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Business Proposal for TikTok

Catherine Lin, Jason Feng, Zexun Yao

Dr. Cheryl Wakslak

GESM-131 The Art and Science of Decision Making

May 5th 2021

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Table of Contents

1. Introduction

2. Problem

3. Solution

4. Target Users

5. Content Generation

6. Biases applied

6.1 Daily Login System

6.2 Professional Profile

7. Profitability and Business Model

8. Conclusion
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1. Introduction

Along with the trend in self-media, short videos have been presented as mainstream and

ubiquitous within social media platforms while reshaping users’ experience to varying

degrees. However, with the emergence of homogeneous competitive products in the market,

the content of short videos gradually became homogenized, “snackificated,” and even with

poor quality. The barriers to entry for User-Generated Content (UGC) were also falling and

resulting in the augment of inferior contents and the reduction of user growth. According to

TikTok Revenue and Usage Statistics 2021, the statistics show that the number of downloads

has declined from 115 million to 56 million during 2020 (Mansoor Iqbal, 2021).

To achieve the goal of building a knowledgeable and engaging environment and

introducing potential users who demand high-quality content, we present TikTok as a

business proposal. The result of Judy’s Study suggests that user stickiness is affected by web

user attitude towards a website, trust in a website, and the quality content (Judy Chuan-Chuan

Lin, 2007). Based on the collected information and following research, we intend to create a

new sub-channel, TokTalk for TikTok, which provides exclusive content that attracts target

users. To initialize the program, TokTalk will have Invited Creators to support content

supply. We aim to capture high-quality users who are currently not interested in TikTok,

enhance the user stickiness, promote user growth and retention, and eventually realize long-

term profitability.

2. Problem

TikTok is a social networking mobile app for users to create and share short videos that

span about 15 seconds. Creators can select various filters, background music, and special

templates to share their ideas and communicate with the online community of viewers. As the
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giant of short video platforms, TikTok has attracted millions of users worldwide and affects

the trend in the social media market. However, in the presence of emergent competitors such

as “Quibi (Los Angeles, US),” “Kuaishou (Beijing, CN),” and “Byte (Los Angeles, US),”

along with the homogenous forms of creation and contents, the User Stickiness of TikTok

was no longer obtaining dominant advantage. Many users have moved to other platforms for

more creative content and even special incentives like rewards.

Another existing problem is the loss of users, which TikTok has not covered in the target.

Based on the report of TikTok Revenue and Usage Statistics 2021, the most active TikTok

users are concentrated in magapolies in China. While the largest Tier 1 cities where people

are more educational and interested in more valuable contents account for only 11% of usage,

Tier 2 cities accounting for nearly a quarter of TikTok (China) users (Mansoor Iqbal, 2021).

The group of people in Tier 1 city forms the biggest part of the target users in this proposal.

The contribution of users would affect the User-Generated Content as well. In China, the

usage level is comparatively lower in less-developed but highly-populated areas located in

Tier 4 and 5 (see Fig 1).

TikTok Users in China(Percentage)

100
90 17.5 17.4
80
70 22.6 26.1
60
50 25.1
40 27
30
16.1
20 13.3
10 13 11.2
5.7 5
0
2019 2020

Tier 1 Tier 2 Tier 3 Tier 4 Tier 5 Tier 6

Fig 1. Fig 2
Tiktok Users in China (Percentage) UI Prototype
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3. Our Solution

To optimize the user experience and continuously promote the user growth of TikTok

under the dramatic competition in the social media market, we introduce TikTok to a new

channel, TokTalk. TokTalk is created to provide exclusive content consisting of selected

user-generated content and videos made by invited creators. It aims to provide a place to

share opinions, learn from professionals, and expand the aspect of knowledge.

