Facebook Is Getting Serious About Battling TikTok

The social media giant is reportedly offering large cash incentives to get popular TikTok creators to use Instagram's Reels video service, which will soon launch in the U.S..
Author:
Publish date:

Facebook  (FB) - Get Report appears ready to invest heavily in its effort to build a credible TikTok rival inside of Instagram.

On Tuesday morning, The Wall Street Journal reported that Facebook is offering major financial incentives to popular TikTok creators to provide exclusive content for a rival service known as Reels. It adds that some of the potential payments “would be in the hundreds of thousands of dollars.”

Reels lets Instagram users share videos with music/audio soundtracks that can be shared via the Instagram Stories service and the Instagram Direct messaging service, and which can also be found through a “Top Reels” section within Instagram’s Explore tab. But whereas TikTok has a 60-second maximum video length, Reels videos for now can only last up to 15 seconds.

Reels launched in Brazil last November, and was recently rolled out in Germany, France and India. In August, the service is expected to arrive in the U.S. and various other markets, with NBC News reporting that launches will soon happen in more than 50 countries.

Facebook, which recently pulled the plug on a TikTok clone known as Lasso, appears to be hoping that Reels will help it slow TikTok’s momentum the same way that the 2016 launch of Instagram Stories helped it slow Snapchat’s momentum. Whereas Snap Inc.  (SNAP) - Get Report claimed 238 million daily active users (DAUs) as of the end of June for Snapchat's various services, Instagram Stories had more than 500 million DAUs as of early 2019.

TikTok, which has seen massive adoption among younger consumers in the U.S. and various foreign markets, isn’t standing still either. Last week, TikTok unveiled a $200 million fund meant to help select U.S. creators earn a living from their work, while promising to grow the fund’s size over time.

Notably -- at a time when Facebook continues seeing its ad sales mix shift from news feed ads to Instagram and Facebook Stories ads -- TikTok is also now starting to get serious about monetizing its platform.

June saw the unveiling of TikTok for Business, a platform meant to help brand advertisers large and small promote themselves on TikTok. The Information also reported in June that TikTok expects to generate $500 million in U.S. revenue this year, after generating just $200 million to $300 million globally last year.

At the same time, TikTok is facing more intense political scrutiny on account of the fact that it’s owned by Chinese tech firm ByteDance.

India banned TikTok and dozens of other apps developed by Chinese companies in late June following the eruption of violence along the Indo-Chinese border. In the U.S., the House of Representatives has passed a bill calling for TikTok to be banned on government-issued phones, and President Trump’s campaign has run Facebook ads asking supporters to sign a petition calling for a U.S. TikTok ban.

In response to such political pressure, ByteDance appears to be exploring its options. Last week, The Information reported that a group of ByteDance investors held preliminary talks with the company about buying a majority stake in TikTok.

Should ByteDance choose to sell TikTok, there could be a long list of interested parties. While a sale to Facebook is unlikely for antitrust reasons, another tech giant (perhaps Alphabet  (GOOG) - Get Report or Amazon.com  (AMZN) - Get Report) could show interest, as could private equity firms.

Facebook's stock is up fractionally in Tuesday trading. The company's Q2 report arrives on Thursday afternoon.

Facebook, Alphabet and Amazon are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.