As one of the short video platforms with the largest traffic, many people hope to monetize it. But how can this be achieved? This article will analyze this from five aspects, I hope it will be helpful to you.

1. What is Tik Tok?

1. Product positioning

A platform that provides short video information services for Chinese users to meet their entertainment needs.

Why are they Chinese users? Because the market I know of right now is the Chinese market. Each country has a different level of economic development and population structure, which leads to different things that need to be done. So let’s talk about this with the premise of targeting Chinese users.

Why is the scope short videos? This involves the overall product design. Douyin's product design has an obvious feature: vertical screen playback and fast and continuous flipping selection. If the following other content forms are adopted, it will lead to changes in the overall mode of consumption and interaction.

Differentiate by content form:

• Pictures and text (short/long) - If pictures and text are included, then the viewing option must not be to directly flip to the homepage. In terms of distribution, although it is also within the scope of algorithm distribution, there will be obvious differences in content structuring. For example, text can be directly tagged through semantic recognition, but videos are difficult.
• Sound (short/long) – If sound is added, it is used more in non-immersive scenarios, that is, you can listen to the sound while doing other things. There will also be obvious differences in the interaction methods, such as emphasis on continuous playback.
• Long videos - Since long videos are longer, they are not as quick to select, and the selection method of directly flipping on the homepage does not meet the needs of finding long videos. Our more common methods are searching, filtering, etc.

2. Is there still room for user growth?

In terms of newly installed users, the number of newly installed users was 39.16 million in March 2019, and dropped to 37.62 million new users in March 2020, which has declined compared with the same period in previous years (according to data from spring 2020).

The TGI index is derived by comparing the current age structure of Tik Tok users with the age structure of netizens. It can be seen that in terms of age groups, the TGI index of Douyin for those aged 36+ is lower than 100, which means that users in this age group do not like to use Douyin as much as users in other age groups.

Note: TGI index = [the proportion of the target group with a certain characteristic/the proportion of the population with the same characteristic]*standard number 100.

Therefore, next, there will be efforts to attract new users, promote activation, and retain users targeting the 36+ age group. In terms of product functions, different contents correspond to different product forms. Therefore, Tik Tok is still a short video.

In terms of categories, in order to meet the needs of the elderly, some content creation tools and interaction methods that are more suitable for the elderly will be added. For example, the form of electronic photo album, and interactive methods such as adding rich emoticons.

3. How to monetize?

Every company needs to monetize. When there is rapid growth in the early stages, we will give priority to occupying the market. But after the growth slows down, we need to think about monetization. Content monetization methods include content payment, advertising model, reward and gift giving, and content e-commerce. Let’s take a look at which method is suitable for Douyin.

1. Content-based monetization

1) Content Payment

We pay directly for good content. Such as movies, TV series, etc. The specific methods include variations such as single episode payment and membership package.

What kind of content can be paid for? I believe that users will only pay if there are stable and predictable returns. For example, some movies at least have certain stars, stories, and are more than 90 minutes long. For example, when it comes to paying for knowledge, you clearly know that some knowledge will be provided. Tik Tok is positioned as a pan-entertainment short video platform, and it is impossible to directly predict whether most of these videos are valuable. Therefore, this monetization model is not feasible on Douyin.

2) Traditional advertising

This is the business model that Douyin has been running for many years. The characteristic of this model is that buyers do not actually spend money on the platform, but actually pay with their attention, while some people pay money by purchasing other goods. Since it is a traditional model, the ceiling is relatively low. How high can the ceiling of traditional advertising be?

The average Chinese internet user spends 4.28 hours a day on the platform, and the latest Douyin users spend about 1.3 hours (about 80 minutes), accounting for 30% of the total time. We, who are aged 14 and above, are considered normal netizens, accounting for 83.1%. However, according to statistics from an enterprise research platform, 18% of Douyin's existing users will uninstall the app.

