Welcome to the TikTok Economy
This story is part of Fortune‘s Creator Economy package.
Let’s warm up with a bit of word association.
I say Facebook!
Amirite? (Also acceptable: Disinformation!)
I say Twitter!
(Half a point for a dismissive eye roll.)
I say Instagram!
OK, one more?
I say TikTok!
Now hold that thought for a moment. It’s trickier to find consensus on this one. To me, TikTok is a medley of weirdly transfixing water-balloon videos, monarch butterfly activists, air-fried ice cream sandwich recipes, and Bo Burnham mashups. Come on, Jeffrey, you can do it/Pave the way, put your back into it!
But your TikTok is surely something radically different. Because that’s how the algorithm wants it. “The algorithm.” You hear those two words a lot when TikTok is the topic of conversation. It’s the mysterious, all-seeing recommendation engine that powers the platform. It instantly digests every pause, click, swipe, and share to serve up the ultimate brain candy buffet—unlimited helpings of 15-second, 30-second, or, sometimes but rarely, three-minute videos that have a way of gluing users to their phones for hours at a time. The algorithm is damn good at what it does.
So much so that TikTok has been the most downloaded app for the better part of two years. And in late September, the company said that it now has more than 1 billion monthly active global users. According to a recent report by the analytics firm App Annie, “TikTok has upended the streaming and social landscape.” In the U.S. and the U.K., users spend more hours on TikTok, on average, than on YouTube.
Moreover, it has supercharged the so-called creator economy, a broad swath of entrepreneurs, influencers, and side hustlers trying to convert their looks, humor, wisdom, connections, inhibitions, insights, and dance moves into riches and stardom. The social media giants, including Facebook, Google, Snapchat, Twitch, and even Pinterest, are all vying for their share of a market now valued at north of $104 billion, according to a recent report by NeoReach and Influencer Marketing Hub. A raft of startups—from Cameo and Clubhouse to Substack and OnlyFans—are carving out their own niches. And then there’s TikTok, which has weathered a political firestorm, a federal investigation, numerous lawsuits, a global pandemic, and a couple of near-acquisitions to find itself at the top of the heap.
The man charged with converting its position at the center of the zeitgeist into a revenue stream worthy of Facebook and Google is TikTok’s president of global business solutions, Blake Chandlee. Chandlee has been with the company for most of its meteoric rise. His previous gig was as VP of global partnerships at Facebook, where he managed relationships with brands and marketing agencies.
Speaking from his palatial Austin home, Chandlee draws many comparisons to his previous job, which he held for more than a dozen years. Joining TikTok in early 2019 was, he surmises, the equivalent of onboarding at Facebook in 2007. However, he declares TikTok to be in a fundamentally different business. Facebook is a “social graph” company, built to connect users and encourage them to tune in to mutual interests. Chandlee believes the underlying business model of Facebook and its ilk—harnessing vast amounts of user data to deliver personalized ads—is falling out of favor, driven in part by the movement to allow consumers to control their data and manifested in, for instance, Apple’s security settings and the EU’s GDPR policies. (The fact that Facebook’s market value has grown by nearly $500 billion over the past two years alone suggests that Wall Street hasn’t yet caught up with his assessment.) By contrast, Chandlee calls TikTok a “content graph” company whose primary goal is not to connect but rather to entertain. Nevertheless, TikTok is learning about you. It uses data for ad personalization targeted to personal interests and to serve both interesting and novel videos. The company professes concern over filter bubbles, in which users are repeatedly exposed to a singular viewpoint or style of content. So it deliberately mixes things up. “The algorithm is watching my behavior, and occasionally it’s serving me something that I hadn’t identified with,” Chandlee says. “And I go, ‘Oh, that science experiment is kind of clever,’ and now my interest in science becomes part of my profile.”
The TikTok algorithm’s proficiency makes Facebook and Instagram seem like social media 1.0 in comparison. On those platforms, user feeds are largely linear and incremental. YouTube, meanwhile, is more search-oriented. Befitting Google’s outlook, it offers recommendations, but users mainly search for videos and choose what to watch next. TikTok’s “For You” feed tends to be more explosive. It’s an auto-discovery engine serving up a dopamine hit with every swipe.
