How TikTok broke social media

The speed of the change is astonishing. Since entering America in 2017, TikTok has picked up more users than all but a handful of social-media apps, which have been around more than twice as long (see chart 1). Among young audiences, it crushes the competition. Americans aged 18-24 spend an hour a day on TikTok, twice as long as they spend on Instagram and Snapchat and more than five times as long as they spend on Facebook, which these days is mainly a medium for communicating with the grandparents (see chart 2).

TikTok’s success has prompted its rivals to reinvent themselves. Meta, which owns Facebook and Instagram, has turned both apps’ main feeds into algorithmically sorted “discovery engines” and launched Reels, a TikTok clone bolted onto Facebook and Instagram. Similar lookalike products have been created by YouTube (Shorts), Snapchat (Spotlight), Pinterest (Watch) and even Netflix (Fast Laughs). The latest TikTok-inspired makeover, announced on March 8th, was by Spotify, a music app whose homepage now features video clips that can be skipped by swiping up. (TikTok’s Chinese sister app, Douyin, is having a similar effect in its home market, where digital giants like Tencent are increasingly putting short videos at the centre of their offerings.)

The result is that short-form video has taken over social media. Of the 64 minutes that the average American spends viewing social media each day, 40 minutes are spent watching video clips, up from 28 minutes just three years ago, estimates Bernstein, a broker. However, this transformation comes with a snag. Although users have a seemingly endless appetite for short video, the format is proving less profitable than the old news feed.

TikTok monetises its American audience at a rate of just $0.31 per hour, a third the rate of Facebook and a fifth the rate of Instagram (see chart 3). This year it will make about $67 from each of its American users, while Instagram will make more than $200, estimates Insider Intelligence, a research firm. Nor is this just a TikTok problem. Mark Zuckerberg, Meta’s chief executive, told investors last month that “Currently, the monetisation efficiency of Reels is much less than Feed, so the more that Reels grows…it takes some time away from Feed and we actually lose money.”

The most comforting explanation for the earnings gap is that TikTok, Reels and the other short-video platforms are immature. “TikTok is still a toddler in the social-media ad landscape,” says Jasmine Enberg of Insider Intelligence, who points out that the app introduced ads only in 2019. Platforms tend to keep their ad load low while getting new users on board, and advertisers take time to warm to new products. “You can’t really wave a magic wand and declare that your new ads are ‘premium’ without any performance history to back it up, so they start at the end of the line,” says Michelle Urwin of Skai, a digital marketing agency.

Meta points out that it has been here before. Instagram’s Stories feature took a while to get advertisers signed up but is now a big earner. Meta is ramping up Reels’ monetisation and expects it to stop losing money around the end of this year. But it acknowledges that it will be a long time before Reels is as profitable as the old news feed. “We know it took us several years to bring the gap close between Stories and Feed ads,” Susan Li, Meta’s chief financial officer, said on an earnings call last month. “And we expect that this will take longer for Reels.”

Some wonder if the gap in fact will never be closed. Even mature video-apps cannot keep up with the old social networks when it comes to monetising their users’ time. YouTube, which has been around for 18 years, makes less than half as much money per user-hour as Facebook or Instagram, estimates Bernstein. In China, where short-form video took off a few years before it did in the West, short-video ads last year monetised at only about 15% the rate of ads on local e-commerce apps.

For one thing, the ad load in video is inescapably lower than on a news feed of text and images. Watch a five-minute YouTube clip and you might see three ads; scroll Instagram for five minutes and you could see dozens. Watching video also seems to put consumers in a more passive mood than scrolling a feed of friends’ updates, making them less likely to click through to buy. Booking 1,000 impressions for a video ad on Instagram Reels costs about half as much as 1,000 impressions for an ad on Instagram’s news feed, reports Tinuiti, another big marketing agency, implying that advertisers see Reels ads as less likely to generate clicks.