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Episode Description

This episode takes a look at how TikTok, Instagram, and YouTube are battling to dominate the short-form video category. Scott Kessler, Third Bridge's Global Sector lead for TMT, and Sunil Singhvi, former Instagram partnerships lead for N Europe, explain company strategy and why that matters.

Episode Transcript

Catherine Ford: [00:00:05] Welcome to season two of The Signal, a podcast presented to you by Third Bridge, the world’s leading investment research provider exploring how some of the globe’s most investable industries are facing upheaval. My name is Catherine Ford and I’m a journalist with a 20-year track record of reporting on a wide range of financial topics such as capital markets developments and M&A. In this episode of The Signal, we’re going to explore the world of short-form videos. As many of you will know them from various social media platforms like TikTok, Instagram, and YouTube. And helping me to discuss that are Scott Kessler, Third Bridge’s Global Sector lead for Technology, Media and Telecommunications, and Sunil Singhvi former Instagram partnerships lead for Northern Europe, now running his own consultancy business, whose clients include sports industry, influencer agencies and more. Hi to both of you. Before we get stuck in, could I ask you for a few words of introduction? Scott, maybe you could go first.

Scott: [00:00:59] Thanks a lot, Catherine. So, I’m Scott Kessler, Global Sector lead for Third Bridge’s Forum business responsible for TMT: Technology Media and Telecommunications. Boy, I’ve been in and around this industry for a long, long time, spending most of my time as an equity analyst as well as an attorney, and obviously most recently at Third Bridge.

Catherine Ford: [00:01:23 Perfect. Thank you so much. And hi, Sunil. It’s lovely to have you on board as well. Tell our audience a little bit about yourself.

Sunil: [00:01:29] So I have also been around a long time, I’m sad to say, but I have spent the last ten years at the big technology firms, so I spent a period of time at Twitter both in the UK and the US. And then more recently I’ve spent four and a half years at Facebook, before it was Meta concentrating on Instagram. A little-known fact that we never really think about now, but the short-form video craze actually started with Twitter a while back with Vine, and actually I think the annals of history will say it was probably the greatest mistake that Twitter ever made, is that they were there before TikTok and gave away the farm.

Catherine Ford: [00:02:083] Oh, my God. And I’m sure we’ll get into sort of where this whole industry comes from. But first of all, I have to say, as I said in my intro, it’s one of those things we all consume them. We all look at them. But why on earth is it such a money spinner? Scott, maybe you can kick us off with, why should we care about this in the first place?

Scott: [00:02:20] So I think we should care about it for a couple of different reasons. Number one is and you touched upon this, Catherine, to some extent, it’s what people are actually doing online, but I think Meta, previously Facebook, was very proud when earlier this year they indicated that 20% of the time spent on Instagram was with their Reels product, which I’m sure we’ll talk about quite a bit. I think more recently that’s been indicated at around 30%. And frankly, experts that we’ve spoken to have expressed that it’s not going to really be deemed successful until they get around twice that percentage. So, something around 60%, and they probably need to do that sooner than later. So that’s one thing. A lot of people are consuming this content. And then the other thing I would say is there’s a lot of money to be made here. I came across a stat relatively recently, I think from Deloitte, indicating that you’re talking about $400 billion spent on advertising and subscriptions related to long-form video. Clearly, short-form video is at its knees. And see, I think people are talking about it more in the neighbourhood of billions of dollars versus hundreds of billions of dollars. But there’s a big market opportunity here and a lot of folks are trying to figure out how to get at that, so to speak.

Catherine Ford: [00:03:36] Thanks, Scott. You’ve raised so many topics that I know that we’ll come to. But Sunil, who is actually watching this? Those figures that Scott gave are staggering and obviously I think all of us use Instagram. But I have to admit, I myself, I look at the Reels and I find them a bit irritating. I like the pictures more. So, it’s clearly not me that’s consuming it. Who is consuming it?