The following figure shows the usage time of Tik Tok in 2020

The time that can be covered is 83.1% (target users) * 82% (retention rate) * 30% = 20% of the total national time.

In 2019, the total advertising amount was 867.428 billion yuan, and the share of Internet advertising was 440 billion yuan. If Douyin occupies 20% of the total national time, and assuming that the distribution of national time is consistent with the distribution of advertising revenue, then the ceiling of Douyin's advertising revenue is 88 billion yuan .

The following figure shows the trend of the amount of Internet advertising in China

2. Connection-based monetization

1) Reward and gift

When we are in a space of shared values, we want to show off and give gifts. Why is it connection-based? Because the premise of showing off is recognition. If you don’t agree enough, you won’t want to express it. For example, we have always had donation lists for temples and schools, but there has never been a donation list for prisons.

The premise of recognition is that a user needs to understand a person well enough and establish a connection before he can recognize him. Therefore, in terms of product functions, gift-giving and rewarding require sufficient interactions to make a user identify with a creator and thus have the motivation to reward and show off.

How high is the ceiling for tipping and gifting? Previously, the main revenue model for live shows was sharing the tips. The income from this area will not be too high because most users will not spend a lot of money to show off, and should not be affected by the money from tips from a few live broadcasts.

There is a data that shows the distribution of users' annual expenditure. Culture and entertainment only account for 11.7%, and more expenditure is spent on other categories. Therefore, rewards and gifts are destined to be only a small part of Douyin’s revenue.

2) Content e-commerce

Why is the foundation of content e-commerce also based on connections with creators?

First of all, we know that if a method is not much different from the previous purchasing method, then users will still remain in their previous habits. The consumer process can be roughly divided into the following stages: interest - understanding the product - comparing products - purchasing. If users are simply interested in the content, it can solve the process from being interested to understanding the product.

If trust is generated, it can reduce the time it takes for users to understand and compare products, and thus users will change their shopping habits on e-commerce websites. Based on this deduction, content e-commerce will cover nearly 90% of user spending mentioned above, and even generate incremental spending.

4. How to do it on the product?

1. Content-based monetization

Traditional advertising model: approaching the ceiling

According to rumors, Douyin's advertising revenue in 2019 was nearly 50 billion yuan, and the target for 2020 is expected to continue to increase. If the previously estimated ceiling of approximately 88 billion yuan is used, Douyin's advertising model has already reached its current ceiling.

The current development trend of the advertising industry is to eliminate middlemen, and the scale of independent advertising by enterprises will be larger. One part is that the granularity of advertising matching will be smaller and more accurate, and the other part is to lower the threshold to allow more companies to enter. ByteDance has already launched Massive Engine for this and is continuously optimizing it. I won’t go into too much detail on this part.

2. Monetization based on interaction

1) Foundation: The connection between creators and viewers

The underlying logic of rewarding and gifting and content e-commerce is the same, which is to accumulate relationships between creators and consumers through content, thereby driving rewards and purchases.

Why is the foundation of content e-commerce also based on connections with creators?

First of all, we know that if a method is not much different from the previous purchasing method, then users will still remain in their previous habits. According to the consumer process, it can be roughly divided into the following stages: interest - understanding products - comparing products - purchasing. If users are simply interested in the content, it can solve the process from being interested to understanding the product. If identification and even trust are generated, it can reduce the time it takes for users to understand and compare products, and users will change their shopping habits on e-commerce websites.

Only by establishing a relationship with the creators behind the content and developing trust can users’ shopping habits be changed. So a key part of this is how to build connections between creators and consumers.

So how does TikTok do in this regard? We can compare and see that in Kuaishou, users prefer to browse the follow page. Why does this happen? I think the reason behind this is that on Kuaishou, the relationship between users and creators is closer.

Why is there such a difference?

Because Tik Tok allows users to see more exciting content. When it comes to distribution, it considers more whether the video is good-looking, and the proportion of people is relatively low; while Kuaishou, on the other hand, will consider allowing users to settle on their favorite creators when it comes to distribution. We may not be able to see the difference directly in the distribution algorithm, but we can see the difference between the two products from the interaction.

