Whether TikTok Stays or Goes, One Thing Is Clear

In the mid-20th century, TV took off in the U.S…

Previously, radio had been dominant. But after World War II, TV went on to replace radio as the main way for folks to get home entertainment.

In 1946, about 8,000 U.S. households had TV sets. By 1960, that number had soared to 45.7 million.

It became a symbol of America’s growing middle class (and it still is for many emerging economies).

More importantly, it was the most effective way for companies to advertise products to a wide – and captivated – audience.

Back in 1960, American households spent about five hours a day watching TV. Fifty years later, in 2010, it was up to nearly nine hours a day.

But folks aren’t watching regular TV programming like they used to…

In fact, we’re spending the least amount of time behind the TV set in decades. At the same time, we’re consuming the most amount of content ever.

It’s just that we’re doing it away from the TV. We’re consuming video content right in the palm of our hands with our smartphones.

I’m talking about online social media, of course. It’s where the average American spends two hours and 25 minutes of their lives every single day.

Today, some of the world’s biggest companies are built around online social media.

Snapchat owner Snap (SNAP) is worth $18 billion. Pinterest (PINS) is a $23 billion company. And Meta Platforms (META), which owns Facebook and Instagram, is worth a staggering $1.3 trillion.

These companies – and others like them – provide the platforms for the content that’s drawing Americans away from the TV and onto their smartphones and tablets instead.

But one of the most popular social media platforms in the U.S. today wasn’t even made in the country…

I’m talking about TikTok.

It was programmed and designed in China. And it’s owned by a Chinese company called ByteDance.

You’re probably already familiar with the name TikTok. It’s a social media app built around a short-form video format where users can create and share videos. And it’s particularly popular with younger folks.

In just six years since it entered the U.S. market, TikTok has taken the country by storm. It’s kind of like the way the TV took America by storm in the mid-20th century.

TikTok now has about 150 million users in the U.S. That’s slightly less than half the country’s total population.

Not only are a lot of Americans on the TikTok platform, but they’re using it a lot more than other social media apps.

The average time each U.S. user spends on TikTok exceeds the industry average by 20 minutes.

It has become the most engaging social media platform with an average engagement rate of 2.65% by follower count. This means that 2.65% of people viewing someone’s post on TikTok will engage through a reaction or comment.

This is important because the more engaged people are with content, the more likely they’ll go on to do other things… like make a purchase.

Indeed, TikTok’s engagement rate is so high that 71% of TikTok shop users have bought something after seeing it in their feed.

It’s why 55% of TikTok users have purchased something on impulse in the past. That’s higher than on Facebook, Instagram, or X (formerly known as Twitter).

So, TikTok is a powerful app. It has captured Americans’ attention in a way few other companies have in the past.

Heck, it has even provided quite a nice livelihood for thousands of talented Americans who have built big followings on the platform.

But because of its origins and ownership in China, many folks in the U.S. government think that TikTok is a threat to national security.

They claim that the Chinese government will be able to access user data on the millions of Americans on the platform.

In fact, the U.S. House of Representatives just passed a bill that would force ByteDance to sell its stake in TikTok or face a nationwide ban.

It’s unclear if this bill will pass in the Senate and if President Joe Biden will sign off on it. But no matter what happens, one thing is clear…

TikTok showed what U.S. social media users are looking for in an app. It blazed a trail in short-form video sharing, which American users are proving to be great at.

It’s the kind of competition that forces companies to innovate or die. And that’s exactly what we want to see in any industry.

While TikTok’s rise might be hurting companies like Facebook, Instagram, Snapchat, or X in the short term, we can expect better products from these homegrown companies down the road.

Other social media apps have already added their own short-form video features. And if it isn’t TikTok changing the landscape today, it’s going to be some other company doing so tomorrow.

Good investing,

Vic Lederman

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