The Battle for Creators: YouTube vs. Tiktok vs. Instagram

From ad revenue share to social commerce, branded content, livestreaming, and fan-pay, this is a deep dive into the current state of the creator economy and the battle between Shorts, Reels, & TikTok.

Feb 01, 2023

I spent the last few years leading creator monetization at TikTok and now advise companies in the space. Lately, I’ve been having conversations with investors, tech execs, and founders about the future of short-form content platforms, social commerce, influencer marketing, advertising & revenue share, creator funds, and fan pay (tipping, subscriptions, etc.). With YouTube’s introduction of ad revenue share this week, I’m going to attempt to tie it all together here.

To understand the forces that are influencing the short-form ecosystem here in the West, it’s important to know how the ecosystem in China has evolved. On platforms like Douyin (the TikTok of China), the primary avenues of monetization for creators are branded content, live streaming, and e-commerce. Ad revenue share (i.e. something like the YouTube Partner Program) does not really exist on Douyin, and the platform has never needed this to attract creators. As a result, there has been strong resistance towards enabling ad revenue share for short-form content in the West. The mentality from China tends to be: “Why give away 55% of revenue to creators when that never had to happen here?”

This line of thought is wrong, but it persists at the highest levels. I can empathize that for any CEO and leadership team, agreeing to give away 45-55% of ad revenue is an extremely difficult decision to make, especially when there is a successful blueprint in China that did not require it. So is it possible to retain creators on a short-form content platform without ad revenue share? To answer that, we must consider all of the forces at play.

Competitive Landscape

A lot of people talk about TikTok vs. Instagram Reels, but the real conversation is about TikTok vs. YouTube. Both companies are moving into each other’s territories at a rapid pace, with TikTok trying to capture the long-form market faster than YouTube can capture the short-form market. TikTok’s push towards longer-form content is most recently exemplified by the introduction of full-screen mode. Although one might think of Douyin, TikTok’s sister app, as a short-form content platform, the majority of time spent in the app is from long-form content consumption. If TikTok can follow a similar trajectory, it could drastically increase stay time on the app, which unlocks more ad revenue.

YouTube, on the other hand, is focused on capturing the short-form market and making it easier for long-tail creators to be discovered. TikTok’s disruptive force was an interest-based algorithm that made it easy for anyone to be discovered, along with creation tools that allowed anyone to be a creator, which is what YouTube needs to replicate. YouTube has always been a platform where getting discovered and growing a following is a slog, but if you make it (i.e. you can grow a following), you can earn big.

With the introduction of Shorts and now ad revenue share via Shorts, YouTube is one step closer to fulfilling the entire creator journey. The platform can be a place for someone starting out to be discovered and build an audience, and it can be a place for an established creator to monetize effectively through ad revenue share. For now, TikTok’s algorithm and creation tools are still superior to YouTube Shorts, but once YouTube reaches parity on that front, it will become the preferred destination for creators.

So that leaves TikTok and Reels with two options: 1) give away 45-55% of ad revenue to creators, or 2) establish alternative revenue streams for creators to generate comparable income. Until now, both companies have leaned into the latter approach. Sure, they both announced ad revenue share features (Reels ad revenue share, TikTok Pulse), but both of those have been limited in scope and reach. They come nowhere close to YouTube’s ad revenue share offering ($16B in annual payouts to creators).

Instead, TikTok and Meta’s strategies have focused on alternative monetization as the solution. Commerce, branded content, fan pay, and live streaming are meant to attract and keep creators on TikTok and Instagram. Let’s discuss each of these revenue streams and determine whether they will be sufficient to compete with YouTube ad revenue share.

Social Commerce

Of all the alternative monetization streams, native commerce is the one that has the most potential. In 2022, Chinese shoppers spent $208 billion on Douyin, with creators capturing tens of billions of that GMV via commissions. However, meaningful differences between US and Chinese consumers, creators, and merchants cast doubt on the scale that social commerce can reach in the West.

