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  • Writer's pictureEdward Nevraumont

TikTok and new marketing channels

Welcome to Marketing BS, where I share a weekly article dismantling a little piece of the Marketing-Industrial Complex — and sometimes I offer simple ideas that actually work.

If you enjoy this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.

Thanks for reading and keep it simple,

Edward Nevraumont


Quibi falls flat

Are you familiar with a company called Quibi? If not, you aren’t alone. A lack of brand awareness has been just one of the problems facing the new video platform. A June 14 article in the Wall Street Journal details the company’s underwhelming launch: 

At its current pace, Quibi will sign up fewer than two million paying subscribers by the end of the app’s first year, a person familiar with its operations said, well under its original target of 7.4 million. Quibi’s app download numbers have been falling in recent weeks, according to analytics firm Sensor Tower. Daily downloads peaked at 379,000 on its April 6 launch day but didn’t exceed 20,000 on any day in the first week of June, according to Sensor Tower.

What went wrong? Co-founder Jeffrey Katzenberg — the former chairman of Walt Disney Studios and CEO of DreamWorks Animation — shared his explanation for Quibi’s failures during a May 11 interview with the New York Times: 

I attribute everything that has gone wrong to coronavirus. Everything. 

Some quick context on Quibi: their company website proclaims, “Watch movie-quality shows designed for your phone.” The platform offers entertainment and news programs in “quick bites” — hence the name — of 10 minutes or less. All of the content is specifically framed for mobile devices; in fact, the videos cannot be played on computers or smart TVs (without some type of screencast workaround). 

Katzenberg envisioned Quibi as a source of entertainment for people “on the go.” Users might, for instance, watch a short episode while waiting for a subway or standing in a checkout line. So what happens when a pandemic stops people from going anywhere? You would expect — based on Katzenberg’s arguments — that interest in a mobile-only video app would plummet. 

Let’s take a look at TikTok, another platform for sharing short videos. A June 2019 article in the WSJ provides a clear snapshot of where the company was one year ago:

[TikTok] was the third-most installed app world-wide in the first quarter, behind Facebook’s WhatsApp and Messenger. It has about 104 million American downloads to date, and nearly 1.2 billion world-wide. … The average user opened TikTok more than eight times and spent about 45 minutes on the app daily as of March. 

If COVID-19 was really the reason for Quibi’s dismal launch, we should expect to see struggles among rival mobile-only platforms for short-form video. 

But TikTok seems to be doing just fine. Better than fine, actually. 

A June 4 report in TechCrunch states that young people aged 4 to 15 in the US, UK, and Spain now spend almost as much time on TikTok as YouTube (80 minutes per day vs 85 minutes per day). Wallaroo Media just posted estimates for TikTok usage in June 2020: 

  • [Users] spend an average of 52 minutes per day in the platform.

  • TikTok has about 800 million monthly active users (the current number of monthly active TikTok users in the US is about 65 million).

  • For the demographic of US residents over the age of 18, TikTok attracted 22.2 million mobile unique visitors in January, 23.2 million in February and 28.8 million in March. In April, that number jumped to 39.2 million.

To be clear, there are many distinct differences between Quibi and TikTok; Katzenberg says that conversations about the two platforms are like “comparing apples to submarines.” Quibi delivers Hollywood-manufactured content (for a subscription fee). In contrast, TikTok hosts user-generated content with an algorithmic discovery function (and supported by ads).


A trend or the real deal?

At the start of 2020, TikTok launched a beta version of their advertising platform. Given the phenomenal growth of this social network — especially among a youthful demographic — should advertisers jump on board the TikTok trend?

In recent years, many companies that experimented with new media channels achieved excellent results. For instance, Groupon and Tough Mudder scaled their businesses by “cracking” Facebook advertising — long before the social network became an almost mandatory part of corporate marketing strategies. Ting Mobile spent the majority of their advertising budgets on YouTube and podcasts. In fact, they were the second company to sponsor ads on The Joe Rogan Experience podcast — and they got them for a song. Today, Rogan’s (very popular) show charges at the high end of the podcast market, with rates reaching $50 CPMs (cost per 1000 impressions). 

An incremental rise in advertising rates is a logical outcome as new marketing channels mature. CPMs on Facebook and Google AdWords have regularly outpaced inflation. When more and more marketers discover the effectiveness of a channel, bidding heats up and the price increases.  

If you can find a channel that is (1) effective, (2) scalable, and (3) still under the radar, then you have an opportunity to score an advertising bargain. On the downside, you also run the risk of buying a lemon. 

Four things often go wrong when you invest in a new channel:

  1. The ad units are not optimized, so your impact per impression will be lower than existing channels. When Facebook launched ads, they appeared along the edge of the page. After years of iteration, Facebook started placing ads directly into the newsfeed in a way that felt natural for consumers (and also improved performance for companies).

  2. Many traditional advertisers have “reach targets.” During my time at Procter & Gamble, most brands aimed to hit “80% of their target audience, 3 times or more per buying cycle.” If only 70% of your audience watched television, the brand manager needed to target the missing 10% — even if they needed to overpay for other channels. Reach targets explain why digital TV ads cost so much more than traditional TV commercials — brand managers at major companies “need” to reach prospects who don’t sit on the sofa watching television.  

