How Important Is the TikTok Economy?

Summary

WSJ Tech News Briefing: How Important Is the TikTok Economy?

Episode Release Date: January 22, 2025

Host: Julie Chang, The Wall Street Journal

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Introduction

In this episode of WSJ Tech News Briefing, host Julie Chang delves into two major topics shaping the tech landscape: Meta's recent changes to its content moderation policies and the burgeoning TikTok economy in the United States. The discussion highlights the potential impacts these developments have on advertisers, businesses, content creators, and the broader economy.

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Meta’s Shift in Content Moderation

Overview

Meta CEO Mark Zuckerberg announced a significant overhaul of the company’s content moderation strategy. Following in the footsteps of Elon Musk’s approach with Twitter (now X), Zuckerberg has decided to discontinue Meta's internal fact-checking program, transitioning instead to a user-based system for flagging problematic content.

Key Points:

• Zuckerberg’s Announcement: Meta will continue to address illegal and high-severity violations but will primarily rely on users to report content issues. This mirrors Elon Musk's strategy with X, where moderation became more community-driven.

• Comparison with X (Twitter): Unlike Meta, X saw a mass exodus of advertisers after its acquisition by Elon Musk, leading to a significant devaluation of the platform.

• Dan Gallagher’s Insights: WSJ’s Heard on the Street columnist Dan Gallagher shares his perspective on why Meta might weather the storm better than X.

Notable Quotes:

• Dan Gallagher [02:06]:

  "There's been a little bit of worry, but it's not been nearly to the scale that we saw with X. There's a few reasons for that."

• Gallagher on Ad Revenue:

  "The numbers are so much phenomenally bigger for Meta than they ever were for Twitter."

Ad Revenue Comparison:

• X (Twitter): As of its last report in 2022, Twitter generated less than $5 billion annually in ad revenue.

• Meta Platforms:

  • Instagram: Estimated over $8 billion in quarterly ad revenue.
  • Overall: Meta's combined ad revenue from Facebook, Instagram, and other platforms vastly outpaces Twitter’s, providing a more robust financial cushion.

Risk Assessment:

• Advertiser Confidence: While some advertisers may express caution, Meta benefits from a diverse base of small and mid-sized businesses, reducing reliance on a few major advertisers.

• Stock Implications: Although Meta has shown strong ad revenue growth, any slight dip could impact investor confidence. However, the overall business outlook remains solid according to Gallagher.

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The TikTok Economy: Impact and Stakes

Overview

Following a recent executive order signed by former President Trump, TikTok faced potential shutdown in the U.S., but the platform is currently operational with an additional 75-day period to secure its status. This uncertainty has significant implications for millions of American businesses and content creators who rely on TikTok as a primary marketing and revenue-generation tool.

Key Points:

1. Economic Contribution:

   • TikTok’s Impact: According to a TikTok-commissioned study, the platform contributes approximately $20 billion annually to the U.S. economy. While the Wall Street Journal has not independently verified this figure, it underscores TikTok’s substantial role.

2. Impact on Small Businesses:

   • Primary Marketing Channel: Many small businesses depend on TikTok to drive traffic to their websites and physical locations.
   • TikTok Store: Launched in 2023, TikTok’s digital store alone facilitated a gross merchandise value of $9.7 billion in the U.S. last year.
   • Case Studies:
     • A chocolate business owner shared how a viral TikTok review allowed her to transition from part-time teaching to full-time entrepreneurship, highlighting the platform’s capacity to transform business trajectories.
     • Another small business expanded by building a 2,100 square foot warehouse, emphasizing TikTok's role in enabling business growth and investment.

3. Effects on Content Creators:

   • Revenue Streams: Creators earn through brand sponsorships, advertising revenue, and potentially TikTok’s creator fund. Successful creators may also secure deals outside the platform, including book contracts and opportunities in film and television.
   • Income Variability: Earnings vary widely, with some creators earning sufficient income to cover utilities, while others may struggle to meet larger expenses like rent.

4. Shift to Alternative Platforms:

   • Migration Trends: In anticipation of potential bans, many creators have already begun diversifying their presence across other social media platforms. However, TikTok's unique algorithm continues to offer superior engagement and content distribution.
   • Challenges on Other Platforms: Despite efforts to move, creators often find other platforms lack TikTok's ability to sustain their reach and engagement levels effectively.

5. Broader Economic and Social Implications:

   • Job Security: A long-term ban could lead to layoffs not only among creators but also among supporting roles such as talent agents and video editors.
   • User Experience: Beyond economic factors, TikTok provides significant value as a source of free entertainment, which many Americans incorporate into their daily lives.

Notable Quotes:

• Sarah Needleman [06:02]:

  "Even though this is a very popular app, it's not really going to dent the economy overall, but certainly it will have an impact on the many, many small businesses and creators that rely on it."

• Needleman on Small Businesses [06:31]:

  "They rely on TikTok because it's in many cases their main marketing channel, meaning it drives the most traffic to their business's website or foot traffic."