Consumer Preferences: There are two key differences between US and Chinese consumer shopping preferences. First, 40-50% of US consumers prefer to shop in-person and most have the ability to do so, whereas in-person shopping can be difficult in China. For example, if I’m looking to buy a Nike product, there are at least 10 Nike stores in the LA area that I can access. A Chinese consumer who does not live in a tier-one city like Hong Kong has no access to a physical Nike store, so instead the consumer has to rely on purchasing the products online. Second, the Chinese e-commerce market is burdened by buyer mistrust due to the high quantity of scams, substandard products, and fakes. This has heightened consumer reliance on creators, who in China are known as KOLs (Key Opinion Leaders) due to their trustworthy recommendations. Since trust is less of an issue in the US, there is less of a need to rely on creators for purchasing decisions. Of course, creators do influence purchasing decisions here, but their recommendations carry even more weight in markets that suffer from mistrust. Outside of these two differences, I also hear from my Chinese colleagues that they believe US consumers are less interested in being sold to than Chinese consumers. If true, this could be another reason why social commerce won’t scale here the way it has in China.
Creator Preferences: To incentivize creators to be sellers, particularly in live-stream environments, they need to earn income that is comparable or superior to other revenue streams they have available. In China, many e-commerce sellers are long-tail creators who might earn $500/month from promoting products, which is equivalent to the living wage in China. Therefore, live-stream selling is considered quite lucrative in China and incentivizes many people to be sellers. In the US, the living wage is $30-40K, so individuals would need to earn a lot more to be incentivized to sell via live-streaming as a part-time or full-time job. Since live-streaming selling takes a lot of time and effort compared to other forms of monetization, it has proven difficult to motivate Western creators to engage in this behavior.
Merchant Preferences: Because of the dynamics mentioned above, merchants recognize that to sell successfully in China, it’s best to set up a storefront within a trusted commerce platform like Douyin or Little Red Book, where users can rely on recommendations from KOLs. In the West, merchants can sell successfully via their owned and operated websites and maintain better control of the shopper’s e-commerce experience, so they are less pressured to upload their product catalogs to Instagram or TikTok. They would rather maintain the control that they have, which has led to slow adoption of native commerce features. On top of that, building a seamless in-app commerce experience is complex, so merchants on IG Shopping and TikTok Shop have continued to experience frustrating technical issues that further alienate them.

Considering all of these factors, it’s clear that social commerce faces significant challenges in the West. Despite these challenges, TikTok will continue to push full-speed ahead on its e-commerce plans because:

They have done it before and have the exact roadmap, expertise, and infrastructure to bridge the gap between social and commerce by replicating Douyin’s roadmap. If anyone is going to get this right, it’s going to be TikTok.
If consumer behavior outside of China does shift towards discovery-based shopping, the GMV opportunity for TikTok is massive. This is already proving to be true in Southeast Asia.
Native commerce allows TikTok to bring in new advertisers and to collect better intent data that bolsters its ad business. In other words, native commerce allows TikTok to understand not only which users clicked on an ad, but also which users then added the product to the shopping cart, purchased it, and more, all of which is invaluable data for advertisers.

If TikTok can replicate its commerce success in China, then this creator income stream might be sufficient to compete with YouTube’s ad revenue share. However, social commerce adoption has been slower in the West and it is unwise to assume that this will be the magic bullet to compete against YouTube.

Fan Pay

For the last few years, fan pay was at the center of all creator economy conversations. The mission was: “Let’s give the power to the creators and help them monetize their audiences so that they’re not reliant on the platforms.” The reality is: Monetizing fans is very, very, very difficult.

Take Patreon for example. Only ~5% (12K creators) earn more than 1K/month on the platform. The majority are receiving donations from a friend or family member. This is because only 0.01-1% of fans (superfans) convert to places like Patreon, Cameo, OnlyFans, Kajabi, etc. Most creators don’t have superfans.

On TikTok, the vast majority of content consumption is from the FYF. People are not there for any one particular creator. They are there to be entertained by whatever appears on the feed. So getting someone to actually click on a creator’s profile, to then click on their link in bio, to then subscribe or pay for something is extremely difficult. On top of that, a creator then has the burden of having to make additional, exclusive content or offer other perks that their audience finds valuable.

While fan pay can work for certain types of creators (Patreon = podcasters, OnlyFans = adult creators, Cameo = public figures, Kajabi = instructors) who have highly engaged superfans and something valuable to offer on top of their regular content, this revenue stream does not scale to the broader creator ecosystem.

Can startups build fan-pay businesses by focusing on specific creator cohorts? Yes. Can fan pay be the scalable solution that Instagram and TikTok leverage to keep creators from jumping to YouTube? No.

Livestreaming

Although live-streaming is primarily monetized via fan pay, it deserves its own category because the value exchange is quite different than in a non-live setting. During a live-stream, the user is paying to capture the creator’s attention and to engage with the creator in real-time (ask a question, vote, participate in a game, show support, etc.). In that sense, the value proposition for paying a creator during a live-stream is much higher than in a non-live setting. The reward is immediate.