Sunil: [00:03:57] There’s a bunch of things already that I want to unpack from what Scott just said. And I think that industry noise that Meta are making about the consumption of Reels, I would suggest that those numbers are soft and softer than they would imagine. So, one of the greatest tricks they’ve pulled in the last year is, what is a reel on Instagram? And actually, that has changed definition very heavily. So, if you go back six, seven months, the creation of a reel was a very distinct thing inside the app. At the same time, they had their long form video product, which was IGTV. IGTV disappeared, their long form up to an hour content, disappeared and just became video. And at some point, whilst those numbers, the Reels were suggesting were trending in the right direction, weren’t trending quite as positively as they wanted. They condensed video into Reels. So, we’ve gone from three video formats on Instagram: IGTV, videos, Reels to just Reels. So actually, I think if you were to pin someone to the wall and say, what is an IG reel versus a TikTok, I think there is a level of confusion because I think if you record a four-hour Instagram live, it still generates as a reel. But it would still be described as time spent in the reel environment, even though it’s actually come out of the live environment. So, I think I just wanted to just mention it while Scott was talking about the numbers there. 

Sunil: [00:05:29] We’ve seen some quite big influencers talk about this over the last couple of months. Instagram in the algorithm biases towards Reels content. It’s very hard if you were to start a solely photograph Instagram account now, your growth would be stunted by the algorithm. It would be very hard to get organic growth inside the platform because really you see the Reels are being supercharged by the machine and they’ve been quite articulate about that. They’ve been quite open to say, yes, we are definitely, encouraging creators to use and experiment with the Reels feature. So, I think who’s watching it? Everybody. Who wants to watch it I think is probably the more interesting question for us to discuss, but also for Meta to really think about. Short-form content works incredibly well for audiences that are time-poor. And I think that’s a really, really interesting concept. Who actually is time-poor? Kids are time-poor because they want to get to the next thing. 

Catherine Ford: [00:06:27] There is a difference between being time-poor and not being able to actually concentrate for any length of time.

Sunil: [00:06:32] Well, there is if you’re self-aware, but when we speak to a lot of young people. They don’t really define the difference. They’re like, I’m really busy. So actually, going through a very long YouTube video feels like hard work, especially when you think about things like tutorial. So, tutorial has been such a rock for YouTube. I want to know how to put up a shelf. I will go to YouTube and I’ll watch this long-form video on it. But actually, you’ll find when you’re talking to very young audience members that watching a four-minute video with pre-roll, mid-roll to find out how to put the shelf up is too long. Can you condense it into 30 seconds, maybe a minute tops? And actually, that’s where TikTok becomes a sort of, it sort of sets the benchmark for how quickly you want to consume content. 

Catherine Ford: [00:07:16] Oh, we’ll spend some time talking about content because it’s not just about learning stuff, is it? But before we go down that route and also sort of getting a sense for the evolution of the space. Scott, can you talk us through about some of the top players in the space?

Scott: [00:07:30] I think a lot of folks are disseminating short-form videos at this point. But I think for the most part, there are three primary players that people focus on most. We’ve already touched upon Meta/Instagram/Facebook. They have their Reels product. But I think when people think about short-form video, people think about TikTok. They really just took the entire industry and market by storm. Experts we’ve spoken to suggested to me that they were very much focused on many other things other than short-form video when they started to become aware of the tremendous growth of TikTok. And I’ve seen indications that TikTok’s revenues could triple this year to $12 billion. So, we’re not talking about just videos, we’re talking about monetization as well. When people think about online video, historically people thought about YouTube, YouTube has a product called Shorts. And what’s interesting is if you look at data that I came across from Forrester, they indicate, this is US adults, 23% of US adults online weekly use TikTok, 17% use YouTube Shorts, and less than 10% use Reels. So, I think the message there is that TikTok is the leader and I think Meta has a lot of work to do.

Catherine Ford: [00:08:51] Scott, can you talk us through what exactly the business model is behind these different offerings?

Scott: [00:08:57] I think one of the things to keep in mind is that initially, you have to build a user base and engagement before you can get to monetization. And if you think many years ago when what then was called Google as a company bought YouTube and they bought that for $1.5-$2 billion, they really had no monetization model whatsoever. The goal was in fact to identify and eventually monetize this asset. And I think right now the big kind of challenge is how to go about monetizing here because by all accounts these videos monetize at least initially at much lower levels than comparable products when it comes to images and text. And so, the challenge is how you can turn all this audience, all this viewership, all this engagement into dollars, and it’s going to become a challenge. People that we’ve spoken to suggest that it could take Meta until 2025 or 2026 before they’re monetizing Reels at the level of their other formats.

