Is TikTok Eating Google Search?
A Case for the Great Advertising Reset of 2023
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JULY 22ND, 2022 3:30 PM MONTREAL, CANADA.
(Written After Snap and Twitter earnings, before Meta and Google Earnings).
There’s been evidence so far in Q2 Earnings of SNAP and TWTR that major macro headwinds and churn to TikTok advertising is occurring across Western social media apps.
With stagflation, low demand, higher interest rates and more pressure on the global economy from energy crisis, war, a weak China and plummeting consumer sentiment, brands are having to re-think how to do Ads, including Apple’s privacy changes and its impact on the likes of Meta and Snap.
Google is now warning about TikTok (and to a lesser extent Instagram), where young people are doing mobile search bypassing Google’s dominance in search. This is a big red flag for a major shakesup in Ads and a case for the “Great Ads Reset” I’m proposing for 2023.
Senior Vice President Prabhakar Raghavan, who runs Google's Knowledge and Information organisation, referenced the popular social apps in a broader conversation at Fortune's Brainstorm Tech conference about the future of Google's products and its use of artificial intelligence (AI), reports TechCrunch.
In a discussion about the evolution of search, he somewhat offhandedly noted that younger users were now often turning to apps like TikTok and Instagram. This has been occurring with ByteDance owned apps for years vs. Alibaba and Baidu in China. Weird that this is just coming out now in the Western media.
We were already more likely to search Google with “+ Reddit” or YouTube instead of Google itself. We want trusted human based reviews and not all the spam that Google Ads puts on top of its legacy search pages.
Core Google services, including Search and Maps, are also being impacted by a growing preference for social media and videos as the first stop on younger users’ path to discovery. This is the super power of GenZ apps like TikTok and Snap, they are better at retention and utility over-time.
Let’s think about TikTok’s growth in advertising in its first three years alone.
TikTok to 3X Ad revenue in 2022, even as Western Ad revenues falter. TikTok raked in nearly $4 billion in revenue in 2021, mostly from advertising, and is projected to hit $12 billion this year. That would make it bigger than Twitter Inc. and Snap Inc. combined 3 years in.
So what did the VP say exactly:
“We keep learning, over and over again, that new internet users don’t have the expectations and the mindset that we have become accustomed to.” Raghavan said, adding, “the queries they ask are completely different.”
These users don’t tend to type in keywords but rather look to discover content in new, more immersive ways, he said.
“In our studies, something like almost 40% of young people, when they’re looking for a place for lunch, they don’t go to Google Maps or Search,” he continued. “They go to TikTok or Instagram.”
My Thesis is that the Great Ads Reset occurs for a few reasons:
Apple’s new privacy rules
The Macro stagflation lower demand for Advertising
The rise of TikTok (and Amazon)
The loss in confidence in Meta and its products
The impact of GenZ mobile behaviors related to video
Emergence of Super-apps like TikTok (more powerful than YouTube)
The splintering of social media into niches (Reddit, Discord, Pinterest, Twitter, more apps in the attention economy as a whole).
META earnings for Q2 next week will be the most important data if this really is a “Great Reset” for Ads, or if it’s not quiet yet arriving so soon.
All of these are impactful in their own way but creates a “great reckoning” for the future of digital advertising, a great reset if you will.
According to Bloomberg (BNN)
The most downloaded app of 2021, TikTok has surged to a billion-plus global users, who consume an infinite feed of short clips delivered instantly by algorithm.
TikTok raked in nearly $4 billion in revenue in 2021, mostly from advertising, and is projected to hit $12 billion this year, according to the research firm eMarketer. This 3x of 2022, will accelerate in 2023 further pressuring Meta, Google and other smaller players.
Alphabet Inc.’s Google and Facebook, now Meta Platforms Inc., are the giants of online advertising, a duopoly so powerful they have been hit with antitrust complaints in the US, the UK and the European Union.
Meta will face increasing litigation around its antitrust issues, even as Ads for its services are likely to fade due to Apple’s privacy rules where Facebook’s ARPU decreases drastically.
TIKTOK IS EATING META
With a billion monthly active users, TikTok is still smaller than Facebook (2.9 billion) and Instagram (2 billion), also part of Meta. Yet TikTok’s programming is proving unusually compelling: Its average user in the US now spends about 29 hours a month with the service, more than Facebook (16 hours) and Instagram (8 hours) put together, according to mobile researcher Data.ai.
Think about that, IG and Facebook are both becoming relics of the past. Both desperately copying and cloning TikTok, but Reels have failed so far to stick. Meanwhile Meta is pouring $Billions into speculative VR efforts for some distant future called the Metaverse.
To say that a Great Reset is occurring in Advertising is not just clear, it’s increasingly obvious how it will end.
Momentum, youth and users is everything.
A Chinese App is the First Video Ads Super-app in the West
TikTok eating Google Search is a fun side dish, but it’s not the big story. TikTok is emerging as the first true super-app of the West, but it’s made by ByteDance a private company from Beijing.
You could argue that YouTube is a super-app, but it doesn’t do very much else. TikTok will be doing social commerce, E-commerce, food delivery, gaming, education and so much more. China understands how to embed services, mini-apps and utility into their apps and not simply do one thing well.
America may try to ban TikTok from its app stores, as a last ditch attempt where its Silicon Valley jewels are unable to compete with China. If that happens, the big beneficiary is actually Amazon’s growth in Ads.
The dominance of the duopoly in Ads will continue to slip in the 2020s.
That is what the Great Reset actually means.
Just as Alibaba and Google are getting better in the cloud, though AWS and Azure are more dominant than ever.
Google confirmed to us his comments were based on internal research that involved a survey of U.S. users, ages 18 to 24. GenZ and Alpha will use the internet differently. It’s Roblox vs. Minecraft, it’s new models of collaboration online against old models that exploited and tricked users ruthlessly.
TikTok’s parent, has been developing apps with algorithms for recommending just the right video clip or news story ever since Zhang Yiming founded the company ten years ago. TikTok’s A.I. is approaching YouTube’s level of sophistication and for mobile is definatley better.
Facebook for all its talent hoarding, is being disrupted. Meta’s stock is vulnerable to further declines. The momentum just rips apart the fabric of the old, in a great reset in the future of advertising.
While older internet users may not be able to wrap their minds around turning to a social video app to find a restaurant, this trend could cut into Google’s core business of search and discovery over time — not to mention the ads sold against those sorts of queries
ROI from Meta and Google Ads just won’t be as good moving forwards. Snap and TikTok users are happy captive audiences in real peer networks. They see the world through a lens of peer intimacy and entertainment.
The video first mobile natives have a different trajectory in how they interact with the attention economy and Advertising.
ByteDance’s revenue hit an estimated $58 billion last year and its growth is faster than any other major social network.
Once it goes public in an IPO, the sky is the limit for ByteDance disrupting Silicon Valley. Congress is desperate to block them, shut them down like they did with Huawei. America cannot stand its BigTech leaders losing.
But a Great Advertising reset is already inevitable, it’s already happened because China understand GenZ so much better. Google and Facebook neglected to innovate as they were so busy maintaining their respective monopolies. Silicon Valley disrupted itself as America refused to regulate itself. The rest is history, but for the future of advertising, the great reset will be painful.
Watch META ‘s earnings next week to know the short-term future of this trend. I’ll be watching.