The economic model of digital platforms has gained significant attention in recent years. This essay analyses the economic model of TikTok, a popular social media platform, through a case study approach. “TikTok is a popular video-focused social networking platform that allows users to record, watch, and share short-form video content (ranging from 15 seconds to three minutes) of various genres using their smartphones.” (Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023).By examining its revenue sources, user engagement strategies, and monetisation techniques, we can gain insights into how TikTok operates within the digital economy. With the rapid development of social networks, the entrepreneur trend must use the network to get more money. TikTok is successful because of network effects. So, what are network effects? “Despite being relatively young, TikTok has succeeded in overtaking YouTube, which previously came in first place with 23 hours and 4 minutes per month in Q2 2022. Now, the streaming video platform is in second place with an average of 27 hours and 19 minutes per month.” (Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023). Let me explain more. Digital platforms like TikTok benefit from network effects, increasing the platform’s value as more users join. As more people use TikTok, more creators follow, leading to a richer user experience. For example, in China, when people want to share a story or video on TikTok, but the person being shared does not have the app, people will invite the person being shared to download TikTok. As a result, TikTok has become everyone knows. When more and more people own the app, it becomes easy to make money on social networks. Advertising revenue, for example. A large portion of TikTok’s revenue comes from advertising. Brands and advertisers pay TikTok to promote their products or services to the platform’s vast user base. For example, companies can launch sponsorship challenges or partner with influencers to reach a target audience. On top of that, TikTok has created one of the more popular forms of social networking: live streaming. Several in-app purchases can be made during the live stream. Besides advertising revenue, TikTok allows users to buy virtual items and gifts for content creators. Creators receive a portion of the revenue generated by these virtual gifts, incentivising them to produce engaging content.

TikTok is a compelling case study for understanding the dynamics of the economic model of digital platforms that has revolutionized how businesses operate in the digital age. At its core, TikTok is short, user-generated video content. Users can quickly shoot, edit, and share short videos, which are often creative and entertaining. TikTok relies on users constantly uploading and sharing content to attract more users. TikTok has a popular program called “challenges. It encourages the whole population to participate in the production of short videos, and as it goes along, many new bloggers will appear. People need to find out which videos will become hot and how. That has encouraged people to shoot lots of short videos, increasing the usage and visibility of the app. At the same time, TikTok has a set of accurate, personalized recommendation services. TikTok uses powerful algorithms to analyze users’ browsing history, likes, comments and shares to provide personalized content recommendations to users. This helps improve user retention and engagement. When the system detects that a person likes to watch a particular type of video, it frequently pushes relevant videos, leading to people being trapped in short videos. Because the content of these videos is pushed according to people’s personal preferences, for example, when I search for a particular star in TikTok, TikTok will always push me to many videos about the star. This is why TikTok can successfully attract more users while retaining old users. Overview of TikTok’s Economic Model: TikTok is a video-sharing platform that allows users to create and share short videos with various effects and filters. It primarily generates revenue through advertising partnerships with brands and businesses looking to reach its vast user base. Additionally, it offers virtual goods purchases within the app as another source of income.

This article delves into TikTok’s various revenue streams, including advertising, virtual gifts, and partnerships, revealing how these components contribute to its economic success. TikTok’s most crucial revenue is advertising, so what is advertising revenue, and how does TikTok use it to make money? Let me explain. TikTok has introduced advertising options, such as feed ads, brand hashtag challenges, and brand effects, enabling businesses to reach a large and active audience. TikTok’s advertising platform offers detailed targeting options based on user data. Bloggers often recommend valuable items, such as beauty sharing and daily necessities sharing, with AD placement parts. Brands use TikTok to promote their products and get more attention. Bloggers also earn promotion fees through the platform. TikTok has profited, too. “Besides its users, TikTok also serves the requirements of its other customer segment: the advertisers. This segment profusely uses the app as the platform provides far more effectiveness than other platforms in cultivating deep audience engagement and endorsement through user-generated content.” (Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023). Of course, virtual gifts are also an inaccessible part of making money online for the platforms. People support their favourite hosts by making tips, and the hosts can get money for this, at which time the platform will take some profits. Because so many people can make money from the platform, it becomes more and more attractive. TikTok’s primary revenue stream comes from advertising partnerships with companies seeking to promote their products or services on the platform. Through targeted advertisements based on user preferences and behaviour analysis, TikTok maximises ad relevance for its users while generating substantial revenue. “ Here, the advertisers may directly engage influencers that fit their target market demographic through the creator marketplace. The use of “challenges” is another TikTok feature that correlates with its high engagement. In contrast to other social media sites, where a third party manages influencer marketing agreements, this is a direct partnership.”(Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023). Besides advertising revenues, TikTok also uses in-app purchases to monetise by offering virtual goods like stickers or filters that enhance users’ video creation experience. These microtransactions contribute significantly to overall revenue generation for the platform. While successful in popularity and profitability, digital platforms like TikTok face privacy concerns surrounding data collection practices and potential regulatory scrutiny regarding content moderation policies across different jurisdictions. “TikTok marketing is the process of using TikTok and TikTok content to promote your brand and its products or services. Easily build up your own online presence through the use of short-form video content that engages your audience and helps show off your business offerings.” (Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023).