In 2020, TikTok opened a virtual Transparency and Accountability Center to educate those curious about its data practices and the inner workings of its algorithm. In a nutshell, it serves new users a tranche of videos and monitors user behavior, including whether they watch to the end. Machine-learning technology analyzes those actions to recommend subsequent videos from similar buckets, and the process continues. Because it’s rare to encounter a video with only a handful or even a few dozen views, speculation has it that every piece of content is sent to a minimum number of users, let’s say 100. If it performs to certain benchmarks, the video is promoted more broadly, to 1,000 TikTokers, and then 10,000, then 100,000, and so on. On the social graph, engagement, whether that means views, likes, or clicks, tends to correspond to the size of a user’s following. But a brand-new TikToker can hit a million views on her first video without having a single follower. For content creators, this dynamic makes every creation a lottery ticket: It’s their shot at 15 minutes of fame in exchange for perhaps 15 seconds of ingenuity. Which makes them want to make more, more, more.
Musical.ly, TikTok’s predecessor, was populated mainly by goofy lip-synch videos. The platform has evolved since being acquired by the Chinese company ByteDance, but music and dance still permeate. Positivity, laughter, and of course youth largely rule the day—making for a combination nearly irresistible to marketers. (And a challenge, when content takes a wrong turn into something darker.) TikTok says that the number of companies running ads on its platform jumped 500% in 2020, and that it’s currently working with “hundreds of thousands” of advertisers. “If you look at the top 500 brands, 70% are on the platform,” Chandlee says. “And when brands do it right, it moves product.”
The surge in brand activity is turbocharging TikTok’s sales. According to the Wall Street Journal, TikTok parent ByteDance, which is privately held, grew its revenue more than 100% in its most recent fiscal year and saw profits soar 93% to more than $19 billion.
Brands show up on TikTok in a number of ways. They create their own ads, interspersed in a user’s feed, or, for a premium, they can appear when a user first opens the app. They sponsor hashtag challenges and use various visual and gamification techniques provided by TikTok. Many brands have their own accounts, which they use to announce products, recruit employees, augment offline ads, or just to have a bit of fun. And many work directly with content creators, who often have an innate sense for how to mix entertainment and shill. TikTok is actively fostering this community through its TikTok Creator Fund, which pays a stipend to users with at least 10,000 followers and more than 100,000 views in the past month, and with its Creator Marketplace, which brokers relationships between brands and creators while also providing post-campaign analytics tools.
Top creators can earn tens of thousands of dollars for a single sponsored post. For brands, it’s even more lucrative. “For every million dollars that brands spend on influencer marketing on TikTok, they’re seeing $7.2 million in sales over the first 90 days,” says Seth Kean, CEO of ROI Influencer, a New York City company that measures engagement and sell-through across social media platforms. “That’s 24% better than a combination of TikTok’s peers, which includes Facebook, Twitter, and YouTube.” The next best performer, Instagram, drives $6.6 million in sales for every million spent.
TikTok’s rivals aren’t conceding anything, however. Dozens of “can’t miss” social media companies have disappeared over the years—from Myspace, Friendster, and Google Plus, to Tumblr and Vine. Along with battling the capriciousness of its own user base, TikTok finds itself lined up against copycat offerings and enormous war chests. Instagram Reels has struggled to gain traction. But Instagram parent Facebook will surely not go quietly. Then there’s YouTube Shorts. In late spring, Alphabet-owned YouTube announced a $100 million fund to pay creators to make content on its would-be TikTok-killer. That’s a drop in the bucket for the deep-pocketed tech giant.
But for the moment, no other platform can match TikTok’s addictive grip on its ever-more-massive audience or its ability to mobilize consumers—sometimes in surprising ways. And that means companies of all sizes are looking for the answer to the same question: How do I get TikTok right?
Chandlee and his team have a standing directive for marketers. “Don’t make ads. Make TikToks.” Few brands have proved better at following that advice than Chipotle. The company’s VP of digital marketing, Tressie Lieberman, discovered the platform’s power before most. Her team of so-called culture hunters told her in May 2019 that TikTok was starting to pop. “We were seeing millions of mentions of Chipotle, even in those early days,” she recalls. “And so we thought about how we could show up in a way that would supercharge our superfans, and that remains a big part of our strategy.”