To maintain the user habit of using TikTok, TokTalk is designed to have a similar

user interface and experience with the original TikTok, where users swipe down the screen to

watch the following video and tap the heart to support or show the fondness of the current

video (see Fig 2 for an example). However, having the same experience doesn’t mean the

channel is the same as the recommendation channel “For You.” Current TikTok is most

popular with teenagers of age between 16 and 24, making 60% of all users, and 80% of all

users are between ages 16 and 34 (Dievendorf 2021). However, we aim to attract target users

with a slight shift of the age distribution, estimating 60% of our users aged between 20 and

30 and 80% of them aged between 20-40. We suppose our target users are more mentally

mature, educated, and interested in gaining intriguing knowledge. To achieve the goal,

TokTalk is designed to have different content compositions and impressions on users. While

TikTok currently gives users a sense of entertainment and enjoyment, TokTalk aims to

provide an environment of absorbing and sharing knowledge in a relaxed way.

4. Target Users

The business ideas of creating a new channel for TikTok are inclined to attract users who

attempt to see contents that may improve self-capability in education, science, career tips,

fitness, and other areas instead of merely watching mainstream videos like pranks and

dancing to kill time. Globally speaking, the pandemic situation in these two years helped
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promote the development of self-media and short video formats because most people had the

chance and time to get in touch with social media like TikTok during the quarantine period.

However, the data shows that after the pandemic situation got revived recently, the monthly

download numbers of TikTok drops and gets into a buffer zone with steadily downloaded

numbers but will slowly decrease every month (see Fig 3). Rebecca Jennings states that

people prefer to recap the earliest months of the pandemic because they believe the period in

TikTok creates “some moments of joy and surprisingly positive aspects of quarantine,” which

will soon get vanished after getting back to normal lives in her article “This week in TikTok:

Please stop romanticizing the pandemic,” (Jennings, paragraph 9). As a result, it is

understandable that when the novelty wears off, such a platform will find it hard to inject new

blood or even start to lose users due to the monolithic content.

Fig 3
DAU Growth Curves

After acknowledging the possibility of losing current users and not attracting more

potential newcomers to gain more profits for the platforms, the idea of creating a new channel

for high-quality content in TikTok may be the solution to the forum. Based on research about

TikTok Chinese Market, we found how city tiers in China get involved in the relationship
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between TikTok users and different city tiers. To be more clarified, the City-Tier System is a

unique way that classifies the size, GDP, and population for cities in China (Dorcas Wong,

paragraph 13). The data in the table below show that most TikTok users in China are

centralized in Tier 2, 3 and 4 cities, where cities contain relatively lower GDP and lower

pressure of lives. Whereas, only a relatively small number of TikTok users are from Tier 1

cities like Beijing and Shanghai, which forms an unproportionate oval relationship between

users amount and city tiers. People who work in Tier 1 cities experience higher social

pressure and have less free time than those who live in lower-tier level cities due to higher

prices and workload.

Chinese TikTok users by city tier

City Tier Proportion of Users

Tier 1 11%

Tier 2 41%

Tier 3 23%

Tier 4 25%

(Coresight Research, 2020)

Meanwhile, TikTok’s current algorithm for recommending videos is monotonous,

which leads users to frequently see the same type of content or videos that follow the primary

trend and become those in Tier 1 cities who seek efficiency and meaningful content. As a

result, they may give up on using TikTok since, in their eyes, TikTok is just an application

that may waste tons of time in their lives. Our goal is to attract potential users who are around
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twenty-four and still desire to learn new material; however, they do not have money, energy,

and time to take any form of classes. As a result, our sub-channel in TikTok as an efficient

and cheap alternative may stimulate these portions of users’ motivation and ultimately use

TikTok for its border coverage of valuable and meaningful contents.

5. Content Generation

The top 5 categories of current TikTok by hashtag views of June 2020 are

Entertainment, Dance, Pranks, Sports, and Home Reno, where the number of views of

Entertainment exceeds 440 billion, which is greater than the sum of all other nine top

categories (see Fig 4) (Tankovska 2021). While Entertainment is making up more than 50%

of all views of the top ten categories, TokTalk aims to have contents mainly composed of

Science, Career advice, Cuisine, Puzzle, Fun Facts, Fitness, Stress Relieve, News Report, and

Common Knowledge (the list is not ranked).