TikTok’s rapid rise can be attributed to its effective use of network effects, data-driven monetisation strategies, and user-generated content. To maintain high levels of user engagement, TikTok employs several strategies, such as personalised content recommendations and algorithmic feeds tailored to individual interests. By continuously analysing user data and preferences, TikTok ensures that users are presented with engaging content, leading to increased time spent on the platform. TikTok has amassed a trove of user data, including preferences, behaviours and interaction histories. It uses that data to personalise recommendations, ensuring each user sees a video they might be interested in. This increases user retention and engagement. In addition, TikTok uses data for AD targeting, allowing advertisers to show ads specifically to their intended audiences. This makes advertising more efficient and attracts more advertisers. At its core, TikTok is user-generated content, or UGC. Users can quickly shoot, edit, and share short videos, which are often creative and entertaining. This gives every user the potential to become a content creator. User-generated content is critical to TikTok’s ability to attract and keep users engaged. It makes users feel engaged because they can actively contribute content while also enjoying other users’ creations. TikTok has successfully harnessed network effects to strengthen the platform’s value by consistently attracting more users. At the same time, its data-driven monetisation strategy maximises advertising benefits, thus providing a solid revenue stream. Most importantly, TikTok’s user-generated content is a critical factor in attracting and keeping users engaged, making it a social media giant. The successful combination of these tactics helps explain why TikTok has risen quickly and gained a considerable user base worldwide. “TikTok adopted Douyin’s sophisticated AI-based algorithm to develop and deliver its offering. The algorithm is designed such that it frees consumers from a plethora of video options and provides personalised recommendations that are based on a combination of factors” (Mishra & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading, 2023).

In conclusion, this case study provides an overview of the economic model employed by TikTok as a prominent digital platform operating within today’s online ecosystem. Its primary sources of income include advertising partnerships with brands targeting its extensive user base, along with in-app purchases for virtual goods offered within the app itself. By understanding these aspects of its economic model – including advertising revenues derived from targeted ads, strategic approaches towards enhancing user engagement, and utilisation of microtransactions – we can appreciate how platforms like TikTok navigate their way through today’s evolving digital landscape.

Reference list:

Mishra, P., & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading. (2023, August 10). Tiktok business model: How does tiktok make money?. Feedough. https://www.feedough.com/tiktok-business-model-how-does-tiktok-make-money/

Mishra, P., & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading. (2023, August 10). Tiktok business model: How does tiktok make money?. Feedough. https://www.feedough.com/tiktok-business-model-how-does-tiktok-make-money/

Sabrina Alili, E. S. (Photo: © E. D. / G. I. (2023, May 5). Tiktok becomes the world’s most popular social network. Premium Beauty News. https://www.premiumbeautynews.com/en/tiktok-becomes-the-world-s-most,21980

Mishra, P., & Prachi MishraAn avid reader and economics enthusiast who is always eager to learn. Prachi is an aspiring leader who believes in what she does. Besides reading. (2023, August 10). Tiktok business model: How does tiktok make money?. Feedough. https://www.feedough.com/tiktok-business-model-how-does-tiktok-make-money/

Sabrina Alili, E. S. (Photo: © E. D. / G. I. (2023, May 5). Tiktok becomes the world’s most popular social network. Premium Beauty News. https://www.premiumbeautynews.com/en/tiktok-becomes-the-world-s-most,21980

Tiktok Marketing: The Complete Guide for Brands in 2023. Sprout Social. (2023, June 28). https://sproutsocial.com/insights/tiktok-marketing/