For a long time, live streaming was constrained to the gaming vertical, but TikTok has finally brought it to the mainstream through key product decisions around distribution and gamification (i.e. Live Battle Mode, challenges, etc.). These days, you can see creators live-streaming all sorts of things, and the ones who do it best are earning thousands of dollars per month. A lot of people are sleeping on TikTok Live (literally and figuratively). It’s a dark horse in the creator economy that not enough people talk about.

So, can it reach the scale of YouTube ad revenue share within the next few years? Unlikely, but it is a top contender. Even if total live-stream payouts can scale to the size of YouTube ad revenue share though, the distribution of the income would look quite different. In live-streaming, the majority of income is distributed to a large number of long-tail creators who earn small sums. In other words, ad revenue share tends to be very top-heavy, whereas live-stream revenue is the complete opposite. This explains why you don’t hear large creators raving about live-stream revenue even if the total size of this market is massive.

Branded Content

This leaves us with branded content - the primary method for creators to monetize on Instagram and TikTok. Creators love branded content because it’s easy. It relies on their expertise in making videos or photos without much additional effort needed. They don’t have to figure out how to sell products, convert their audiences to a new platform, create premium benefits, or sit on a live stream for several hours. All they have to do is figure out how to make a good piece of content, which falls within their core competency.

On top of that, branded content allows creators to elevate their brand by associating with other brands that they love. I’ve spoken with many creators who list this as a top reason they like to engage in branded content compared to other revenue streams.

Historically, the social platforms have taken a hands-off approach with branded content. YouTube had FameBit (now BrandConnect), but it was never a major priority for the company. Instead, platforms like YouTube and Instagram relied on influencer marketing companies like Grin, CreatorIQ, Aspire, and others to connect brands with creators. This is now changing.

YouTube and Meta know that TikTok is investing heavily into its creator marketplace, so they too have started to make theirs a priority. In China, all branded content deals on Douyin must go through Starmap, ByteDance’s in-house influencer marketing platform. As a result, ByteDance gets to capture a cut of every branded content deal that occurs on Douyin. Since this model has worked so well in China, a similar approach is being explored with the TikTok Creator Marketplace. In the short-term, the company can partner with influencer marketing companies to bring their advertising clients into the TikTok ecosystem, but in the long-term, these brands and advertisers could be incentivized to find and hire creators directly within TikTok’s influencer marketing ecosystem. After all, the platforms are much better positioned to leverage data to match brands with the right creators.

So Instagram and TikTok are leaning more into branded content, but can that be enough to keep creators from jumping to YouTube? Once again, the answer is no. While creators do love branded content and the industry is large ($16B in 2022 and expected to grow to $22B by 2025), monetizing from this revenue stream still requires more effort from creators than monetizing from ad revenue share, and it is a more unpredictable method of monetizing. Some months, a creator might be hired by a brand, and other months the creator might find that no brands are interested in collaborating. While creators like to monetize from multiple revenue streams, if they have to prioritize their time between optimizing ad revenue share or branded content revenue, they will choose the former.

So what can we conclude from all of this?

To win in short-form UGC, YouTube has to match TikTok’s creation (i.e. editing, effects, templates, music) and distribution (i.e. algorithm) technology. Once it does, YouTube fulfills the entire creator journey, from getting off the ground to becoming a star creator earning millions of dollars.
The livestreaming and branded content markets are robust, but both revenue streams require more effort than ad revenue share, so creators will prioritize the latter and flock to YouTube.
Social commerce is unproven and fan pay does not scale well to the majority of creators. Neither of these can compete with ad revenue share, at least in the short-term.
Although it is a painful decision to give away 45-55% of ad revenue, it’s the right decision for the long-term success of TikTok and Instagram. A $1B fund doesn’t cut it when your competitor is giving away $16B each year, and clearly the other revenue streams discussed are inferior to ad revenue share.

My prediction? TikTok and Instagram will introduce a competitive ad revenue share option, but only after they see creator retention decrease over an extended period. Agreeing to give away 50% of ad revenue is such a scary decision to make as a company, that it will continue to be pushed off. In the meantime, YouTube will improve its creation and distribution features, reaching parity with TikTok and attracting not only those creators who care about earning money, but also the long-tail creators who primarily seek ways to be creative and have fun.

Alternatively, if TikTok is willing to deviate from Douyin’s path and take a long-term view, it would introduce a competitive ad revenue share product immediately, which would retain creators and incentivize them to make more and higher quality content. This would also incentivize creators to make more long-form content, which would allow TikTok to drive up watch time, increase ad load, and ultimately increase ad revenue in the long-term.

I’m excited to see how this all unfolds. If you want to go deeper on any of these topics, don’t hesitate to comment or reach out directly.