Catherine Ford: [00:10:12] Sunil, can you add something to that for me, please, on the concept of sort of the business model that these businesses are pursuing?

Sunil: [00:10:19] I think the point that I want to pick out from what Scott was saying there was there a part of this that’s about the audience and growth of the platform, and I don’t think we should underestimate that. So, the path to monetization for the short-form video is incredibly important and is vitally important for TikTok and Meta’s future. But there is another part underlying that, which is if it takes them to 2025 to get to proper sizable monetization of their short-form video, in the three years up to it, if they’ve haemorrhaged users during that time, there was almost no point getting to parity with the monetization because if your user base has gone from 1 billion to 750 million to 500 million over the course of a few years, then you really are in trouble. So, I think what we really saw with Instagram was a little bit of the sort of PTSD of Facebook. So, inside the business, they see their Facebook audience getting older every year, and for a long period of time, there was a jewel in the crown of, well that’s fine the Facebook audience is getting older, but don’t worry, we’ve got Instagram. And then all of a sudden you arrive at a point in time where Instagram turns ten.

Sunil: [00:11:39] And when you think about the first users coming onto your platform at 16 and you say to them, this platform has been here for ten years, it doesn’t feel new. It doesn’t feel culturally vibrant in the way that a 16-year-old looks to. A 16-year-old doesn’t pick up a ten-year-old video game, doesn’t listen to music from ten years ago, unless it’s Kate Bush on Stranger Things, they just don’t have that thing. So, all of a sudden, Instagram and Facebook found themselves in a very odd position where they had turned double digits and they had no entry point for young people. So, Instagram, over a very short period of time through the evolution of their stories product and now through Reels, has sought to look at the wider market and say, so what do young people want? And the danger for Meta really is that they’re becoming the Steve Buscemi meme of a 65-year-old man with a backwards baseball cap and a skateboard saying, What’s up, kids? And that they are in danger of that. 

Catherine Ford: [00:12:39] So on this issue, what we’re talking about is basically loyalty that people have to a product that they might be familiar with. But it sounds now as if that familiarity doesn’t necessarily translate into loyalty. How do you get around that? Because you’re I mean, you can’t reinvent yourself, can you? Is that really what you’re suggesting that these businesses need to continuously be reinventing themselves to keep not just the people that are on the platform already loyal to them, but also to attract new people to the platform?

Sunil: [00:13:11] Yeah, I think before you even get to a loyalty level, you have to get to an adoption level. So, people have to try. And if you are just the platform that has your mum and dad on it or your aunt and uncle on it, it’s very hard to convince a 16-year-old to come. And then when you don’t have that vibrancy and you don’t have that cultural relevance, it’s quite quick for you to become sort of outdated. And I think that would be the worry. And I think that’s part of the reason that everyone is in a sort of a battle to get this sort of content on their platforms because it feels that’s where the energy and excitement is. 

Catherine Ford: [00:13:44] Scott, what do you feel these players are doing to keep those customers on their platforms and stop them from going elsewhere? And then obviously the question is, where are they going if they’re no longer using things like Instagram, for example, what are they using instead?

Scott: [00:13:58] I think what Sunil is talking about is a huge challenge. It’s probably something that’s a focus of many of these companies and many of these businesses. I think what people will tell you is something that Sunil alluded to, which is this notion that TikTok has this unique and special and great way of surfacing not just content that people like, but content that you’ll like. They have an algorithm that is very sophisticated, and from what I’ve heard, years ahead of the competition, and it’s architected around this notion of the content graph, which is essentially the best and most viral content wins. If you look at what Meta has done, and if you look at what Instagram has done, it’s completely oriented around your friends and family. And as much as I might love to keep in touch with my friends and family, they’re probably not producing the best video content that I want to consume on a regular basis. And thus, the struggle that Meta has right now is transitioning its video product from the social graph to the content graph. And they’re trying to do that and I think they probably figured some things out, but they are far, far behind. And so, the way to keep folks on these platforms is simply stated, and Sumner Redstone, who was the CEO of Viacom years ago, said it best: content is king. People will stay on the platforms that have the best content. And right now, it’s pretty clear that the best content is, in fact, on TikTok. 