The @chipotle account has more than 1.6 million followers and 30.6 million likes. Anything guacamole-oriented scores. Same for recipe rollouts with auto-tune voice-overs. White rice: 9.1 million views. Corn salsa: 6.2 million. There’s the 15-second introduction of a new line of quesadillas featuring a series of high-pitched screams: 3.2 million views. “I love that one,” Lieberman says, recalling the creative presentation with her staff and agency partners.
“As a 41-year-old, I’m not the target audience for that piece of content, but there’s a lot of trust with the team,” she says. “We’re always experimenting, and the crazier, the better, because sometimes that’s what attracts the algorithm to get even more exposure. We’re trying to find those viral moments.”
Chipotle has developed special items inspired by creators and announces them on TikTok along with other menu hacks. Recently it announced the inaugural Chipotle Creator Class, a partnership program featuring 14 founding members that it designed to “redefine the traditionally transactional relationship” between brands and creators. The company also held a contest to become the 15th member in which it encouraged creative Chipotle-centric submissions. The winning entry featured a young burrito enthusiast named Wyatt Moss eating Chipotle in all 50 states in 50 days. “We actually don’t have a Chipotle in Hawaii,” Lieberman says. “So he took his Chipotle on the plane with him to eat it there.”
Margaret Johnson believes a big part of success on TikTok involves overcoming the core demographic’s aversion to traditional advertising. The chief creative officer of San Francisco ad agency Goodby Silverstein & Partners, Johnson employs a team of “TikTok ninjas” to discover new ways to use the platform. “One thing we focus on a lot with brands is just making sure that they’re relevant to their audience,” she says. “With Gen Z, they don’t, for the most part, like advertising. They’re on their phones a lot. And we’re finding that they are really big into self-expression. So TikTok is an awesome place for marketers if they’re brave enough to hand over their brand and let the audience run with it. A lot of brands are afraid to do that. But the ones who are willing, they’re making a lot of fans in Gen Z.”
As the agency of record for Cheetos, Doritos, and Tostitos, Goodby has orchestrated many TikTok campaigns. For Cheetos, the agency approached TikTok about a 2020 Super Bowl ad it was developing around MC Hammer’s 1990 hit song “U Can’t Touch This.” In the TV spot, the protagonist escapes various undesirable chores because his hand is perpetually covered in Cheetos dust, a.k.a. Cheetle. The TikTok team helped Goodby make TikTokers feel as if they were part of the ad with a homegrown A.I. effect that enabled the agency to superimpose Cheetle onto the hands of users and share the personalized ads.
For megabrands, this type of integration can greatly amplify a campaign’s power, and it came from the TikTok marketing team’s creativity and cooperation. “You’ve got older people watching the Super Bowl, and younger people maybe half-watching, half on their phones,” Johnson says. “So this is a way to extend the campaign to reach a younger audience and really broaden your reach as a brand.”
It would be a stretch to say that Peter Thomas Roth had never heard of TikTok when it decimated his supply chain in late August, but he wasn’t exactly a regular user. He had to go searching through his phone for the app to see what in the world was happening.
Roth is the founder and CEO of his eponymous Manhattan skin-care products company. He’s done a ton of product marketing over the company’s 18-year life span. He has conducted many before-and-after demos on QVC and created countless glossy print ads. The Kardashians have even flaunted his wares. And he’s spent a lot on Instagram, which he refers to as the “pretty” platform. All of it provides a somewhat predictable boost. None of it has compared to the effect of a TikTok created by Trinidad Sandoval, a 54-year-old hospital worker in Missouri with 70 followers.
In an anodyne, three-minute presentation, devoid of dazzling effects or an underlying soundtrack, Sandoval highlighted the seemingly magic power of Roth’s FirmX Eye Temporary Eye Tightener. In the video, which has been viewed more than 29 million times, received more than 5 million likes, and generated nearly 130,000 comments, she explains how a weight-loss surgery caused significant under-eye bags. She applies the cream under her left eye and waves at the spot to accelerate its effects. Soon the skin tightens, providing a stark contrast to the right eye. “I don’t know if we’re allowed to do this on TikTok,” she says, “but I wanted to share the secret with you because I know for me, my bags are…sometimes I cry when I look at myself in the morning.”
