TikTok killed Quibi even before it began. Quibi’s business model was to make a few short videos by legends and serve them to the world while TikTok’s model is to make many videos by amateurs, using AI, find the best, and serve the world. TikTok won because the probability of finding hits compounds for TikTok provided you have the capacity to process the data at scale. With cloud computing, that is not an issue.
In 2000, Option A would have been a good business because the computing resources to run AI and crunch the numbers were not (commonly) available for Option B. But with cloud computing and the age of AI here, Option B wins. The probability of getting a hit video compounds in Option B while A is limited by the insights of just 10 people; virality is key for short movies. That is why Tiktok will remain a better business than Quibi which is looking for a buyer despite being under the guidance of legendary Jeffrey Katzenberg. People, as I have noted in the Grand Playbook of Business, your business model is more important than your ability to execute.
That algorithm will cause more problems for many social media firms ahead. It has eclipsed Facebook. If the growth rate continues, in 5 years, TikTok will be more popular than Facebook, Instagram, FB Messenger and WhatsApp combined. That is the real Facebook’s existential threat, not EU and Washington DC regulators.
The wealth of most modern digital empires have come from aggregation. The next wave will come from the capacity to rapidly find gold in the rumble; TikTok is a king there.
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We are moving into the AI age where dominant consumer companies could fade despite their network effects and the associated virtuous circle. Yes, having more data will not save you if the mathematics is not great. The future belongs to numbers and AI has supercharged that. Time for Nigeria and Africa to at least play on mathematics.
LinkedIn Comment on Feed
Comment #1: Prof I stand to be corrected but I don’t believe this analyses. In tech ecosystem governing social media Facebook and Tiktok are in different niche. Facebook can’t be afraid of TikTok because they are not using say keywords algorithms. Let me remind you about 500 million users of Facebook especially in Africa go with Java and non java phones. Tiktok narrowed her uses to android and iPhone. The analyst focus on USA alone. Africa spends more money on Facebook than any other continent.
My Response: Interestingly, investors do not really spend so much time thinking about Africa and what it uses. They focus on the hours spent per platform in US and Europe. Those are the places where the money comes. If TikTok wins that time, it wins advertisers. Africa provides the IP addresses but our revenue is not there and the value while key remains marginal.
Facebook revenue in 2020:
US – $38b
EU – $20b
Asia Pacific (Japan, Canada, Australia etc) – 19.848
REST of the world (Africa, LatAm, etc) – $7B
So, if you have 4 hours for social media and TikTok takes 70% and FB keeps 30%, advertisers care.
Comment #2: Interesting analysis. Tiktok is rising but let’s put things into perspective by size and not time spent online.
Tiktok:
2020 Revenue – $34.3B up 111% from 2019
BUT
operating LOSS of $2.1B despite posting a profit in 2019
Facebook:
2020 Revenue – $86B up 21.59% from 2019
BUT PROFIT of $29.1B
So if TikTok posts another stellar year with 100% growth(which will be tough) they will still be at only $68.6B, and profit would be questionable.
Meanwhile if FB posts another increase at roughly the same %(22) then they’ll be at $104.9B with arguably another $35.5B in profits……big difference between the two.
My Response: Good analysis but this is an industrial way of looking at it. It is like saying that because Toyota revenue is $247 billion, selling close to 10 million cars, it is better than Tesla which has revenue of $31 billion, selling about 500k cars. Toyota market cap is below $300b while Tesla is above $600 billion.
The absolute numbers do not matter. What drives now is momentum/perception. If advertisers see that TikTok keeps people more engaged, the Myspace experience will come to Facebook.
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