• Needleman on TikTok Shop [07:36]:

  "The gross merchandise value for TikTok's digital store in the US last year was $9.7 billion."

• Needleman on Creator Earnings [08:14]:

  "There's a bigger range in how much they make depending on the number of followers they have."

• Needleman on User Value [10:15]:

  "Many Americans would also lose a significant source of free entertainment, which is a form of value in and of itself."

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Conclusion

The episode underscores the pivotal roles that both Meta and TikTok play in the current tech ecosystem. While Meta navigates changes in content moderation with a strong financial backing and a diverse advertiser base, TikTok stands as a critical platform for small businesses and content creators, contributing significantly to the U.S. economy. The potential instability of TikTok introduces risks for those dependent on its platform, highlighting the intricate ties between social media platforms and economic livelihoods in the digital age.

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Produced by Julie Chang with supervising producer Kathryn Millsop. For more insights, stay tuned to WSJ Tech News Briefing.

Transcript

[Ryan Reynolds]

Hey there Ryan Reynolds here. It's a new year and you know what that means. No, not the diet resolutions. A way for us all to try and do a little bit better than we did last year. And my resolution, unlike big wireless, is to not be a raging and raise the price of wireless on you every chance I get. Give it a [e-mail] switch $45 upfront.

[Julie Chang]

Payment required equivalent to $15 per month new customers on first 3 month plan only taxes and fees extra Speed slower above 40 GB on unlimited. See mintmobile.com for details.

[Sarah Needleman]

Foreign.

[Julie Chang]

Welcome to Tech News briefing. It's Wednesday, January 22nd. I'm Julie Chang for the Wall Street Journal. Meta CEO Mark Zuckerberg has taken a page out of Elon Musk's playbook and ended internal fact checking on its platforms. And while that turned out to be a costly move for X, Meta will probably be okay. We'll explain. And then after going dark for US users on Saturday night, TikTok is back online. For now, we'll look at the role that TikTok plays in the US economy and what's at stake for creators and businesses. First up, Meta CEO Mark Zuckerberg announced earlier this month that he was ending the company's internal fact checking program and replacing it with a user based system. He said that Meta would continue to tackle illegal and high severity violations, but for the most part the company is relying on its users to flag problematic content. This is similar to what Elon Musk did after buying X, then Twitter in October of 2022. Advertisers fled the platform and a year after his purchase, Musk said that X was worth about $19 billion, less than half of what he paid for it. So could Meta suffer the same fate? WSJ heard on the street columnist Dan Gallagher says that is unlikely. Dan is with me now. So Dan, how have advertisers and investors reacted so far to Zuckerberg's announcement to end internal fact checking and Meta?

[Ryan Reynolds]

Well, I would say that there's been a little bit of worry, but it's not been nearly to the scale that we saw with X. There's a few reasons for that. One is that compared to what was one called Twitter, now called X, Facebook, Instagram, all the platforms Meta owns are much, much, much bigger. They're much more vital to advertisers. Twitter was always seen as kind of almost a more experimental ad format. Some brand advert advertisers found it useful, others committed like very small parts of their budget to it. So frankly, it was actually a lot more disposable. So when there became concerns about what was going to happen to quality of content and moderation and all those things, it was actually a very easy decision for a lot of advertisers to say, ah, this is a little too risky for us. That's a much harder decision to make when you're talking about essentially Facebook, Instagram, because you're talking about something like a quarter of the world's population checking in daily on at least one of these apps.

[Julie Chang]

For context, how does ad revenue between X and Meta compare in terms of total ad revenue?

[Ryan Reynolds]

They're not even close. And if you go, and remember, we haven't had Twitter's advertising numbers since 2022, but based on those last reported numbers, Twitter was getting about less than 5 billion in ad revenue annually at that time. At the time it was bought, Instagram was estimated to be getting more than 8 billion in ad revenue per quarter by that period. And Instagram is actually at the time a smaller platform than Facebook in of its ad base. So that's just a one point to see. The numbers are so much phenomenally bigger for Meta than they ever were for Twitter.

[Julie Chang]

Going back to Zuckerberg's announcement to end internal fact checking, there still has to be some risk associated with that, right?

[Ryan Reynolds]

There is. You're going to see some advertisers be a little cautious about it. And it's not to say that they wouldn't lose any advertisers. There might be some that say, hey, this is maybe a little too risky. Where Meta has an advantage is that they are not reliant on a few big advertisers to really make their numbers. They actually have a very wide base of small and mid sized businesses, advertisers from all over that, that spread that risk out a lot. So even if you have like really big brand advertisers decide now maybe we're not going to spend as much there, it really doesn't hurt them nearly as badly. I don't see a risk of a major investor flight. There is some risk though, because Meta's ad revenues have been growing. So you know, Google's a much bigger platform even than Meta. But Meta's been outgrowing Google by quite a bit over the last five, six quarters. You could see some risk at least to Meta stock because maybe if that growth slides just a little bit, I don't know that we're going to see that yet. But that would be the kind of thing we could see at Meta if there were enough advertisers to make a small dent. You might just make a small dent in the growth rates and scare out some of the momentum investors. Overall, I think the company's business is going to be pretty solid.

