How TikTok breaks economics [Finance Fridays]
Why TikTok can lose Billions of Dollars. And why Governments should learn from this.
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I want to start by talking about the layoffs,
They are getting worse and worse. Meta is once again in the news. This time, reports say they could lay off as many as 12,000 employees. If you’re worried about the layoffs, read this piece on the Boom and Bust cycle and how you can protect yourself. This will help you tackle the situation better. If you’re someone looking for roles, make sure you’re following me across different platforms. I will be sharing the job openings shared with me soon. The links are at the end of the article.
Back to the topic of this article.
TikTok has been growing extremely rapidly. So quickly that many investment analysts have been pushing it as the social media of the future, the one that will kill Facebook in the future. The comparisons with Facebook make sense since TikTok attacked the 18-29 YO segment, which was once FB’s stronghold. This has rung a lot of alarm bells in analysts, including the people at FB who have decided to go for the Metaverse moonshot to avoid a head-on competition.
But if you dig beneath the surface, things are very different. Despite impressive growth, TikTok is nowhere close to seeing actual profits. In 2021, ByteDance, TikTok’s parent company, was running at a loss of 85 Billion Dollars. From a data science perspective, TikTok’s data is also less valuable than the data collected by other major social media giants. So why is it that TikTok can continue to run smoothly? Is this another example of Venture-Capital backed nonsense, or is there something more going on behind the scenes? And what does the CCP have to do with it? We’re going to be covering that and more.
TikTok reached one billion users in the third quarter of 2021 and is expected to reach 1.8 billion by the end of 2022.
Why TikTok isn’t profitable- Two factors make TikTok lose money- competition and lack of valuable data. It is also primarily a visual platform, making user behavior much more expensive to analyze. These make the platform inherently harder to monetize.
Why this doesn’t matter- The CCP (yes the Communist Party of China) has a stake and board seat in ByteDance. They are funding it to advance their geopolitical goals. I know this makes me sound like a conspiracy theorist, but I will share the evidence in the article. The CCP is willing to eat the losses as long their objectives are met.
What should be done about it- Many governments (including my home country India) have banned TikTok. People have raised concerns and alarms about how it is destroying my generation and below. While these concerns are valid, I don’t know if banning is the right move. It doesn’t address the fundamental problems, which can be exploited. We’ll cover some alternative actions that can be taken.
If you’re someone interested in how Tech influences society, today’s piece will be very interesting to you. Esp. if you’re into policy-making/the government.
Let’s get right into it.
Why TikTok isn’t Profitable
Revenues are the first area where the comparisons between Facebook and TikTok break down. It took FB 5 years to turn a profit. At this time, it had 300 Million users. TT has over 3 times that number but is far from making money. There are a few reasons for it-
Competition- FB was amongst the first social networks that really cracked the code. TT on the other hand is competing with basically every Tech Giant for your attention. Unlike FB which got the first-movers advantage, TT is coming into a mature market with a lot of competitors. This includes Yours Truly since newsletters are a part of the attention economy.
Lack of value in data- This is something I haven’t really seen anyone else touch upon. But it makes sense since most people doing stock analysis don’t have my Data Science + AI background. Compare TikTok’s data to the ones collected by Google, Amazon, Meta, and Microsoft. The other 4 have distinctly better data collection because of the diversity of their sources. Google has data from searches, phone usage, Youtube, etc. Amazon knows what you buy, what you watch, what you’re reading etc. FB and IG have lots of features like Reels, Groups, Reviews, Interests, etc that give Meta a large data pool to profile you. Don’t forget you also use FB and Google to log in to a lot of applications, giving them access to third-party data. Compared to them TT data isn’t that much of a value add.
There’s another aspect that makes TT trickier than these platforms. TT data comes mostly from video watch time and engagement. This medium is inherently harder to analyze. The other platforms also have to do this, but they have other data formats to boost their analysis. They’ve also been in the game longer, giving them more time to fine-tune their pipelines.
TT is playing the game in Hard mode, with a weak character, against other competitors trying to kill all competition. Given this angle, its lack of profitability should not be a surprise. So why are people giving it so much money to survive? Is it hope that it will eventually get to enough users where it can be profitable? Some projections say it will be profitable soon, but complete domination is impossible given the competition. This is where we’re going to get into why the CCP’s board seat matters.
How TikTok fits into CCPs Geo-Politics
Trust me. I know. It sounds a little far-off. But keep an open mind as you read through this.
I don’t need to tell you how Social Media has become a huge part of society. It gives people a platform and leverage to influence people at a scale that would make history’s biggest leaders look like amateurs. This also means that you can influence society in various ways. This potential has not been lost on businesses, politicians, and influencers, all of whom sink insane amounts of time and money into advertising and creating content. They’re all trying to get you to listen to them. As the great philosopher and cult leader Devansh (yes me) said, “He who has the mic, controls the narrative.”
