Why TikTok is giving Big Tech companies in Silicon Valley a panic attack

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When Alphabet CEO Sundar Pichai spoke at a tech conference in Los Angeles last week, he highlighted the threat his company faced from a brave upstart from “out of nowhere.” go”.

“None of us were talking about TikTok three years ago,” Pichai told the audience at the Code conference, describing the popular Chinese social media app as one of Alphabet’s “emerging” rivals. .

A day later, when Snap CEO Evan Spiegel mentioned TikTok at the same conference, he seemed to be talking about a completely different company. To hear Spiegel tell it, TikTok was a colossus, spending “billions and billions and billions of dollars” to grab market share and rob users of apps like Snapchat.

The two seemingly contradictory assessments underscore just how much the Chinese video-sharing app has captured the attention and fears of Silicon Valley’s most powerful players. They may not agree on the specific nature of the TikTok threat, but the tech industry’s dominant companies are united in their belief that their young foreign competitor is a clear and present danger, contrary to everything else. what they have faced before.

With over a billion users, TikTok has risen to the top tier of internet-based social media services in the world in just a few short years. Its ownership by ByteDance, a government-linked Chinese tech company, added a geopolitical twist to what might otherwise have unfolded as a standard upheaval in the competitive landscape.

Throughout Silicon Valley, the topic of TikTok is ubiquitous; at conferences and company meetings, everyone has their own opinion.

“It’s CCP spyware, and we’re crazy to allow it to operate in the United States…[it] has nothing to do with competition, everything to do with influence and security,” said entrepreneur and angel investor Jason Calacanis. Fortune when asked about Big Tech’s recent comments on TikTok.

“The algorithm on TikTok could easily tip the scales a few percentage points in an election here in the United States,” Calacanis said. “Or slant sentiment toward war in Ukraine or independence for Hong Kong and Taiwan.”

TikTok’s ties to China have come under scrutiny in the past, of course, most famously when former President Donald Trump sought to have the app banned in the United States. This effort ultimately failed when a federal judge blocked the proposal. For many observers at the time, Trump’s anti-TikTok crusade was an overreaction driven as much by personal grievances as by alleged security concerns.

But as TikTok’s momentum continued to grow and relations between the United States and China remained strained, the tech industry grew increasingly restless over the video-sharing app. In an attempt to mitigate TikTok’s progress, established tech companies have at times seemed erratic, going from denouncing the company one day to imitating the next.

In March, the Washington Post reported that Facebook’s parent company, Meta, had hired a Republican consulting firm to spread stories raising concerns about TikTok’s Chinese ownership. A few months later, in August 2020, Meta launched Reels in the US (on Facebook and Instagram), a short video product virtually identical to TikTok. YouTube, the Google-owned video website, and Snap have each released their own TikTok counterparts, called Shorts and Spotlight, respectively.

Kids and advertisers are addicted to TikTok

None of these copycat features appear to have replicated TikTok’s success.

Monday, the the wall street journal reviewed an internal research paper that showed Instagram users watched Reels for a total of 17.6 million hours per day, less than a tenth of the 197.8 million hours that TikTok users apparently watch daily. The document also showed that about a third of videos shared on Reels were originally produced on another app, usually TikTok, and bear a watermark or border denoting their origin.

Mark Cuban, entrepreneur and co-founder of Cost Plus Drugs, attributes TikTok’s success, among other things, to its strategy of relying on artificial intelligence to identify and share videos rather than traditional “social graphs” of friends and acquaintances used by Facebook, Twitter, and Snapchat.

“TikTok is incredibly nimble. They go where the content takes them,” Cuban said. Fortune.

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Cuban points to licensing fees as a potential weak spot for TikTok. A deep-pocketed rival could lock in exclusive rights to music, movies and sports, he said.

“There are definitely multiple paths to beat TikTok,” Cuban said. “They just won’t happen overnight.”

TikTok generated nearly $4 billion in revenue in 2021 and is expected to hit $12 billion this year, according to Bloomberg. That’s a fraction of the $28.2 billion in advertising revenue Meta, the parent company of Facebook and Instagram, earned from advertising in the second quarter of 2022, but ad industry insiders say that TikTok is on the rise.

Jason Rapp, partner at strategy firm Whisper Advisors, said Fortune that Big Tech has reason to be concerned, whether it’s Disney and Netflix or Meta and Snap.

“It’s not just kids who are addicted to TikTok, and advertisers are paying attention,” Rapp said.

Meanwhile, major U.S. consumer internet companies have been announcing layoffs in waves for months as the U.S. economy slows and iPhone maker Apple’s new privacy features have reduced the ability to profit from advertising. targeted digital. Snap laid off 20% of its workforce in late August, and Meta began the layoffs by randomly selecting them with an algorithm. That’s not to say that TikTok isn’t affected by the slowdown at all; the company made its own layoffs in July as part of a “company-wide restructuring”, according to Wired.

As the specter of a US government crackdown on TikTok looms, established internet companies – which themselves are under intense scrutiny from antitrust regulators – could get a helping hand in pushing back their Chinese enemy.

TikTok insists its app is run separately from the ByteDance mothership in China and no US user data is shared with operations in China. But US lawmakers and some industry insiders are unconvinced. Companies like Facebook, Google and Twitter are banned from operating in China. Calacanis, the angel investor, believes tech executives should take a similar stance against allowing China into the U.S. market.

But behind some of the Silicon Valley TikTok obsession may be a recognition of the brutal reality of internet commerce, developed and honed on American soil. Consumer Internet companies rarely bounce back once users have moved on to the next hot thing. The list of fallen Internet giants, including AOL, Yahoo and MySpace, testifies to the rapid and inexorable decline that can strike even the most powerful consumer Web companies.

Cuban, who made his initial fortune selling an internet company to Yahoo in 1999, knows the cutthroat nature of internet business.

“Every other major social platform has at one time or another seemed invincible,” Cuban said. “Now they are losing viewership to TikTok.”

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