ByteDance's prowess in monetization is not new, but its robust earning capacity continues to exceed many people's expectations.
On December 20, media reports indicated that ByteDance's revenue in 2023 surged by 30% to $110 billion. This means that not only is ByteDance's revenue far ahead domestically, but it's also closing in on Facebook's parent company, Meta, which is expected to generate $133 billion this year.
ByteDance's revenue comes from its diverse business segments. As the company has grown into a continuously operating internet "money printer," the outside world is more curious about how and through what means it earns its money.
To a certain extent, ByteDance's rapid revenue and profit growth are backed by a dominant algorithm distribution model, high traffic conversion efficiency, and what can be described as "crazy" exploration and attempts.
TikTok and Douyin: Cash Cows of Short Video Ads and Live Streaming
ByteDance operates six business segments: Douyin, Dali Education, Feishu, Volcano Engine, Chaoyang Guangnian, and TikTok. Douyin oversees the overall development of domestic information and service businesses, while TikTok manages the TikTok platform business and supports the development of overseas e-commerce and other extended businesses. Both serve as the two wings of ByteDance's traffic ecosystem, supporting revenue growth through operation and iteration.
This year, ByteDance has scaled back its VR and gaming businesses, with PICO and Chaoyang Guangnian facing personnel optimization and organizational adjustments. Particularly, the gaming business, which ByteDance heavily invested in starting with the acquisition of Chaoyang Calendar (the predecessor of Chaoyang Guangnian) in 2017, has seen frequent acquisitions, expansions, and studio establishments. In 2021, ByteDance reportedly acquired Mutong Technology for $4 billion to complete its gaming portfolio. However, gaming might now be considered ByteDance's "abandoned child."
It's worth mentioning that on December 22, China's National Press and Publication Administration released the "Online Game Management Measures (Draft for Comment)," seeking public feedback. The draft stipulates that online games should not set inducive rewards for daily logins, first-time recharges, or consecutive recharges. It also requires setting user recharge limits and providing pop-up warnings for irrational consumer behavior.
Following the announcement, gaming stocks plummeted, with Tencent and NetEase's share prices falling by 12.3% and 24.6%, respectively. At this point, ByteDance's "letting go" of the gaming business is seen not as a reluctant sacrifice but as a timely exit.
In contrast, short videos continue to surge forward. Recently, mobile data research firm data.ai reported that Douyin and TikTok have reached a cumulative user spending of $10 billion, becoming the first non-gaming app to achieve this milestone.
This is not the end goal. data.ai predicts that Douyin and Tiktok's revenue will grow even more in 2024, with user spending reaching $15 billion, surpassing other revenue sources. Users spend over $11 million daily on their favorite content creators, potentially making it the highest-earning mobile app, surpassing the current top-earning game, Candy Crush Saga. By the end of 2024, "users' weekly usage time will reach 40 hours, a 22% increase from 2023."
The earning power of short videos is evident. Unlike long video platforms with subscription models, Douyin and Tiktok do not offer paid subscriptions-at least not currently. As both belong to the short video platform category, despite different backgrounds, their revenue sources are largely similar. For Douyin, revenue mainly comes from three parts: advertising, live broadcast tipping, and commissions from e-commerce and other businesses (i.e., platform technology service fees).
Advertising is the core source of revenue for Douyin. A former ByteDance employee told Dianchang that Douyin sets DAU (Daily Active Users) and user usage time as core indicators to sell more ads. "The longer users stay, the more content they browse, and the more ads can be sold." Of course, this process inevitably leads to a decline in user experience due to a high ad load rate, which needs timely adjustment. The jest that "6 out of 10 Douyins are ads" is a reflection of this.
In fact, every user's browsing indirectly contributes to ByteDance's advertising revenue. Huachuang Securities pointed out in its report "Internet Advertising Replay, Nearly Trillion Market, Who Rose and Who Fell in 2022?" that in 2022, ByteDance achieved industry-first revenue relying on the rapid growth of e-commerce advertising and became the main contributor to the incremental growth of China's internet advertising.
Beyond short videos, live broadcasting is another content format for Douyin. In most cases, half of the user tips received by the broadcaster go into Douyin's pocket. The "Porsche," "Private Jet," "Douyin No.1," and "Carnival" floating on the mobile screen cost 1,200, 3,000, 10,001, and 30,000 Douyin coins, respectively-calculated at 10 Douyin coins per 1 yuan, their prices are 120 yuan, 300 yuan, 1,000 yuan, and 3,000 yuan, respectively. An individual from the live broadcasting industry revealed to Dianchang that top broadcasters earning millions per month is common. "And their revenue-sharing ratio is generally higher. Even so, the platform can still take away thirty to forty percent."