[Julie Chang]

That was WSJ's heard on the street columnist Dan Gallagher. Coming up, TikTok is back in the U.S. but its future is still uncertain. After the break, we'll take a look at the TikTok economy and what's at stake. President Trump signed an executive order this week giving TikTok 75 more days to work out a deal to prevent it from going offline. In the US the social media platform is used by millions of businesses and content creators to connect with customers. In fact, a sizable sub economy has sprung up around the app, which is used by roughly 170 million Americans. WSJ Tech reporter Sarah Needleman has been looking into the financial stakes of TikTok and the people who depend on it. Sarah TikTok is back for now, but how would a long term ban affect the US Economy?

[Sarah Needleman]

Even though this is a very popular app, it's not really going to dent the economy overall, but certainly it will have an impact on the many, many small businesses and creators that rely on it. Last year TikTok commissioned a study that concluded that the company contributes about $20 billion a year to the US economy. That is something the Wall Street Journal hasn't independently verified.

[Julie Chang]

You spoke with small business owners who rely on TikTok. Can you tell us more about them and what they said about this potential band?

[Sarah Needleman]

They rely on TikTok because it's in many cases their main marketing channel, meaning it drives the most traffic to their business's website or foot traffic. Many of them also sell goods through the TikTok store and that's a big source of income for them as well. Many have said that they have tried building presences on other social media but it just hasn't been as effective. They say TikTok's algorithm, there's some sort of secret sauce behind it that really helps drive people to their channels. And there's also other influencers who may recommend mend the businesses. One woman told me an influencer and the food world posted on TikTok a very flattering review of her chocolates. She's a chocolate business and she said at that time she was working part time as a teacher and part time running the chocolate business. When this post went on a Friday night, it got so viral by Sunday she handed in her resignation for her teaching job and just started doing the chocolate business full time. So it's really been especially helpful for her business. And she said that if a ban happens, she anticipates having to lay off four to five part time workers.

[Julie Chang]

How big of a deal is that TikTok shop you just mentioned TikTok's digital.

[Sarah Needleman]

Store, which is relatively new. It came out in 23. That store alone has become pretty important. The gross merchandise value for TikTok's digital store in the US last year was $9.7 billion. This one other small business, they just built a 2,100 square foot warehouse over the summer for their small business. They sell candles, detergent, all purpose cleaners, things of that nature. And so the bank will be particularly pain for them because they just made that investment and they said they are worried about having to lay off employees depending on how things go.

[Julie Chang]

You also spoke with content creators. How much do they make from TikTok?

[Sarah Needleman]

There's a bigger range in how much they make depending on the number of followers they have, and some say they generate enough money to pay their utilities, but not necessarily their rent. But it really ranges the gamut. Creators generally make money through TikTok in the form of brand sponsorships, advertising revenue. There's a creator fund that they may be able to get money from directly from TikTok, depending on whether or not they qualify. Oftentimes it leads to deals outside of TikTok, book deals, even opportunities to be in Hollywood. In addition to small businesses and creators, many others would be impacted by a ban, including talent agents, video editors, and others that support that work.

[Julie Chang]

So are creators moving to other platforms?

[Sarah Needleman]

Creators have been moving to other platforms for several years now because keep in mind, this was something that came up in Trump's first presidency. So since then, when there was concerns back then about the possibility of the app being shut down, many creators started diversifying to other platforms. Others didn't do that until more recently when it started looking like the law was going to go into effect. And so they're playing catch up. But as I mentioned earlier, a lot of people believe that these other platforms just aren't as good as TikTok at keeping people engaged and delivering the kind of content that they like. There's something about that TikTok algorithm that they say is really special, and so they haven't had as much success on other platforms. That's not always the case. Some have.

[Julie Chang]

Could creators potentially make as much money on other platforms?

[Sarah Needleman]

These other platforms, some of them do also have creator funds, some don't. But sponsorships where you agree to make a post recommending a product that's very common, you'll see that in many different platforms. So those types of opportunities are ubiquitous for the most part throughout social media. And the opportunities that you can get offline would still apply here as well.

[Julie Chang]

And what else is at stake here? Looking at the Overall value of TikTok.

[Sarah Needleman]

Many Americans would also lose a significant source of free entertainment, which is a form of value in and of itself. So it would take away something that people have come to spend a good amount of time in. Some people told me they go on TikTok every single day of their lives. There's certainly a value to it because they invest so much of their time and energy into it.

[Julie Chang]

That was WSJ tech reporter Sarah Needleman. And that's it for Tech News Briefing. Today's show was produced by me, Julie Chang with supervising producer Kathryn Millsop. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.