The left side below is the homepage of Kuaishou, and the right side is the homepage of Douyin.

There are two obvious differences on the home page:

1. Kuaishou strengthens the exposure of comments

Kuaishou displays the comments in a scrolling manner on the playback interface, and you can directly enter the comment area after clicking.

2. Douyin’s publishing entrance is more obvious

Tik Tok emphasizes the publishing entrance at the bottom to encourage users to publish videos together.

Why is there such a difference?

We say that product interaction is determined by the product model. Tik Tok emphasizes on videos and encourages users to post videos. If you really don’t want to post videos, you can just post comments. The essence of Kuaishou’s product model is to connect people through videos. Video is just a topic. You get to know people through videos, and get to know them through text comments and communication. This is just a presentation of the interaction method. In fact, there may be some differences in the distribution strategy, but we cannot observe it directly.

Therefore, in order to achieve monetization growth, Douyin is expected to make a series of adjustments to strengthen social interaction. If they fail to adjust, they may very likely lose the qualifications for monetization through content e-commerce and rewards and gifts. This series of adjustments may seem like details, but they are based on changes in internal indicators - from using playback volume as an indicator to using connection with creators as an indicator (such as attention, likes, and comments).

Home page - whether users will continue to watch a creator's content. Corresponding changes to the product, such as strengthening the weight of people in homepage distribution, such as focusing on the weight of a certain person's video in the continuous video flipping;

Follow - The focus stream changes from emphasizing direct playback to following all the creator's updates. Add paths for viewing by person, and add other forms of changes besides videos (such as comments similar to Kuaishou).

Interaction - whether it is possible to establish more interactions of higher quality. Qualitatively, the number of conversations in an interaction can be measured. The corresponding functions include mutual replies, private chats, and group chats in the comment area. In terms of quantity, to allow more people to participate in this interaction, we need to explore more communication scenarios and motivations, such as adding picture and text interactions, opinion PK, group chats, etc.

2) Conversion: Efficiency can be improved

Reward mode:

With sufficient user connections, many reward methods will emerge. How to get more people to think and how to get those who think to take action.

How to make more people want to pay for rewards? From the motivation level, it is to continuously increase the sense of showing off (let more people see the people who reward).

How to make those who want to take action is to continuously optimize the product process and gameplay. For example, it allows new users to try it out, or the process becomes smoother.

Content e-commerce:

Different scenarios: live promotion and on-demand earning.

In the live broadcast scenario, due to the concentration of traffic, lower prices can be obtained; users in the live broadcast environment are also more easily guided by the herd mentality. Therefore, the live broadcast scene is a magic weapon to attract users to try. However, live streaming cannot accommodate more of users’ fragmented time due to the conflicting time distribution between creators and viewers. Therefore, the role of live streaming is to promote new experiences, while the real long-tail fragments are in the video playback scene. Simply put, live streaming is used to promote hot products, and on-demand conversion is the norm.

However, the disadvantage of content platforms lies in the supply chain. Compared with e-commerce platforms, they cannot achieve widely lower prices. Except for people like Luo Yonghao who have enough traffic to negotiate with merchants, most people get a normal price. Therefore, live streaming e-commerce can only do the original business, that is, the sale of the creator’s own products.

Based on this, live streaming e-commerce on content platforms can only overcome the shortage of supply chains and achieve sufficiently low-price promotions through operational means to attract high-traffic IPs with commercial negotiation capabilities to encourage users to try. Then, more importantly in terms of products, are the platform’s native live broadcast promotions and broader on-demand conversions. Even though live streaming is very popular at present, the focus of content platforms is still on on-demand rather than live streaming.

Solve the supply chain and get more people involved.

Because Douyin’s content creators have traffic, but they may not have goods to sell.

There are two ways to solve this problem: cooperate more in the short term and do it yourself in the long term.