Catherine Ford: [00:15:31] So just playing devil’s advocate here, the best content, what does the best content look like? If you had to curate your, the best TikTok video, what would that be? Scott, talk to me about your best. What is it that we’re actually looking for?

Scott: [00:15:47] The fact is that TikTok has done a phenomenal job of creating an algorithm that can feed you content that you don’t even realize that you want, you don’t even realize you’d like. And I think that’s the point. The point is that they know you better than you know you. And that is something that takes a lot of smarts and a lot of development and a lot of time to figure out. If you look at Meta, they are along that journey and they very well may already be too late. So that’s the key is I couldn’t tell you. I know that when I’m on TikTok, it surfaces a lot of videos showing me video highlights of basketball games and people’s comments about interviews with Michael Jordan or Kobe Bryant. But that’s what I like. If someone took my phone and started looking at my feed, they might not like the content at all because it’s specifically catered to me.

Catherine Ford: [00:16:48 ] Sunil, can you pitch in on this one?

Sunil: [00:16:50] I think the best content is on TikTok because that algorithm is so brilliant. And when you talk to people about the brilliance of the ‘For you’ page as it’s described on TikTok, that’s the most trafficked part of the app by a long way. And when you go into it every time you interact with it, whether you leave a comment, whether you watch something, whether you watch it a second time or third time or fourth time, you share it with somebody, all of that feeds their system to say, give Scott, give Catherine more of this content. And once it’s done that, it becomes self-fulfilling because actually as a basketball fan, you see more basketball content. When you come on, you’re like, this is brilliant. How would I like to spend half an hour? I will watch more basketball content because it’s all here and I can sort of live in an endless world of more basketball content. When you talk to those very savvy young audiences, they acknowledge that this is happening and they like it. And this is one of the paradoxes of the whole thing, is that when you talk to people in the wider space that use social media, there is a distrust for Facebook and the algorithm, there is a distrust for Instagram and the algorithm. But those same people will talk about, yeah, but I’ve gone on and actively liked ten Dog TikTok’s so that I see more of them. And that is such a fascinating shift that the audience understands. The TikTok algorithm is so brilliant I could train it to do whatever I want.

The one thing I would just throw in is an additional point on Scott. Yes, I think there is a huge amount of content that is watermarked that says TikTok on the actual video itself, so it’s burnt into the video that is surfacing in the Instagram Reels experience. That number has decreased. The reason it’s decreased is because Instagram are very publicly limiting the reach of watermarked content and they’re very publicly telling creators, no, don’t upload your TikTok, recut the video, take the watermark off it, and then publish it in our platform, which is interesting. And it’s sort of quite competitive mood and the conversations I have with creators and I speak to creators all the time, virtually on a daily basis is that’s fine, as long as I’m going to get good reach and good engagement on Instagram because if I’m going to extra effort, you need to show me why it’s worth my while. Because if it’s only a 5% increase, 10% increase, I’ll take the risk and just upload my TikTok because you’re not really giving me any more for the extra work.

Catherine Ford: [00:19:28] Now, we’ve spoken about Instagram Reels, we’ve spoken about TikTok, but you also mentioned that YouTube is one of the sort of players in this space. Can we just take a deep dive on their offering Scott?

Scott: [00:19:40] I think it’s pretty self-explanatory, it’s the line between long-form and short-form video, and I think YouTube sees an opportunity here where they are undoubtedly the leader when it comes to long form video, you could debate whether or not there are other players that are relevant or even more so than that, right? People are going to talk about the players like Netflix or what have you. But at the end of the day, YouTube, for a reason, is the world’s second-largest search engine. It’s only behind Google in terms of the search engine that people use most. And the reason for that is because people know that YouTube is synonymous with video. They see an opportunity and frankly a risk, as Sunil was alluding to, because, sure, you’re going to watch long-form video, maybe those instructional videos that we were talking about earlier. But when it comes to short-form video, people are thinking of TikTok and going there. And so, it’s their goal to kind of prompt people to stay on YouTube. And so how do they do that? So, Sunil alluded to something that I think is very important to this segment, particularly to YouTube, and that is their relationship with creators. They have excellent relationships, creators like using YouTube for a variety of reasons, not the least of which is that they monetize very effectively using the platform. And so, a lot of times people may start with TikTok and then realize that they can frankly make more money with YouTube, and that might be because they go from short form to long form and there’s more money to be made there. But the reality is YouTube wants to be all things to all people when it comes to video. And that’s why YouTube Shorts is so very important to them.