500
Entertainment
450
Dance
400
Pranks
350
Sports
300
Home Reno L1
250
Beauty
200
Fashion L2
150
Cooking
100 L3
Life Hacks
50
Pets
0

Fig 4 Fig 5
Most popular content categories on TikTok worldwide as of Proposed distribution of
June 2020, by number of hashtag views (in billions)
levels of invited creators

To achieve the goal of generating content described above and support video streams

in TokTalk. We suppose an Invited Creators System in the beginning phase of TokTalk. Our

operation team will find and invite video uploaders in our desired categories from other video
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platforms and sign a contract to ensure that videos uploaded to TokTalk are exclusive. Video

creators invited to our program are incentivized by our guarantee of a certain level of

impression, bonus cash reward for hot videos or continuation of video uploading, free

tutorials about video making, and direct communication channel with the TikTok operation

team. Invited Creators have a level system to quantify their welfare and level of impression.

There are three levels, and the higher the level, the better the benefits creators can get. The

operation team assign creators with a level while entry and upgrade them if they have good

performance. We propose the distribution of level 1, 2, and 3 creators to be roughly 10%,

25%, and 65% (see Fig 5) so that the entry for invited creators low enough to support content

supply while limiting the number of level 1 creators to control scarcity and therefore motivate

creators at levels 2 and 3 to be promoted.

Fig 6.
simplified content processing flowchart

The recommendation algorithm eventually ranks contents, but with the content from invited

creators. If a video is from invited creators, it will go to the content pool directly without

classification by the algorithm (see Fig 6 for an illustration). Videos are then ranked by the

recommendation algorithm and shown on users’ phones.

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6. Biases applied

6.1 Daily Login System

To keep users active, we designed a daily login reward system, where users can

collect rewards by finishing watching a video each day. Rewards are free “Talk-points” that

users can spend in “Talk-shop” for daily login, one free private question that users can ask

professionals for continuing logging in for a week. In addition, five private questions plus

free online course resources are the rewards for continuing to log in for a month. On the other

hand, if a user stops logging in in the middle of a week, they will lose half of the “Talk-

points” they’ve collected during the week.

By Loss Aversion and Sunk Cost Fallacy, which indicate people “tend to prefer

avoiding losses to acquiring equivalent gains” (Tversky and Kahneman 1979) and “tend to

continue an endeavor once an investment in money, effort, or time has been made” (Arkes

and Ayton 1999). As a result, after logging in for days, users are more likely to continue in

the next few days because they do not want to lose the reward they could have earned and

waste the effort of the previous days.

6.2 Professional Profile

We designed a profile system where users can state their areas of expertise in their

profile. Users are required to upload files that support their professionality. After being

certificated, there will be a line on the information corner (lower left corner) showing the

declared professionality. According to Obedience to Authority, people can easily believe

words said by the authorities. Video creators can use their professionality to attract their

viewers better.
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7. Profitability and Business Model

The reason behind getting more potential users from tier 1 cities is that the number of

users is a determining factor in increasing the annual profits for the platform. Although

recently TikTok attempted to get profits from selling products on the platform by building

connections with major online shopping websites in China, the primary revenue for TikTok

in the Chinese Market is still from companies' News Feed advertising. Based on our research,

the annual profitability of these advertisements may the digitalize briefly as (Shi Xiaoye,

Page 32):

DAU (Daily Active User) × Daily usage time × Number of videos played per minute

× AD Load × CPM (ads cost per thousand videos played) × 365(Number of days in a year)

− potential costs

However, it is hard for us to measure and change factors like Daily usage time. The

number of videos played in a minute in the profit model is hard to manipulate as long as they

are related to users' screen-using habits. Based on the research on these two factors,

researcher Shi Xiaoye assumes that "the number of video clips per minute to be in a range of

1 to 6 videos are assumed to be in a length range of 10 to 60 seconds," and setting the "lower

and higher bounds to be 30 and 60 minutes" for users who uses TikTok in one day (Shi

Xiaoye, Page 48,49). But our business ideas may, at least to some degree, gain profits by

affecting other determining factors like daily user numbers, AD Loads Rate, along with CPM,

which are linear proportioned with each other to increase the annual profits for TikTok (Fig

7).

