok’s platform, TikTok Live Stream Program, as tips in appreciation for their content.
As of January 2021, the cost of coins in US$ are: (coins are sold in bundles)
- 65 coins: $0.99
- 330 coins: $4.99
- 1321 coins: $19.99
- 3303 coins: $49.99
- 6607 coins: $99.99
Their revenue from in-app purchases has skyrocketed over the past few years. Going from $1.5 million of in-app purchases in May 2018 to $7.4 million in April 2019, then increasing tenfold to $78 million by May 2020, as reported by Sensor Tower and Bloomberg. (month-over-month in-app purchase revenue growth can be found in the chart below)
Note: TikTok has seen a 4,233% revenue growth in in-app purchases between June 2018 and May 2020.
#2. 50% Commission from content creators
After a user purchases coins and gifts them to a content creator virtually through the app, the content creator then has the option to withdraw all tips gifted to them in exchange for real money.
When users withdrawal the funds, TikTok takes a 50% cut of every dollar withdrawn from the app.
A 4,233% revenue growth in in-app purchases (coins) would ultimately mean a 4,233% revenue growth in withdrawals as well since coins serve no other purpose besides gifting and withdrawing once purchased.
Note: TikTok is making money on the frontend when users purchase the TikTok Coins, and on the backend when a content creator goes to withdraw the funds.
#3. TikTok Ads
In June of 2020, TikTik released a new advertising feature called TikTok for Business, allowing brands to advertise on the platform using in-feed ads, brand takeovers, and branded hashtag challenges.
There are already some big brands advertising on TikTok’s ad platform including brands like Calvin Klein, Guess, the NBA, Chipotle, and The Washington Post.
Though pricing is not displayed on the TikTok website, it’s reported that:
- Pricing starts at $10 per CPM (cost per 1000 views)
- Requires a minimum of $500 per campaign
Partnerships, licensing deals, and royalties
Aside from how TikTok makes money – how do licensing deals and royalty payouts cut into their revenue?
On November 2, 2020, TikTok announced they struck a licensing deal with Sony Music. They also have secured short-term deals with Universal Music Group and Warner Music Group in recent months.
Though TikTok hasn’t released details on these agreements, Rolling Stone reports they are in part licensing deals to allow TikTok and their creators the legal rights to use said songs, owned by the artists and labels, in their short-form videos.
TikTok royalty payout amount: (as of June 2019)
- $0.030 per view
TikTok’s profit and revenue
With those three (3) sources of revenue, in-app purchases, 50% commission, and TikTok Ads. How much does that make them in a fiscal year?
Well, ByteDance reportedly made $3 billion in profit from $17 billion of revenue in 2019. More than doubling their revenue from $7.4 billion in 2018 to $17 billion in 2019, according to Bloomberg” – CNBC
In 2018, the average revenue per user (ARPU) globally was $9.28 U.S dollars.
What is the TikTok business and revenue model?
TikTok makes money through a few revenue models that they combine within their company, they are:
- Advertising based business model
- Selling digital goods business model
- Commission based business model