Catherine Ford: [00:21:37] You raise this really important issue of creators and where their journey is. I mean, is that sort of the natural way of progression that you start off on TikTok, you reach an audience and then you decide actually hang on a minute to make money, YouTube is the place to go. Is that natural progression or how does it usually go? Where do creators actually want to go with all their content?

Sunil: [00:21:56] I don’t think there’s one answer to that question. I don’t think there is a clear progression of you start here, you go here, you go here, you go here. I think to Scott’s point, YouTube monetization is better than every other game in town. It’s better than the TikTok monetization, it’s better than the frankly non-existent Twitter or Instagram monetization as a direct monetization from the platform. It is, however, only one slice of a creator’s income. So, the YouTube money is great and if you’re at the top end then it’s really exciting. But similar to sort of Spotify, the top end make a lot of money and then the long tail, it’s not far before you get to very, very small sums of money being made. So, what we tend to see from my experience, of influencers and creators is that they’ll go where two things are happening. Number one, explosive growth. Everybody wants to put in their brand presentation in their deck that goes out to advertisers, my growth has gone up double digits, triple digits for X. My number of video views is huge and through the roof. So, engagement is such a huge thing when you’re pitching to a brand and saying, Come and sponsor me, Red Bull, come and sponsor me Gymshark or Nike or whoever.

Sunil: [00:23:06] You have to be able to show that explosive growth. And TikTok has that absolutely more than anyone else on the block. It has explosive growth and that’s been hugely important to the influencers, and that’s where Instagram has really come a cropper that a lot of those creators are at the same number they were at a year ago. They haven’t really grown. And that shows a sort of sense of stagnation. But it then frustrates the influencers that they’re not growing. Not everyone can grow forever unless you’re Beyonce, it’s impossible to keep growing forever. So, I think there is a natural stagnation point. So then on top of that, when you come to that monetization piece, you’re thinking about not just what is the platform going to pay me and what is the platform going to offer me, but also what virality do I have? And with TikTok, there is there’s an interesting challenge at the moment in that when you speak to creators, they don’t know which video is going to go crazy. 

Sunil: [00:23:59] And it’s quite hard because there’s not really a science as to why that one landed and the next one didn’t. So, in the short term, what that has done wonderfully for TikTok is it means that people up their production, they produce more videos because with more videos you’ve got more one chance of one of them really going through. I think long term that can be quite tiring and I wonder whether the fatigue of TikTok might come in because actually the creation of a good TikTok is significantly more work than the creation of a good photo or a good snappy tweet. The actual level of work that goes into creating a dance routine with three or four of your friends could be hours of work that goes into making that piece of content really work. So, I think to your point, creators go where monetization is, but they also go where growth is because that’s part of their story off platform.

Catherine Ford: [00:24:53] So both of you have spoken about the algorithm that TikTok uses, and you’ve also both spoken about how advanced they are compared to the other competitors in the space. But can you talk us through specifically the technology that each of these offerings are based on and how quickly they could be built and how quickly someone else could enter the market, or whether that is actually the barriers of entry are so high that no one else could corner that market.

