Why Walmart is so interested in Tik Tok

TikTok can be described as a social networking app, primarily used by millennials, to share and view amateur video content. The app is Chinese owned. Known as Douyin, owned by ByteDance. As of August 2020, TikTok, had surpassed 1 billion users worldwide in less than four years.

How does it work? Users film videos of themselves lip-syncing or acting out sketches. Video content can only be 15 seconds long and comes with a selection of songs, sound effects, or sound bites.. The videos are on auto-play, which means you’re caught in the endless video loop as soon as you’ve opened the app.

Why is it so popular? The app is highly popular among kids and teenagers. Like it or not, the app captures the zeitgeist culture and brings together a more unique and trendy way for people to interact in a world forced into isolation by a virus pandemic.

Here are a few facts to get you up to speed.

• As of this month, TikTok’s user base hit 1 billion. Facebook – 2.23 billion, YouTube – 1.9 billion, WhatsApp – 1.5 billion, Facebook Messenger – 1.3 billion, WeChat – 1.06 billion, Instagram 1 billion.  
• Half of Tiktok’s user base is under 34% and 25% is between 18-24.
• TikTok is however a global app with 466 million are from India, 173 million from China, and 123 million from the U.S.
• TikTok is one of the most successful Chinese apps outside China.
• The US is among the first countries to impose an outright ban on TikTok. Japan is also considering a similar move.
• The US is among the first countries to impose an outright ban on TikTok.
• On June 29, India banned TikTok and 58 other Chinese apps.
• Japan is also considering a similar move.

Because the app has gained worldwide traction, there are concerns that the Chinese Communist Party may have a different agenda for the app’s use. TikTok uses machine learning to analyse user data including interests and preferences through the interactions. It then displays this information via the feed to the user. The app doesn’t even require a sign up. Once installed, it starts tracking you, learning all your interest. It then begins recommending videos based on those factors.

In August this year, President Trump signed an executive order to ban transactions with the Chinese owners of TikTok and WeChat. This effectively banned both apps in the country. Trump said the app “automatically captures vast swaths of information from its users” and that the “data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information”. Despite the political war-zone, TikTok still has appeal. The political issues haven’t put off Microsoft and Walmart from casting their eyes over the company for a potential takeover. Following Trump’s national security risks claim, Walmart confirmed it was teaming up with Microsoft to buy the US business.

Why? At first glance the move comes as a surprise and doesn’t make much sense. But a closer look reveals a platform teeming with social media activity and frenzied online shopping amongst younger shoppers. After watching a few short videos, you will notice influencers peddling everything from makeup to designer clothes. The platform isn’t just young video content, it’s entertainment plus shopping. It has been dubbed “Social Commerce”. Walmart has been unable to break Amazon’s online dominance. According to eMarketer online sales in the US are tilted towards Amazon with 38% market share compared to Walmarts 6%. Walmart already has logistics, fulfilment and distribution dominance. With Microsoft by its side, and TikTok’s vast audience of young social commerce shoppers (100 million in the US) – the takeover makes perfect sense.

“The future customer of Walmart or Amazon — that’s what TikTok offers,” said Amit Shah, chief strategy officer of VTEX. With the help of Microsoft, WalMart could use TikTok as its sales machine to market and sell its products to its online market. But it doesn’t stop there. An AI driven database that feeds constant information about its shoppers, is a very powerful tool. This sort of information can be used to create a digital mall, in the same way Instagram has done for Facebook. Walmart release a statement saying the “potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses.”

TikTok is the missing piece that completes the puzzle for Walmart. Investment Bank UBS says “connecting with a younger audience is vital to Walmart’s long-term outlook,” and has a Buy recommendation with a target price of $148.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.