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TikTok is coming for advertising

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Bloomberg

Hi everyone, it's Sarah Frier. Wherever the teens go, advertisers will eventually follow. For a story published Thursday morning, I've been talking with advertising agencies and brands about TikTok. They're wowed by how exciting and creative it feels and how easy it is to build credibility with a younger generation. Chipotle Mexican Grill Inc. got almost 4 billion views on a hashtag campaign about burritos! E.l.f. Cosmetics Inc. made its own viral TikTok song!

I'm having déjà vu. These are the same conversations I had with advertisers about Snapchat's Taco Bell face filters in 2016 and Instagram's glossy magazine-style ads for luxury designers in 2014. When brands are the first to try something, they make a big splash, generate buzz around their experiments and look particularly innovative. In the beginning, brands invest in original creative work. TikTok is even directly introducing advertisers to top-tier influencers.

But this is still the honeymoon phase. Eventually, for the business to grow, TikTok will have to get serious. Catering to advertisers on a case-by-case basis isn't as profitable as building out an automated system. Like Facebook Inc.'s Instagram and Snap Inc.'s Snapchat before it, ByteDance Inc.'s TikTok has been testing a portal for brands to buy ads directly—an effort that is likely to increase the number of advertisers the company can work with over time.

If history is any guide, TikTok could be in for an uncomfortable transition. As Snap built a self-service ad-buying system in 2017, the company saw ad prices decline (though the dip turned out to be temporary). And Instagram had to ease up on its insistence on ultra-luxe ad quality around 2015, taking in ads through Facebook's buying system. Eventually, social media advertising becomes less about viral splash and creativity and more about taking in as many orders as possible.

TikTok, in particular, could be in an awkward position as it streamlines its ad offerings. With a self-service advertising platform—the kind offered by virtually all established social media companies—big brands want to be able to choose their audience with granularity. Facebook and Alphabet Inc.'s Google, for example, offer marketers hyper-targeted options. But unlike Facebook and Google, ByteDance is based in Beijing. While TikTok has repeatedly said it's not influenced by the Chinese government, U.S. lawmakers have already warned that the app could be a security threat. Once it starts collecting detailed information about users, that warning level could rise.

But that's a concern for a different day. As TikTok grows, advertisers will get to enjoy absurd metrics for their hashtag campaigns, at least for now. Sarah Frier

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