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TikTok capturing users’ hearts, but not the marketers’ bucks?

Tech startups would turn green at how quickly TikTok has emerged to rival companies such as Netflix, YouTube, Snapchat, and Facebook. With over 700 million downloads in 2019, it overtook Facebook and its messenger app as well as Instagram, and Snapchat. It’s now the world’s second most downloaded app, just behind WhatsApp.

Analysis by Business of Apps supports this, with the media company reporting that the platform’s penetration is at its highest in Asia, where over a third of users aged 16-64 have a TikTok account.

Photo credit: Alexey Malkin/123RF

However, according to estimates seen by Tech in Asia, TikTok is still trailing behind the Facebook family of apps in the region when it comes to monthly active users (or MAUs), though the caveat is that the platform is the new kid on the block.

The Bytedance-owned app is closing in on the competition, though, rising up one spot to eighth place in Indonesia and Malaysia since January, according to mobile app analytics firm App Annie. It also debuted at seventh place in the Philippines in March.

It’s a similar picture when it comes to TikTok’s download stats in Southeast Asia, according to estimates from App Annie and Sensor Tower. “In the first quarter [of 2020], TikTok had more downloads than Facebook’s apps (Facebook, Messenger, WhatsApp and Instagram) in the region,” says Sensor Tower’s mobile insights strategist Craig Chapple.

Corresponding with the data is Bytedance’s statement to Tech in Asia regarding the app’s “rapid growth” outside of China, especially in Southeast Asia where it “received an overwhelming response.” The company’s spokesperson, however, declined to reveal exact figures or its plans for expansion.

At face value, Facebook and TikTok are competing to capture users’ hearts, with the latter attempting to take a leaf out of its predecessor’s book by poaching Facebook employees to shore up its talent pool. But beneath the surface, there’s a bigger fight brewing for the social media platforms: advertising dollars.

With TikTok’s impressive user engagement scorecard and ballooning revenues, one could easily assume that marketers would have been all over the 15-second video app by now. But that isn’t the case.

Half of the 10 agencies Tech in Asia have spoken to have yet to work with clients looking to advertise on the app, while the rest say that their clients are spending less than 10% of their advertising budgets on TikTok.

Not really built for performance-based advertising

The latter is the case for Hustlr, a content marketing agency that works with clients in the APAC region. Its founder Jeremy Ong attributes this to TikTok’s machine-learning algorithm and user behavior-tracking capabilities, which he says are not as “mature” as Facebook and Google’s.

“Clients are looking for specific outcomes like sales, web and app conversions, in-store visits and lead generation,” he tells Tech in Asia, adding that Facebook and Instagram serve these goals better for now.

“TikTok is not really built for performance-based advertising. That’s why it’s taking up only about 2-3% of our total advertising spend per month across all our clients,” says Marcus Ho, managing director of Singapore-based digital marketing agency Brew Interactive.

In response, TikTok says it is “evolving” how it measures advertising value by working closely with brands to provide them “comprehensive and creative advertising solutions.” These include developing hashtag challenges and content conceptualization, as well as tracking and analytics.

While Ho finds TikTok less effective in terms of advertising, he acknowledges that it works better for general brand engagement through branded content. “Engagement rate is at an all-time high with that platform.”

TikTok’s boon is also its bane

Ong, and most marketers that have used the platform, agree that TikTok’s “young” user base, a factor that has contributed to its rapid growth, is also its Achilles’ heel. “Young users usually don’t have strong spending power, hence resulting in fewer conversions.”

However, a TikTok spokesperson says it’s a “common misconception” that the platform is used only by a certain demographic, adding there are users of “all ages active on the app.” The app’s key focus is diversifying its content, “no matter what age [the users] may be.”

Besides this, other marketers take this perceived lack of purchasing power among young TikTok users in stride. Shenzhen-based short video company Uplab tells Tech in Asia that it has found success in running ads for products that sell for less than RMB30 (US$4.25).

“Trying to sell a S$500 (US$352) watch won’t be effective on the platform,” says the firm’s founder and growth director, Fabian Ouwehand.

Ong concedes that although the young users on TikTok do not have spending power yet, they will in the years to come. For him, capturing the “millennial” target group will pay dividends in the future, as “more TikTok users will start participating in the labor market.”

Hong Kong-based Digital Business Lab agrees. Its founder and general manager Albin Lix says his clients are looking to grow their audience on TikTok so they can start communicating with their “future clients.”

“The top challenge for our clients is to develop brand-building that targets millennials under 30 years of age, as this population is massive in Southeast Asia, representing 50% of the population,” he says. He also acknowledges that appealing to this demographic requires its own set of skills.

“TikTok reflects the evolution of society. Right now, the younger generation is looking for meaningful relationships with brands.”

What makes a good TikTok ad?

For Digital Business Lab, a good TikTok ad focuses on content that not only captures users’ attention but is also relatable to them. The latter is the most important measure of an ad’s success, says Lix.

“User attention metrics is the new KPI.” He adds that TikTok ads need to be funny and entertaining to keep users from scrolling past them.

Red Bull, Nike, and NBA are among the brands that have “very strong presence” on TikTok, and a Red Bull advertisement is a prime example of how “subtle product placement” is used as a tactic to raise brand awareness among users, Lix says.

“A soft ad [features] product-placement within the story, something that is effective [in driving] return on investment (ROI),” he explains. “Hard ads, like those you see on Facebook or Instagram, are less effective as they disturb the user experience.”

Ong agrees that TikTok ads have to take the “soft” approach, as users can “smell someone selling to them right away.” Brands must creatively integrate a product or service into the message “without being pushy,” he advises.

For Ho, a good TikTok ad involves jumping on any of the numerous TikTok challenges trending online, given that comedy “rules the platform.” Brands must “produce content that is native and relevant to the TikTok audience.”

Digital Business Lab’s Lix points out that TikTok has a “large” pool of global users, which is unprecedented for an app that has its origins in China. While TikTok and Douyin remain separate apps for now, there remains untapped potential to integrate both apps on the advertising front to allow brands to reach Chinese and non-Chinese audiences at the same time.

However, he says that TikTok’s Chinese roots could also hinder its rapid growth, cautioning, “It would not be surprising to see American institutions trying to hold [off] Chinese social media growth in the US, since Facebook and Instagram are still officially banned in China.”

But Ong remains bullish on TikTok’s potential, forecasting that it will soon become a “major player in advertising.”

“It’s only a matter of time until TikTok becomes the ‘go-to’ social media platform for reaching the masses,” he concludes.