TikTok generates significantly less revenue per user than its rivals

TikTok generates significantly less revenue per user than its rivals. I’m not surprised.

It took Facebook years to even start monetising its platform, or make new products like Instagram Stories profitable.

But what is interesting to learn is that video formats in general are harder to monetise.

In 2022, Instagram's worldwide average revenue per user (ARPU) was $22.43, compared to YouTube's $11.49 and TikTok's $3.83.

Even within the same app, video formats, particularly short-form, are struggling.

Mark Zuckerberg, CEO of Meta, recently stated that “the monetisation efficiency of Instagram Reels is much lower than Feed”.

In fact, the CPM (cost per thousand impressions) of ads on Reels is about half that of ads on the news feed.

I can see a couple of reasons for this:

1. Video ad auctions are less competitive.
   Over the past decade, social media platforms have benefited from a long-tail of small businesses that could finally afford to run profitable ad campaigns. Now, this same long-tail is struggling with video ads, as video production costs drive down their ROI.
   It will change soon, thanks to AI video editors or similar tools, but for now the competition remains low.
2. Video content consumption is more passive and drives lower click-through rate.
   This is why social media marketing is about to change forever.
   Social media has shifted from being a social place where our friends are, to a place where we passively entertain ourselves while killing some time.
   Users on TikTok or Reels are not as engaged as those looking at friends’ feed, ready to comment, like (or hate) and send direct messages.

It is clearly the right time to be on Reels and TikTok, while the competition is still low. However, advertisers can’t expect the same direct return they used to get in the old days of the Facebook Feed.

All of this while we wait for the next big-thing in online advertising, which will inevitably involve Ai!