Scott: [00:25:17] I think a lot of different people can do this. It’s just a matter of to what extent they can possibly catch up to TikTok. And I think I might have touched upon this earlier, but I spoke to someone relatively recently who basically indicated that if all went well, you’re talking about Meta being maybe 2 to 3 years behind TikTok at this point. Now, how they would catch up because TikTok is not going to take its foot off the gas. They’re going to continue to invest and push forward. I think all of the companies, all the businesses that we’re talking about in terms of thinking about TikTok and its parent company, Bytedance, talking about what’s going on with Meta and Instagram and Facebook and talking about Alphabet/Google/YouTube. Money is not the issue for these companies. It’s their ability to focus and execute. And I think we’ve talked about one of the structural impediments that Meta is dealing with is its historical orientation to focusing on friends and family and trying to reorient around the content graph versus the social graph. So, it’s possible, but TikTok, because of their current lead and the significant focus and investment, I think a lot of people doubt that they are going to relinquish their leadership anytime soon. Now the last thing I’ll say on this front, that doesn’t mean that Meta and Alphabet’s/Google/YouTube won’t be tremendously successful in this area, but I think it’s going to be a challenge if you’re measuring success as being the leader in this category.

Catherine Ford: [00:27:02] Sunil, the chance of someone else emerging to take on TikTok, how likely is that?

Sunil: [00:27:08] I think in theory it’s possible. I think in practice it’s very hard and the reasons I would give are number one, you have to have the content, so you have to have the content to fill the algorithm and actually being able to get on the block and get enough content because you can’t go out and buy that content at the volume that TikTok has got it uploaded. It would be unbelievably expensive to try and pay for that content. As Quibi found out, funding short-form content is expensive and it’s unscalable, so you have to have all that content. Then you have to have the users and then you have to have the algorithm in place to do it. The other thing I would say is I think the suggestion that Meta could be in a good place in two years’ time I think is an absolutely fair point. My question more is where will TikTok be in two years’ time? And I think that’s the actual worry, is that could you catch up? Yes. Could you get past them is a completely different conversation. And then all of a sudden you start hearing Mark’s words about if you’re coming here for an easy ride, if you’ve lost some of your energy for Facebook, maybe it’s not the place for you anymore. He’s battling with an incumbent workforce and he’s exactly as Scott described, trying to change the direction of the whole beast from friends and family, which has been the bread and butter for so long to this content world where some of them might not be as excited about it. So, you haven’t got staff that came in to do the mission. You’re trying to change the mission and you’ve got a competitor that’s ahead of you and is working sort of 10% harder. I think it can be caught. I don’t think it can be bettered in the short term.

Catherine Ford: [00:28:44] Really interesting comments there. Let’s talk about the money. We’ve spoken about monetizing the content. How do these companies actually make money for themselves versus how did the content creators make money for themselves? Scott, can you give us some insight into that, please?

Scott: [00:29:00] Its pretty simple, you got an audience and then you’re going to charge advertisers to be able to put their brand, their product in the video before the video, after the video or in other context as well. TikTok actually has done a fair amount in terms of creating advertising formats that work. One of the things that I think they’re best known for is, essentially someone can take over TikTok and you can buy it for a period of time. And if people are on, they’re going to see, your brand or your product or what have you. But that’s not very sophisticated. And I would argue that the one opportunity that it seems the competitors that we’ve been talking about have against TikTok is they are much better at monetization. And so that obviously offers quite a bit of opportunity because TikTok doesn’t know as much about things like the ads that work or don’t work or their user base or tracking or being able to target in a way that these Internet giants that have been at this for a long time can do. So, this is an advertising model. It’s going to remain that, in my judgment, for the foreseeable future. But the trick is going to be, in fact, how TikTok takes what they’re doing from an advertising and monetization level to kind of the next phase. People that I speak to say that they’re not quite there yet. Right. They’ve been working on this, but they still have some work to do. And that’s where I think some of these competitors can close the gap. 

Catherine Ford: [00:30:46] Sunil, can you add your perspective to that point, please?

Sunil: [00:30:49] Yeah, I agree with all of those points. I think the interesting piece here is with TikTok, sort of new energy in the space and trying to work out some of these ad formats and trying some things that are sort of quite basic like an app takeover is a sort of relatively basic concept back to the old days of the MSN homepage. So, I think there is a sophistication that they will grow into. But here’s the thing they’ve got more time than everyone else because they’ve got the energy, because they’re growing and because people want to be there. And the perception from brands is we’ve got to be here to reach young people. I think they’ve got a longer lead way before people really start quizzing the numbers and saying, is this actually very effective? Is this as effective as it could be? I think they’ve got that little bit of extra sort of energy in the market that will see them pass things. And I worked at Twitter where that started to roll away from us where pre-IPO there was all this excitement. You had to be on Twitter and you had to be trying things and the metrics didn’t really stack up but people were willing to come with you because they believed in the long-term vision. Now, as soon as the platform growth started to plateau, people lost a bit of the sort of, well, this is fine long term, we think this will get there. Long term, we think we’ll get there. 

