TikTok builds itself into an ads juggernaut

Last month, Tiffany & Co shared a sleek black-and-white video featuring pop superstar Beyoncé dripping in gems and surrounded by nightclub revelers. The minute-long jewellery ad was posted on Instagram, where it drew 1.6 million views.

A week later, Tiffany posted a different video on TikTok, the viral short-video app. That ad showed social media personality Kate Bartlett talking directly to viewers from a bathroom and then trying on small trinkets at a Tiffany store. It has been watched more than 5.2 million times.

TikTok was once best known for viral dance videos and pop songs. But in recent years, the app — which is owned by China’s ByteDance — has also built itself into a digital advertising juggernaut, selling access to its growing internet foothold to brands and developing products that make it easier to advertise on the platform.

This year, TikTok is on track to make nearly $10 billion in ad revenue, more than double what it generated last year, according to estimates from research company Insider Intelligence. TikTok’s ad revenue this year is expected to eclipse that of rivals such as Twitter and Snap, although its business remains small compared with Google and Meta, which owns Facebook and Instagram.

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TikTok is growing even as digital advertising is slumping in a global economic slowdown. The downturn has hurt Snap, Google, and Meta. And TikTok, though not immune, appears to be compounding its rivals’ woes by stealing business from them.

Snap recently called TikTok one of its "very large and very sophisticated competitors." YouTube, which last month reported its first decline in ad revenue in at least three years, recently began placing ads in Shorts, its TikTok challenger. Mark Zuckerberg, Meta’s CEO, named TikTok as a rival at least five times on an earnings call in February.

Many advertisers have concerns about TikTok and its Chinese owners, its struggles with content quality and its problems with bot traffic. But companies keep flocking to the app, which says it has more than 1 billion users because it appears to have reach and cultural cachet, particularly among young adults.

TikTok’s users spend an average of 96 minutes a day on the app — nearly five times what they spend on Snapchat, triple their time on Twitter, and almost twice as much as their time on Facebook and Instagram, according to data analytics company Sensor Tower.

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"TikTok is eating the world. The only thing that matters in the world of entertainment is time spent," said Rich Greenfield, a technology analyst at LightShed Partners. "If you have less time spent because TikTok is taking share, that’s negative for your advertising business."

TikTok declined to make executives available for interviews for this article. It has said it is "building for the future of entertainment and advertising."

To ramp up its ads business, TikTok has made some unconventional moves. Unlike other social media platforms, TikTok has ads appear like any other full-screen video on the platform, so they aren’t always immediately discernible as ads. The app has pushed brands to work with its content creators, making ads seem even more natural. It has told brands: "Don’t make ads, make TikToks."

TikTok has also promoted the hashtag #TikTokMadeMeBuyIt, which has more than 28.6 billion views, as a way to improve engagement. It has fine-tuned the reach and frequency of its ads, integrated e-commerce capabilities and branched into search ads. At its second TikTok World event for advertisers last month, it unveiled features for placing ads and connecting with creators.

This year, it also debuted at the world’s largest advertising event, Cannes Lions International Festival of Creativity, wooing major companies at a beachfront cabana in the south of France. Its representatives have doled out advice at industry conferences in New York.

As televised marquee events and must-watch shows decline, brands are hoping to supplement views of their ads through TikTok, said Kieley Taylor, the global head of partnerships at the media investment company GroupM.

"They’re looking to understand if TikTok could be the water cooler of the future, when you don’t have appointment viewing anymore," she said.

Brands have lapped it up. Toy brand Nerf now has a chief TikTok officer. The meat stick brand SlimJim calls itself the "CEO of verified comments," referring to its strategy of commenting on as many TikTok videos as possible.

And ads on TikTok appear to get results. Last year, men’s fashion company Swet Tailor posted a TikTok video advertising the same shirt, in different colors, being thrown onto a rotating man. The video garnered 5,000 views, far more than most TikTok videos posted by the company, which has fewer than 300 followers.

In two weeks, Swet Tailor sold 35 per cent of its inventory for the shirt, when it normally would have sold 5 per cent. By contrast, Facebook and Instagram ads "barely moved the needle," said Adam Bolden, the clothing brand’s CEO.

Swet Tailor currently spends 15 per cent of its marketing budget on TikTok, largely on partnerships with influencers, but wants to increase the amount to 50 per cent because of the platform’s younger audience and its success at getting viewers to buy stuff.

"We know Facebook and Instagram are losing a lot of market traction," Bolden said. "We realised that video is becoming extremely important, if not compulsory."

Other businesses are making the same shift. At Triple Whale, a data analytics company, clients have spent 504 per cent more on advertising on TikTok so far this year than they did during all of last year, said Alexa Kilroy, its head of brand.

Still, advertising on TikTok is not necessarily straightforward. That’s partly because brands have to avoid becoming, to cite a meme frequently seen on the platform, a middle-aged, skateboard-carrying Steve Buscemi saying, "How do you do, fellow kids?"

Some brands have stumbled as they try to learn the vernacular of TikTok. Commenters are merciless about letting brands know when their videos are cringeworthy.

In May, Denver Broncos quarterback Russell Wilson posted a video in collaboration with Subway, promoting a signature sandwich called the "Dangerwich." The comments were vicious. "Russ what Is this bro," one person said. "This haunts my dreams," wrote another. "I didn’t know u could make a tik tok awkward," another added.

Subway said in a statement that it removed the Dangerwich in August "to make room" for other options, but reinstated it this month, citing "guest demand." There are no current plans to revisit Wilson’s TikTok campaign, the company said.

Some advertisers are hesitant about TikTok for other reasons. The platform has not shaken off the pall cast on it by scrutiny under the Trump and Biden administrations, which have expressed concern about the company’s Chinese ownership and its handling of data security. The Trump administration tried to ban TikTok in 2020 unless an American company at least partly controlled it. The Biden administration has drafted a preliminary agreement with the company to address national security issues.

Marketing executives have also expressed concerns about TikTok’s struggles with content moderation. The app has been rife with multilingual misinformation about politics, health, and the war in Ukraine.

"Growing anti-TikTok sentiment among media executives and renewed calls by government officials to ban the platform are causing some advertisers to be more cautious," said Jasmine Enberg, a principal analyst at Insider Intelligence.

Other advertisers worry they are not getting what they pay for on TikTok. Concerns about sham accounts confusing companies about the success of their marketing were amplified this summer when Elon Musk, Twitter’s new owner, accused Twitter of failing to provide authentic data about the number of fake accounts. In September, 7 per cent of TikTok’s app traffic was invalid, according to the ad fraud and privacy compliance software company Pixalate.

A TikTok spokesperson said it has partnered with advertising technology companies to combat invalid traffic.

In 2019, Chipotle Mexican Grill held a TikTok ad campaign promoting its burritos for Halloween. The associated hashtag, #boorito, garnered 3.9 billion views through February 2020. But Chipotle doesn’t use the information only from TikTok to evaluate the success of its campaigns, said Chris Brandt, Chipotle’s chief marketing officer.

"TikTok can generate some amazing numbers," he said. "We take them all with a little bit of a grain of salt."