  3. Marketers love “sexy” new channels and will buy them irrationally. When I was at Expedia, our new president gave us a mandate to get 1 million Facebook followers. In response, our teams spent millions of dollars (essentially) bribing users to follow the company. When your boss asks, “What is our Snapchat strategy,” marketers will reply, “We’re all over it. We buy lots of Snapchat filters.” When vanity or pride — not effectiveness — is the primary metric for a media channel, expect marketers to bid up the price. 

  4. The new channel is too small. Building the infrastructure to implement and test a new channel requires A LOT of work. If the channel has limited potential to achieve huge numbers, then it’s not usually worth your time developing a platform-specific strategy. (Last year, I wrote a post about the problems with monetizing Reddit). 

Will advertising on TikTok overcome these common obstacles?

The company’s soaring popularity is one positive sign. Moreover, TikTok has signalled their intention to develop a mature and stable advertising platform. In May, ByteDance (TikTok’s China-based corporate owner) introduced Kevin Mayer — who oversaw Disney’s streaming services — as the new CEO of TikTok. To alleviate concerns about governmental oversight of their operations, ByteDance restricted their Chinese engineers from accessing TikTok or any other overseas products. 

Although TikTok’s lighthearted content might seem like a fad, the company has real potential to develop an effective marketing channel.


Silly videos or quality ad units?

One more important question: how effective are the TikTok ad units right now?

Headlight, a growth services firm, received beta access to TikTok’s advertising platform. In a June 8 report, Headlight shared their key metrics, lessons learned, and best practices.

Headlight included a general caution about trying the new channel: “advertisers expecting to copy and paste their Facebook playbook onto TikTok and get Facebook-like results are in for a rude surprise.” Of course, that’s a standard concept for all media marketing; for example, traditional TV commercials perform poorly on YouTube. Companies need to build and iterate for the unique elements of each digital channel. 

Headlight estimates that less than 4% of marketers have explored the TikTok platform. I doubt the real number is anywhere close to that figure. When I speak with marketers, VERY few of them have ever tested Amazon’s ad platform — and that service has been active for years, representing almost 9% of digital ad spending in the US. 

In the first few months of 2020, TikTok CPMs were about one-third of Facebook’s. Since the time that COVID-19 started closing down most businesses, Facebook’s CPMs have dropped but TikTok’s remained stable. Still, Facebook CPMs are twice as costly as TikTok’s. This information aligns with expectations for a new channel. 

Furthermore, we should anticipate lower performance from TikTok, until the platform optimizes the targeting and quality of its ad units. Headlight’s report confirmed the gap between TikTok’s performance and other platforms: “Facebook [generates] roughly two times the number of installs per thousand impressions as TikTok” and “Facebook outperforms TikTok by 30­–50% across typical measurements of user quality.”

In the pre-pandemic era, TikTok might have offered similar (or even slightly higher) ROI than Facebook. Some quick math to illustrate the comparison:

  1. TikTok had 66% lower costs per impression.

  2. TikTok acquired 50% fewer users per impression (combining points 1 and 2 would result in 33% lower customer acquisition costs for TikTok).

  3. TikTok had 23–33% lower lifetime value per user.

  4. The end result: TikTok could provide a “cost per dollar of lifetime value” that ranged from 33% lower to 1% higher than Facebook.

But when Facebook’s CPMs dropped over the past few months, this equation was flipped upside down. For today’s marketing spend, you might find a similar ROI for ads on TikTok and Facebook — but the TikTok ads might be as much as 30% more expensive.

Does that mean you should stay away from TikTok? Not necessarily. If you believe that TikTok will achieve both scale and longevity, there are three reasons you might consider advertising on the platform: 

  1. Facebook’s lower CPMs could be a temporary response to uncertain times. In fact, Facebook CPMs already look like they might be drifting back up again. Before long, TikTok’s economics could look very favorable. 

  2. If Facebook ads are currently working for your company, you should have already accelerated your ad spend to the point where you see diminishing returns. If you have a positive ROI on Facebook, you may not be able to expand it any more than your current levels. TikTok appears to offer comparable economic value to Facebook; thus, if Facebook is a good channel for you, there is a real possibility TikTok may work just as well for your campaigns. 

  3. You should always consider diversifying your channels. Finding a new channel with a positive ROI is like finding a machine where you put in one dollar and it spits out two bucks. These opportunities are hard to find and even harder to optimize; you should remain vigilant for channels to spend your spare capacity.

In many cases, new channels provide an easy way to waste money. TikTok might not be an exception. That said, I see enough possibility with the platform that if I were still running a business, I would at least explore adding TikTok as a new marketing channel. 

Stay safe and keep it simple,


If you enjoyed this article, I invite you to subscribe to Marketing BS — the weekly newsletters feature bonus content, including follow-ups from the previous week, commentary on topical marketing news, and information about unlisted career opportunities.


Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.


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