Google and Meta both cited their short video products YouTube Shorts and Instagram Reels as revenue headwinds in the third quarter of 2022 as monetization lags user growth.
The more time users spend consuming and creating short videos, the less impressions the platforms can deliver in their core feeds, stories or video products. This headwind is costing Meta more than $500 million in lost revenue per quarter, while Shorts dragged YouTube’s ad revenue into the red in Q3 — possibly for the first time (Google only began breaking out YouTube revenue in 2019).
TikTok, meanwhile, continues its ascent. The ByteDance-owned platform is expected to nearly triple its U.S. ad revenue this year, from $2.1 billion to $5.96 billion, according to EMarketer and Insider Intelligence. While this is far smaller than Google’s $210 billion and Meta’s $115 billion annual ad revenues, TikTok is commanding the highest share of budgets allocated specifically to short video, according to media buyers Campaign US spoke with.
“There's been a significant shift towards TikTok for a lot of brands,” says Nikki Melless, media director at Byte/Dept.
The most obvious explanation for this is that TikTok has been around the longest and captures the highest share of user time. TikTok was the fourth most downloaded non-gaming app worldwide in 2018. The COVID-19 pandemic further catalyzed growth, and by 2021 it had surpassed a billion users, with more than 100 million in the U.S.
“TikTok’s exponential growth happened in a large way during a time that we were all locked in our houses and people turned to new platforms for entertainment,” says Melless. “It would take a much longer time for a new platform to replicate that kind of success.”
Meta responded to TikTok’s rise in August 2020 with Reels, and YouTube Shorts followed one month later. Ads were brought to Reels in January 2021, but only recently to Shorts. It follows, then, that Shorts is considered the smallest of the three as an advertiser destination.
TikTok also commands the highest share of time spent, averaging 95 minutes per day in Q2 among global Android users — more than Facebook (49 minutes) and Instagram (51 minutes) combined.
This influences ad performance, a key factor in how media buyers select where to allocate spend. The more time a user spends on a platform, the more ads they will be exposed to.
But there are other considerations too, including audience demographics, ad formats, platform maturity, brand safety and the size of the creator marketplace.
The scale and demographic of each platform’s user base is one of the first things media buyers review when looking to allocate spend.
This involves mapping out which platform has the highest share of specific audiences, as well as how those audiences spend their time. The quality of an audience is a large factor in how much platforms can charge for impressions.
TikTok performs well because it has a higher index of Gen Z users than other platforms, according to media buyers. While all three platforms attract a young audience, they are thought to be most active on TikTok. A third of TikTok’s U.S. users are estimated to be between 10 to 19 years old, while 30% are 20 to 29 years old. YouTube is the most popular platform among kids aged 13 to 17, according to the Pew Research Center, while Instagram attracts a lower proportion (8.5%) of teens.
This could explain why the average price-per-ad Meta charges across its platforms has decreased in recent quarters, even though ad impressions increased.
“If your impressions are going up, and your pricing is going down, it implies the audience and/or inventory is less valuable,” says CJ Bangah, a technology, media, and telco consultant at PricewaterhouseCoopers.
Ad performance and efficiency is another key factor for media buyers, who say TikTok and YouTube have higher engagement than Instagram because they are content-led platforms.
“The content people are getting served on TikTok is really relevant to them, which has provided really impactful results for us and our clients,” says Melles.
While Instagram has shifted its algorithm to favor the kind of short videos that attract billions of views on TikTok, this has caused engagement rates to drop for brands and influencers on the photo content that Instagram was once synonymous with.
“People who have built big followings on Instagram have seen the platform shift, and maybe their investment they put into Instagram has shifted, because they have seen the algorithm on TikTok really work for them outside of paid media deals,” says Sadie Miller, SVP of social media strategy and partnerships at Reprise.
“Instagram has gone from a connection-led platform, which people really valued it for, to now trying to be content-led, and that's led quite a few people to be unhappy about the changes,” adds Melles.
Since it is easier to nurture an organic audience on TikTok than on other platforms, media buyers say, advertisers often create campaigns specifically for TikTok and then repurpose it for other platforms.
“Especially if it's a creator-led campaign, what we see a lot of is it'll spark on TikTok and the creators are chosen for their TikTok presence,” says Miller.
“Reels, a lot of the time, [are] repurposed TikToks,” adds Melles.
But Meta and YouTube have the benefit of scale, enabling them to offset losses.
Advertisers “take a more holistic approach” to advertising across Meta because Reels ads are one of 20 placements they can choose from, according to Erin Rogers, SVP of paid social at Reprise.
“Brands don’t think about advertising on specific products like Reels or News Feed. They're trying to create creative that can play in as many of those placements as possible so that they can get the benefit of the algorithm,” she says.
YouTube ad salespeople similarly pitch the full breadth of its ad offerings rather than specifically selling Shorts. Without a concerted push, however, monetization headwinds may persist, according to Jon Morgenstern, SVP, head of investment at VaynerMedia.
“Shorts isn’t a huge part of what's being talked about in conversations with Google and YouTube. You can't really say, ‘just run this in Shorts’ like you can with Reels and TikTok,” says Morgenstern.
He added that while TikTok has invested in brand metrics, Shorts are limited to performance marketing outcomes.
But YouTube has the largest userbase of more than 2 billion monthly actives, compared to Instagram’s roughly 1.44 billion and TikTok’s 1 billion.
“YouTube have a good opportunity to shift users from the main app into Shorts,” says Melles. “Instagram, personally, I feel will struggle slightly more.”
Offering a variety of ad formats can work in a platform’s favor, especially for engaging core small to mid-sized advertisers.
“When you look at what causes brands and agencies to decide where they're going to spend, a lot of it does correlate to the form factor,” says Bangah. “There are barriers to entry with video; not all companies are necessarily going to have the resources and the ability to invest in really great video.”
Variety allows advertisers to test and scale with relative ease, says Sam Baron, VP of media at Critical Mass.
“We are also always looking for opportunities to run cost-efficient testing so we can keep learning and stay ahead of the curve. This allows our clients to test new ad formats and performance before investing in custom creative content for hyper-specific formats,” Baron says.
TikTok offers fewer but more innovative ad buys, according to Melles. Products like the Branded Hashtag Challenge and TopView, in which advertisers buy the first video users see when they open the app, represent new ways to “bring the community closer to brands,” Melles says.
Trust and brand safety
Brand safety is factored into every investment decision. Until recently, brand safety considerations would have elevated Instagram and YouTube, more established platforms, above TikTok.
But TikTok is “beyond its infancy now,” says Miller.
“More brands are comfortable with the platform. Until this year, we had brands tiptoeing and testing one campaign, but now we are seeing more brands adopt more of an evergreen presence which has led to increased investment,” she says.
TikTok has gained the trust of advertisers by investing in third-party measurement partnerships and adopting industry standards.
Measurement shifts caused by the deprecation of third-party cookies and mobile identifiers have also leveled the playing field, PwC’s Bangah says. Particularly since Apple shifted IDFA to an opt-in requirement.
“Right now everyone is redefining measurement and attribution models,” says Bangah. “Some of the established players also gave early warning indicators when the mobile identifier and broader internet identifier tapestry were changed that they expected some impact to their performance.”
TikTok’s regulatory challenges and its relationship with China remain a concern for some brands. Many remain reluctant to implement the TikTok pixel, a piece of code that they can install on their websites to track user actions and conversions.
“A few clients have raised concerns — in the same way that the U.S. government has concerns — about where data is shared,” says Melles.
Additional reporting by Brandon Doerrer.
Read more: See our analysis of how creators monetize across Reels, Shorts and TikTok.