Sunil: [00:32:04] All of the platforms that we’ve discussed today will have their version of Patron or OnlyFans in the next year. Everyone will have a subscriber-based version inside the app where you can pay $5 for your favourite creator and you can get exclusive stories and videos, they’ll probably take a small chunk out of that and it will feel very noisy and it will feel very loud. But is that $1billion business? I’m not convinced. In the same way Instagram was very keen to follow Facebook with a tipping service so you could tip your favourite creator, which when we go into sort of Asian regions, is widely accepted and is monetary. It is a system where people will reward their favourite creators, but it just doesn’t translate in European and American audiences. They’re not used to just giving people $2 because they like them. It’s just not culturally what happened. So, I think what we have is a very sort of simple ad model business. But what we are going to see is it looks very; very confusing as live shopping and ecommerce and all of these things appear on the top. I think we’ll see a lot of noise and we’ll see a lot of different monetization strategies that are given to the creators. I think a lot of this will actually be a distraction to keep the creators on the platform and to keep them making money. But we’ll not be big revenue drivers for the business. They will be things that will bring in incremental money. But really the big game in town is still the advertising model that Scott discussed.

Catherine Ford: [00:33:34] So we’ve spent an awful lot of time talking about the potential that the sector has, the innovation that the sector has and how much opportunity there is going forward. But obviously, there are also a high number of risks associated with this. Can you talk us through some of those?

Scott: [00:33:48] A couple of things come to mind, right? So, first of all, when you think about TikTok, I think a lot of people think that it shouldn’t at all be available in the US because they think the data and information that they gain in many cases from children are going straight to the Chinese government. And so frankly, we had a couple of years ago essentially an existential challenge to TikTok where there were actual conversations about whether or not there would be some type of force technology sale. And the reality is that TikTok has undertaken to completely change its infrastructure provider to ensure greater level of confidence that there is in fact, more separation between the company, the business and the Chinese government. That being said, I think it’s fair to say that those concerns are real and I think it is something that hamstrings the company in terms of everything from attracting and retaining talent. I’m not talking about creators now. I’m talking about people that work at the company like Sunil was talking about, those people that are putting in that extra time are probably wondering if in fact there’s some type of risk around the corner to their kind of business and livelihoods. The other thing to keep in mind is there’s been reporting about the fact that the Biden administration has been talking to TikTok, talking to Bytedance, the parent company, about some type of agreement related to things like data and privacy. If something like that were struck, I’ve been told that would be a very significant positive for TikTok. It would remove huge uncertainties that many people have in terms of, I would argue not so much using the platform but working there and partnering with them. 

Catherine Ford: [00:35:49] Thank you very much, Scott. Sunil, do you want to pick up a little bit for me on the data and the algorithm and concerns people have there?

Sunil: [00:35:57] The one thing that I would add is young people worry less about China than slightly older audiences. I think that’s genuinely that sort of what is the value of my data is a question that a 16-year-old would probably not really be that concerned about in terms of, okay, so my choices are give the Chinese government this data if that is in any way true or lose contact with my friends because we all want to do this dance challenge, I think they still would do the dance challenge. I think they probably put their Social Security number into some extent. I think what we see with that and that piece is that that affects the B-to-B part of it, that affects the government regulatory part of it. It doesn’t affect user growth in the same way in young demographics. There is a chance in slightly older demographics that there is nervousness around it, every so often you see a sort of face-changing app that appears in the App Store and that everyone worries that it’s the Chinese government and stops using it sort of overnight. 