TikTokers quickly amplified the video’s reach, reposting thousands of “duets” and “stitches” across social media with annotations, voice-overs, and gasps of amazement. Over the next few days, viewers carpet-bombed Roth’s website and all of his retailers. “I think it was a Thursday morning, 9 a.m., and my IT person calls to say we’re already sold out of FirmX Eye,” Roth recalls. “That afternoon, retailers were sold out online, and it was selling out everywhere in brick and mortar.”
Roth and his team worked all weekend to shore up any available product. By Monday, it was entirely spoken for—with no hope of meeting demand anytime soon. The team ran out of boxes, paper invoices, even printer ink. Worse, there are no one-ounce tubes available anywhere; they’re all made to order. He’s hoping to restock in October, and in the meantime is maintaining his humor as customers are undoubtedly looking at competing products. Roth has struck up a relationship with Sandoval, who by now has more than 159,000 followers and has appeared on Good Morning America and Dr. Oz. The CEO is considering ways to work with her to promote the video after the organic traffic wanes and trying to think about how he might capture lightning again. “If you have someone who’s doing something on their own, being who they are, and genuinely showing the way it is, the breakout successes can be huge,” he says.
Countless other examples prove the point. A series of feta cheese recipes, stemming back to a video by a Finnish chef, led to #fetapasta. At last count, the hashtag has more than 1 billion views and has boosted feta cheese sales around the world. The recent #BamaRush phenomenon, in which University of Alabama women detailed their outfits during sorority rush, bolstered sales for several fashion brands. New visitor traffic and weekly revenue for one oft-mentioned clothing line, Kendra Scott, jumped 17% and 20%, respectively, according to Ad Age. At the Pants Store, online orders were up 400%.
Last spring, TikToker Carly Joy inspired a mad rush to her preferred shave cream. In a charming, profanity-laden how-to, she demonstrates the regimen she uses to groom her lady parts and praises a product from the brand EOS as the best route to a “smooth-ass hooha.” The video drove a 2,500% increase in orders and 45,000% increase in traffic, according to the beauty industry publication Glossy. It inspired EOS to sign Joy as a partner and to create a limited-edition “Bless your F#@%ING Cooch” shave cream. “I know that there are some brands who still view TikTok as experimental,” EOS CMO Soyoung Kang told Glossy. “We are way past that. TikTok is table stakes.”
TikTok is working to help marketers track and harness such community endorsements, lest they be sideswiped by them. A portion of its platform has been handed over to the #TikTokMadeMeBuyIt hashtag, where users perform demos and generally fawn over products. It has more than 5 billion views. More recently, the company announced a strategic partnership with global advertising conglomerate Publicis to help brands learn best practices for ad creation.
The company also recently announced an arrangement with Shopify aimed at removing the friction from TikTok commerce. Starting in the U.S. and the U.K., the initiative gives merchants the ability to run video ads through Shopify’s TikTok presence, to tag products in organic posts, and to create mini storefronts. One of the earliest partners is Kylie Cosmetics. “For merchants that don’t have millions of followers, TikTok is unique in that they can post something that’s exciting and make it shoppable—and anyone can see it,” says Shopify’s director of product Amir Kabbara. “We’re trying to close the loop between a TikTok user seeing something and being able to buy it.”
Someone once told me the easiest way to determine a person’s age is with an iPhone. Hand one to a boomer on a whale watch, for example, and he’ll use it to scan the horizon and silently record the tableau before focusing on the action off the bow. A Gen Xer will behave similarly, except add audio commentary. “You might not be able to tell, but that humpback is bigger than our entire boat!” The millennial will just snatch the phone from your hand, quickly position himself in front of the camera, and make the whole scene about him.
It wasn’t until Gen Z came along that it dawned on me: This reductive observation is less a reflection of age than of fluency. Each generation’s manner of expression is developed by the technologies of its youth. TikTok is made possible not just by high-quality cameras and microphones, but also unfettered access to a bottomless library of music and video clips, intuitive video editing software, A.I., and cloud computing. The people born into this suite of capabilities—who also happen to have a surfeit of vitality, creativity, and spare time—have naturally become the masters of a platform built to cater to their technical aptitude and fickle attention spans. They are the TikTok generation, and they’re leading the rest of us with them into what is fast becoming a full-blown TikTok Economy.
