TikTok: the time is now

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ECI Media Management_TikTok the time is now

For nearly a decade, the Google-Meta duopoly raked in more than half the money invested into digital advertising in the US. And while they still dominate, 2022 was the first year since 2014 that that wasn’t the case. Their joint market share was 48.4% last year, and is expected to drop to around 44.9% in 2023. They’re still growing, just more slowly than the rest of the digital ad market. This slowed growth is likely down to the increasing number of formats available, the fact that people are spending less time online than they did during the pandemic and, of course, Apple’s infamous privacy update which requires apps to ask users if they want to be tracked.

So who’s receiving the other half of US advertisers’ digital ad dollars? There’s Amazon, of course, whose ad business is powered by its ability to target users based on their purchase and browsing history. It commanded 11.7% of digital ad spend in the US in 2022, and that’s expected to rise to 12.4% in 2023. The streaming services are also getting a bigger share, with advertisers shifting spend from linear to connected and streaming TV. Roku, Hulu, Pluto, Paramount+, Tubi and Peacock combined made up 3.6% of the digital ad market in the US in 2022 – that percentage will rise significantly now that Netflix and Disney+ have launched ad-supported tiers.

And then, of course, there’s TikTok. While the Chinese-owned short video app is still a relatively small player, with just 2% of the digital ad market in 2022, it’s the one that everyone is watching and packs a far bigger punch than its market share suggests.

TikTok has a highly engaged, younger audience

TikTok is taking up more space in marketers’ minds and media budgets thanks to its audience and how effectively it engages them. Insider Intelligence estimates that 61.3% of Gen Z in the US uses TikTok at least once a month, and adults in the country spend an average of 46 minutes on the platform – significantly more than the 28 minutes they spend on Instagram. These audiences are highly engaged – one study showed that the standard engagement rate of ads on TikTok is 6% – 10 times higher than Instagram’s 0.6%. Much of TikTok’s success in engaging its audience comes down to how it has shifted how social media is used, from finding things you like to discovering new things. It also allows its audience the opportunity for self-expression and to be authentically themselves. And the clincher? TikTok users are 1.7 times more likely to buy products they discover on TikTok compared to other platforms; TikTok’s commerce-focused hashtag, #TikTokmademebuyit, has been viewed more than 30 billion times.

Lowering CPMs to attract investment

TikTok is riding a wave just as advertisers are looking for ways to rein in their spending. It has responded to the economic downturn by reducing the cost of its ads in a concerted effort to appeal to marketers. The result is extremely attractively priced advertising, with CPMs half that of Instagram Reels, a third cheaper than Twitter’s and 62% less than Snap’s.

How are advertisers responding to TikTok?

In a word: enthusiastically. While a year ago, many would have viewed TikTok as an experimental platform, its popularity amongst young audiences and very high levels of engagement mean that it is now considered to be at least close to mature – but perhaps without the scrutiny that more established channels are put under. Some brands are prioritizing TikTok as much as Meta’s platforms on their media plans: the top 1000 advertisers in the US increased their spend by 66% to $467m from September to October of last year. Although TikTok has not been immune to the downturn in online spending – it slashed its revenue targets for 2022 by 20% – it is estimated to have made more than $10bn in ad revenue in 2022. Not bad for an app that launched worldwide less than six years ago…

Fortune favors the cautious

It’s very easy to get excited about TikTok, with its impressive reach and engagement – but there are reasons to be careful when advertising on the platform. As it grows it attracts, along with the other tech giants, increased scrutiny from national and international bodies. Washington DC is sufficiently alarmed about national security to ban government employees from using the Chinese-owned app on government-owned devices. India has banned the use of TikTok permanently, while several other countries, including Indonesia, have placed temporary bans on its use. Towards the end of 2022, an internal risk assessment conducted by TikTok’s parent company, ByteDance, found systemic issues with fraud and inappropriate data management. One employee familiar with such issues apparently said that it is impossible to keep sensitive data from being stored improperly on Chinese servers.

These privacy and security concerns have the US government worrying about whether they should take the Indian route and restrict access to the app altogether. The Democrats are very reluctant to do so as it could alienate young people – an important part of their voting demographic – but are also aware that the platform could be used to spread disinformation in the presidential election next year.

As things stand, there is no inherent risk of reputational damage for advertisers investing in TikTok ads. However, it would be wise to monitor the situation. While it is currently difficult to imagine tearing young people away from their favorite app, consumers are becoming increasingly aware of privacy and security. Things can turn quickly (just look at Twitter) and – teamed with the imminent and final demise of the cookie – brands should certainly be seeking to build robust audiences and communities and first-party data practices away from third-party platforms, for future-proof online marketing.

Image: Shutterstock/Kaspars Grinvalds

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