Now, in Scott’s description there when he talks about like the content he loves, it’s basketball and basketball content. So, my first question, as you said it, my eyebrow raised, is all of that content licensed? So really what TikTok provides you with is an opportunity for ESPN to say your platform is rife with copyright infringement. What is all this content and can I have my money for it? And that scales up to a Disney and a Universal, let alone the sort of record companies who’ve already got their sort of ongoing challenges and questions about TikTok. So, then the other side of that is what if the content is not palatable? So, there’s one thing about licensed content, which is a concern, a business concern, but what if that content is illegal in any way? What if that is the sharing of, far left or right ideologies that becomes nonstop in your algorithm where every single piece of slightly extremist content is being fed to you? 

Now, I think there is a perception growing that the policymakers will have to work incredibly hard around this, that regulators are going to have to look very hard at this. And there is a feeling, I think, amongst young people that all of social media is inherently bad. And the more that you share, the more that you understand, the more that you spend time in there, the more susceptible you are to this. So, I think my long-term worry from a content point of view for TikTok is that we get lots of cases where actually something bad has happened in the real world and it becomes intrinsically linked back to what they saw on TikTok.

Catherine Ford: [00:38:35] Really interesting point that Sunil that you raise, and I’m sure it’s something that we will be hearing more of, and hopefully we’ll also see some policy action to prevent that sort of content from gaining that sort of traction with, as you mentioned, vulnerable people who are using that content. Now, to wrap up this podcast, we usually do a feature where I ask my speakers to tell me about the one to watch in the space, and that could be a company that they feel we should be watching a piece of development, that we should be watching a new product, anything like that. So, what’s the one thing that you think is something that we need to keep an eye on in the future? Scott, from your perspective?

Scott: [00:39:14] I would have given maybe a slightly different answer a month ago or so, but I think what I’m going to say is TikTok and e-commerce. And the reason I say that is because, I think for some time people have anticipated that you’re going to have a situation where TikTok is going to marry the video content with e-commerce monetization. And then we saw reporting over the summer indicating that the likes of many of the top players in this category, including Meta, were pulling back on related investment and not really pursuing that opportunity any further. And lo and behold, there’s been reporting more recently indicating that TikTok is in fact pursuing the equivalent of distribution centres for ecommerce around the US. They have a partnership with Shopify and the expectation is that you’re going to see them rolling out more ecommerce focused videos that will link specifically to product sales. That is something that, from what I understand, has worked pretty well in Asia in particular, and I think people have been trying to figure that out in the Western world. I think TikTok is poised to take the first big cut at that and be successful.

Catherine Ford: [00:40:38] Brilliant. Thank you very much. Sunil, from your perspective, the one to watch?

Sunil: [00:40:42] The one to watch, which sort of breaks your format a little bit because it’s not actually a video platform, but the one that I’m watching closely is BeReal. BeReal, if you don’t know, it is an up-and-coming social network with a user base. At the moment it’s very small, predominantly us, although a French-based company. Their thing that makes them interesting is that once a day you receive a notification that allows you to take two photos simultaneously, your front-facing camera and your rear-facing camera, and it snaps that moment. And it is in reality and it’s exactly how they’re pitching it the anti-Instagram, there are no filters, there’s no AR. It’s just what is happening right now and the mundaneness and the day-to-day everyday sort of banal nature of it makes it incredibly compelling. And when you go on, it’s just hundreds of kids just showing where they are, in classrooms, in the library with their friends. It’s just so simple. And now I’m interested to see over a period of time whether that becomes something that the young audiences actually end up really adopting and loving because it’s simple.Catherine Ford: [00:41:49] Scott and Sunil, thank you so much for sharing your insights and experiences in this incredibly fast-growing, innovative sector. I really appreciate you taking the time talking to me today. Thank you so much. Thank you also to everyone listening to this episode of The Signal presented to you by Third Bridge, the world’s leading investment research provider. Join us in a fortnight for the next episode. And in the meantime, please rate review and follow our podcast. Indeed, if you like it, tell a friend. Find us on Spotify, Apple Podcasts and wherever else you get your podcasts from. And also From me, Catherine Ford, that’s goodbye and until next time.

Episode Guests

Sunil Singhvi

Former Instagram partnerships lead for N Europe

Scott Kessler

Third Bridge’s Global Sector Lead for TMT