A month of field research by this reporter—a.k.a., spending way too much time on TikTok—suggests that one crucial aspect of the platform’s appeal is the way it’s uniquely suited to bringing users together to bond in a joyful or celebratory way. That lent TikTok extra resonance during the dark days of the pandemic. And, for now at least, the app’s rabbit holes tend to be different from the typically dark, anonymous, and cynical versions that populate the Internet—though as the volume of content on the platform proliferates so do the odds of objectionable behavior. It’s also true that the company itself is hardly a Pollyanna. At three years old, it’s like a prodigiously talented teenager who’s capable of effortlessly charming peers and parents but can’t seem to stay out of the principal’s office.
In 2019, while still known as Musical.ly, TikTok was fined $5.7 million by federal regulators for illegally collecting information on users under 13. Earlier this year it paid $92 million to settle a class-action suit over the theft of personal data. TikTok tightened its rules this summer around data harvesting for users under 13 only to have reporters at the Wall Street Journal a few months later create a series of bot accounts to demonstrate how TikTok pushes sexually suggestive content to minors. The algorithm has also been widely criticized for unfairly promoting beauty and hampering users’ ability to focus. Moreover, the platform has often been criticized for fanning the flames of dangerous stunts, vandalism, criminal mischief, and underage drinking.
If TikTok is going to keep expanding its user base beyond Gen Z and make brands feel more comfortable, it’s got to get better at playing the role of sheriff. A source at one of the world’s biggest brands tells me that the company put all TikTok marketing on hold in the wake of the Journal story. “Our No. 1 priority as a company is to protect our users, whether they’re young or not,” says Chandlee. “We’ve gone from a handful of advertisers to hundreds of thousands, so it’s been an amazing journey, but it hasn’t been easy. It’s been hard.”
For every million dollars that brands spend on influencer marketing on TikTok, they’re seeing $7.2 million in sales over the first 90 days.Seth Kean, CEO, ROI Influencer
Regarding the Journal article specifically, he adds, “The behavior of those bots does not reflect actual human behavior, but we spent a lot of time as a senior leadership group looking at that, and you know what? Yeah, we need to do even more. We’re taking down millions of pieces of content that might be inappropriate, and we’ve spent a lot of time on this concept of trust. Because at the end of the day, the brands have to trust us, our users have to trust us, and the government bodies have to trust us.”
Chandlee doesn’t exactly cop to mistakes. Rather, he professes to be charting a course that avoids his competitors’ sins. “I’m personally a big believer in learning from history. And there were mistakes that were made by some big tech players around data and privacy. I think we can learn from that,” he says. “But I also think you need to chart your own path. What we’re building here is very different. We’ve got our own culture, our own product, and our own role that we play in people’s lives.”
What that culture becomes is also an open question. TikTok is available in more than 150 markets, and Chandlee says the company acts independently from its Chinese parent. (It’s not available in China, and it’s banned in India, making its user numbers even more impressive.) But if workplace reviews on Glassdoor are to be believed, that’s not always the case—and recruiting may become a challenge. The benefits and pay don’t compare to those at Google and Facebook, there is little work/life balance, and people say they’re often required to hold meetings with Chinese counterparts at all hours of the night.
After discussing TikTok’s corporate identity and future trajectory, I decide to challenge Chandlee to my little game of word association. “I say TikTok, you say…” It’s the first time in our conversation that the smooth TikTok exec seems tongue-tied. “Wow, that’s a really hard one,” he says. “We use the word ‘authentic’ a lot. I think I’ll go with that.” Maybe a bit focus-grouped, but not bad.
TikTok is definitely a place where people can go to be themselves, warts (or eye bags) and all—and be made to feel like they’re not alone. To dance like nobody’s watching—and be adored by millions. To develop their unique qualities—and be compensated for them. It’s not perfect by any stretch. But I can’t help but wish it had existed when I was a teenager. And after everything that’s happened over the past two years, it makes sense that a platform with such power to transform every individual’s view of the world around us would resonate so deeply with so many. You say “TikTok.” I say, “Right place. Right time.”
Click the photos below for profiles of three TikTok creators on the rise
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A version of this article appears in the October/November 2021 issue of Fortune with the headline, “Welcome to the TikTok economy.”
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