If we want to cooperate, the fastest way is to have a commodity supply chain that can solve problems such as supply and profit sharing. Its competitor Kuaishou has surpassed Youzan, Pinduoduo and JD.com in the supply chain. This will help to quickly capture the user market. Although it may not be the best solution for content platforms, it can quickly solve the problem.

If you do it yourself, you will need to involve a huge system, including merchant management, product management, promotion system, order management, logistics management, customer service management, etc. Kuaishou will build these systems in a short time, but I believe it will take a long time to improve them. After that, long-term cultivation and operation are required. The key is to do a good job before placing an order, so that the supply chain can provide it uniformly after the order is placed.

Improve purchase conversion rate and make conversion more efficient.

With traffic and enough goods, the key is how to improve the conversion rate. How to improve conversion rate can be solved by dividing it into two parts.

Buy more conveniently:

If users are willing to buy, how can we enable them to complete the purchase conveniently? The entire process includes generating interest, understanding the product, making product decisions, paying for the product, after-sales service, checking logistics, etc. How to make it as convenient as possible requires improving many product functions. Since it can only support various e-commerce websites at the same time, the fluency is mainly reflected in two aspects: avoiding jumping to the App; avoiding repeated input of information.

The only way to avoid jumping to the App is through cooperation and bargaining, which depends on the strength of the partner. For example, a large partner like Taobao will definitely insist on jumping to the App, but there is also a way to do it by integrating the SDK. During the expansion stage of e-commerce, it is not necessary to completely prohibit redirects, but the entire process before placing an order should be conducted with as little redirects as possible.

In terms of repeated information input, the focus is on user connectivity, whether the same mobile phone number can obtain information such as delivery address, historical orders, coupon discounts, etc., so that users can complete transactions more smoothly.

More precise matching:

For example, providing product selection tools. A user who has been making videos for many years has cultivated a group of fans who like to watch his content. How to find suitable products to match among a huge number of products? This will be a difficult problem that a large number of creators who sell goods will encounter. It can help creators find their own products based on information such as product type, product discount, product evaluation, etc. It also adds in-site transaction data to provide corresponding recommendation mining.

V. Conclusion

1. Summary

Let’s review the conclusion:

In terms of user size, the focus is on increasing the number of middle-aged and elderly people aged 36 and above, and the growth space is limited. In terms of monetization, traditional advertising will reach a ceiling of 88 billion by 2020.

Connection-based monetization - the focus in the past two years, if you don't make progress, you will regress.

Foundation: Creator-viewer connection.

• The indicator changes from playback volume to interaction
• In terms of distribution, increase the weight of individuals
• Focus on the stream, from emphasizing direct playback to focusing on all the creators' dynamics
• In terms of interaction, establish more and higher quality interactions

Conversion: More efficient.

• Gift giving and rewarding - enriching the gift giving methods, but not the main point.
• Content e-commerce - make money through live promotions and on-demand sales; solve supply chain problems, mainly through cooperation and supplemented by self-development; improve purchase conversion rates, focus on data interoperability, and reduce the steps before placing an order.

At the beginning of this year, Kuaishou’s live e-commerce business raised its 2020 GMV target to 250 billion, while Douyin’s live e-commerce business’ GMV target was also as high as 200 billion. WeChat also officially entered the short video field by launching the video account in early 2020. Whether Douyin can gain a firm foothold in the monetization path of content e-commerce in short videos depends on the war in the past two years.

2. Variables

In addition, the upcoming arrival of 5G will also bring about new fundamental changes. The popularization of 5G will increase network transmission speed by hundreds of times, and the way users satisfy their entertainment needs may change.

In terms of content format, new forms of presentation will become a new trend, such as AR or panoramic videos, of which Douyin is also trying.

Under these changes, if new and better ways to meet entertainment needs emerge and Douyin fails to seize the opportunity, there may be a loss of user time or even users, which will be another challenge.

Author: locust

Source: locust

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