As mentioned above, the business idea of creating a sub-channel for TikTok is

inclined to attract potential users to promote the platform's profitability. So far, there are
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around six hundred million TikTok users in China. In contrast, the percentage of users in tier

1 cities is approximately five percent, twenty-five percent lower than user amounts in Tier 2

and Tier 3 cities. In general, Tier 1 cities have the largest population and the fewest users.

After TikTok applied those biases to the user, it is likely to attract and keep target users who

want to learn helpful knowledge but have no time to do it; thus, choosing the short video

format to empower them themselves. Ideally speaking, we can attract users' percentages in

tier 1 cities close to other city ties, about twenty percent of the city population. Assuming that

the number of daily active users is only 40 percent of the total user amounts, we can simply

calculate that the new users in the first-tier cities are still hugely profitable annually, which is

around four billion CNY. In USD, the profit will be six hundred million extra USD in a year

after keeping this portion of users in the first-tier cities.

Another factor we need to consider is the AD Load Rate and the following CPM for

the TikTok platform. Compared to companies like Facebook and YouTube, its AD Load is

around 15%, whereas TikTok's current AD Load is only approximately 2.5%. While the AD

Load is reaching saturation in those platforms, TikTok can never achieve such a high AD

Load Rate due to its limitation of the short video formats in the electronic devices. If users

see overwhelming advertisements within just a few sweeps on their phones, most of them are

likely to get bored and give up on using TikTok. Therefore, after TikTok gets more famous in

the self-media area, we still need to balance advertisements. As long as we open a channel for

high-quality content, we may attract ad companies like educational institutions and Fitness

companies to invest in TikTok and increase the rate of sending out advertisements along with

its CPM. According to Shi Xiaoye again, the ideal AD Load Rate for platforms like TikTok is

around four percent (Shi Xiaoye, Page 52). And Still, the profitability here is considered as

well.
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Fig 7.
AD Load VS. CPM

Therefore, the sub-channel will increase TikTok's profitability by introducing more

potential users who attempt to view high-quality and efficient contents. Furthermore,

companies may invest more into TikTok after acknowledging how well the platform and

TokTalk can spread their product’s information to new users, and thus, further increase the

AD Load Rate and CPM. Our business idea is likely to be successful.

8. Conclusion

In general, our business proposal of establishing a sub-channel TokTalk in TikTok is

determined to convert the potential fallacies and achieve the goals of making TikTok more

profitable in the long run. As we estimate above, TikTok is reaching the end phase of rapid

increase in user amounts and urgently need for new blood to consolidate the leading position

within other self-media platforms. Although implementing social biases to the possible users

in Tier 1 cities may evoke their interest in TikTok, there are still many aspects that TikTok
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may take a look at, like improving the recommending algorithm in the system to keep those

users to achieve long-term success.

While our estimation of profit value might not be totally precise, the direction we provide

about attracting users in Tier 1 cities and creating high-quality contents that new users are

interested in can slowly increase annual revenue in the long run. As a result, by accessing our

business proposal into reality, TikTok can not only get new users by simply applying

psychological biases on potential users with less energy and money, but also empowering the

platform itself in the sense of earning more profits, and smothering other similar platforms’

developments. Generally speaking, our business idea of TokTalk for TikTok is efficient,

profitable and likely to be successful for its low implementing barrier than any other business

proposals.
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Anna Dievendorf. TikTok Marketing In 2021: What Is TikTok And How Can You Market
On It? fanbooster, 2021.

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than lower animals?." Psychological bulletin 125.5 (1999): 591.
doi:10.1037/0033-2909.125.5.591
Dorcas Wong. China’s City-Tier Classification: How Does it Work? China-briefing, 2019.

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Kahneman, Daniel, and Amos Tversky. "Prospect theory: An analysis of decision under
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