Ad spending in the Social Media Advertising segment is projected to reach US$226.00bn in 2022.
-Source. Let that number sink in.
Networks like Facebook and Twitter are always fighting politicians for precisely this reason. Governments want to control these platforms to propagate their narratives, which can be the difference between staying in power or shouting from the opposition bench. However, TT takes this a step further. TT is two different apps. TikTok, the app that is accessible outside China, and Douyin, the variant made for Chinese audiences. And features aside turns out that they have very different kinds of content being promoted on the platforms.
Douyin has been well-known for promoting ‘cultural values’. There is a lot of push given to content about hard work, achievement, and other desirable traits. As this CNN Business article mentioned -“The app also said it would introduce new content — ranging from science experiments and museums to art gallery exhibition and natural scenery — to “inspire” younger teens.” The app also has checks to stop kids from spending too much time on it. It also censors many topics like Tibetan Independence.
Contrast this with TT, the non-Chinese counterpart. The content is a lot more varied. Mentions of Drugs are commonplace and Teengaers promoting experimental steroids is not rare. Google SARMS Goblins if you think I’m exaggerating (or just go on TikTok and search SARMs for yourself). Reports of TikTok destroying attention spans got a lot of attention, but then the news cycle moved on. And there is the whole thing where TikTok usage has been linked to a large increase in mental health problems-
Recently, psychologists have noticed a wave of adolescent girls also claiming to suffer from Tourette’s Syndrome and rare mental health conditions, such as borderline personality disorder, bipolar disorder and schizophrenia — conditions not typically seen in the teen demographic. And a common denominator between many of these symptomatic girls has been identified: Consuming mental health content on TikTok.
-Article- How TikTok has become a dangerous breeding ground for mental disorders
So yeah, Douyin and TikTok lead to very different results. While Douyin can act as a tool to promote compliance to social values, TT seems to be doing the opposite. It’s wrecking its users. The different experiences between the 2 apps have been summarized by this user-
It shouldn’t be hard to put 2 and 2 together. The potentially destabilizing effects of social media have been known for many years. Governments and powerful people have been using to it spread propaganda and misinformation to destabilize opposition (both internal and external). Elon Musk has used it to create a giant cult of personality (wait till we open that can of worms). The Crypto Crash, which ruined a lot of retail investors, was also caused by the hype generated through social networks. The CCP has taken this a step further. Instead of relying on external platforms, they can invest in TT and achieve the same results. As long as they can continue to keep TT addictive to users, eating the losses is a small price to pay.
From this perspective, the worries about TikTok being electronic spyware are somewhat of a red herring. Even without that, TT will be able to help the CCP accomplish its goals.
With all that covered, what should be done about it?
Dealing With This
With all these problems, banning/restricting TT is something that sounds tempting. Several counties have either done it or tried to do it. However, banning things solves nothing.
If your kid is faking mental disorders on TikTok or deciding to jump onto steroids because of a few TikTok videos, then it’s a failure of parenting, society, and education. The truth is that our education is laughably ill-equipped to teach us how to leverage the internet without going through downsides. As long as that happens, TikToks will keep popping up. Without reworking education (both in school and at home), things will only get worse.
Here are a few things that should be taught to allow people to be healthier-
Basic Healthcare- The importance of sleep, nutrition, sunlight, and other important facets are criminally overlooked. Without these, you’re more susceptible to influence, which makes you vulnerable to the adverse effects of social media.
Mental Health- People need to be educated in taking care of their mental health. Mental Health doesn’t start with disorders. Little things like learning to be more mindful and grateful for the small things are great to counteract the problems that the internet can cause.
Active Skepticism- As social networks and the internet take a hold of your life, you will come across creators and platforms pushing their agenda subtly. In our Society of Spectacles, learning to be skeptical will stop you from following false prophets. This is crucial because we will see more and more governments, organizations, and groups use creators/platforms as their mouthpieces to push their agenda. Skepticism will allow you to take a step back from all the hype.
Social Activities- Social Media is very good at feeling real. The antinode to using social media as a social crutch is to have a social group that you can interact with. This way people will not be tempted to turn to social media for approval.
Social Media (including TT) is great. It’s powerful and allows for opportunities like no other. However, we need to take care to not be consumed by it. The above 4 steps are important because they have ROI and will lead to healthier people. It is a more sustainable alternative to banning/censorship. I would love to hear your thoughts on this matter. Drop them in the comments/by replying to this email/reaching out to me through my links.
I know I have a few readers who work in policy-making/the government. I would request that you share this with your colleagues. This is an extremely important topic for all to understand and analyze. Policies around Tech and Social Media are currently not well-equipped to deal with the problems that the challenges of tomorrow. Understanding Tech Better, and how different players are manipulating it will allow for more informed decision-making.
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