According to data.ai, U.S. users and Chinese iOS users contributed 60% of the revenue for Douyin and TikTok, totaling $6 billion. Following them are Saudi Arabia, Germany, the UK, and Japan, contributing a combined 13%.
As business tentacles extend to e-commerce and local life, another significant revenue source enters ByteDance's purview. Every transaction completed by users in Douyin's mini store and group buying venues generates a certain amount of commission for ByteDance. For Douyin's e-commerce, the commission rate is usually between 2%-5%, varying by category.
Additionally, Douyin has ventured into medical, social, search, and many other business branches, truly living up to its reputation as a "challenger."
Beyond Advertising: What's Next?
Traffic isn't always invincible, but there's always an arrow that hits the expected target. As mentioned earlier, e-commerce is one of TikTok's most impressive new businesses in recent years. Currently, TikTok Shop has launched in the U.S., UK, Singapore, Thailand, Malaysia, the Philippines, Saudi Arabia, and other countries, covering North America, Europe, Southeast Asia, and the Middle East markets. It offers both merchant self-operation and full management models. With the parallel "content + shelf" scenario, its GMV (Gross Merchandise Volume) has skyrocketed.
The pursuit of new businesses is often tightly bound to ambition and expectations. However, the former ByteDance employee believes that whether it's domestic or overseas, e-commerce or local life, ByteDance's foray into these areas aims to fully utilize its abundant traffic. Ultimately, it's about selling ads in a more efficient manner.
After all, the gross margin of advertising is extremely high. In their view, an ideal state is where users, while consuming content on the platform, develop the desire to purchase goods, thereby creating incremental advertising demand for the platform and attracting users to order again, and so on.
This is equivalent to replacing the "middleman" and taking on the role of the entire process, "earning all the money that can be earned." One example is Douyin's launch of the shopping cart feature in 2018, which initially linked to Taobao and subsequently incorporated platforms like JD.com and Vipshop. Today, external links are hard to find, and transactions are more often retained within Douyin. An e-commerce insider noted that Douyin has content dividends, and explosive product data is impressive, making it suitable for merchants with stable goods to enter.
After building a closed loop, Douyin's e-commerce welcomed astonishing growth. Data obtained by Dianchang earlier showed that Douyin's e-commerce GMV was 880 billion yuan in 2021, with an overall user penetration rate of 26% (the proportion of e-commerce users among Douyin users), and 1.38 trillion yuan in 2022, with an overall user penetration rate of 45%. According to LatePost, Douyin's e-commerce GMV from January to October this year approached 2 trillion yuan, with a nearly 60% year-on-year growth rate.
The rise in transaction volume goes hand in hand with the boost in advertising revenue. However, merchants have mixed feelings. A brand representative found that even peers with annual GMVs over 100 million yuan struggle to break even on Douyin's e-commerce due to "increasingly high traffic costs, and if you add the cost of the live broadcast team, it's overall a loss." The representative added that their brand only chooses to work with Douyin's smaller influencers for live broadcast sales in a relatively lightweight manner, "the main battlefield is not here."
But ByteDance, unwilling to "earn money lying down," finally tasted the sweetness of "earning money on the run." In a report shared with employees, ByteDance stated that its revenue in 2022 was $85.2 billion, a 38% increase year-on-year; operating profit exceeded $20 billion, compared to an operating loss of $7.15 billion in the same period in 2021.
In March this year, ByteDance CEO Liang Rubo stated at an anniversary event that the company would focus on investing in two main businesses in the coming year: information platforms and e-commerce. The former includes Douyin and Tiktok, while the latter is an extension based on the former.
Currently, with unstoppable momentum, Douyin's daily active users (DAU) have exceeded 800 million, and Tiktok, despite facing challenges, remains highly popular among users. Although there are voices of skepticism-Tesla CEO Elon Musk, for instance, stated he doesn't want to make money by exploiting human weaknesses and laziness-ByteDance, a company with a vast user base both domestically and internationally, has never ceased exploring the various possibilities of monetizing traffic.
In October this year, ByteDance proposed to repurchase shares from employees at a price of $160 per share. The Wall Street Journal reported that ByteDance has 1.4 billion circulating shares, implying a valuation of $223.5 billion, a nearly 26% decrease from $300 billion a year ago. From this perspective, making money is both a goal and a means, for competition and for valuation.
