Instagram can’t recreate TikTok’s Magic

Co-authored by Neer Sharma and Nathan Baschez

Variety: When this all happened, you were still in high school and living in your hometown. How has your life changed?

Charli D’Amelio: At first, it was really uncomfortable because when TikTok started, it was kind of like, “Oh, you’re on TikTok? That’s weird.” So I wouldn’t tell people.

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Facebook is at it again.

A serious competitor has emerged, and so, like clockwork, they put a copy inside Instagram.

This gambit raises all sorts of strategy questions, such as:

Why do they keep doing this?
Will it work?
What happens if it doesn’t?

There’s a popular narrative that says Mark Zuckerberg is a ruthless Machiavellian who likes to destroy his competition for fun. It could be true. But, to be fair, social networking is one of the largest and least understood industries in human history. Perhaps a pinch of paranoia is prudent!

Post M.@Post_Market

Personally, I think we should WAY more stunned that Facebook trades at only 14x 2021 EBITDA than we are that Apple trades at 23x EBITDA.

Turner Novak@TurnerNovak

Replying to @Post_Market

@Post_Market The rise of TikTok from a rounding error to more total time spent than Instagram in the US (its most valuable market) in less than two years showed that Facebook‘s moat is much weaker than originally perceived two years ago.

The problem is simple: people only have so much time in the day to scroll through feeds and create content. And when we return to the same trough day after day for years, we inevitably get the itch to play a new game.

This is why Social media exploded to 800 million monthly active users in just a few years. Yes, they also bought a lot of users through an advertising campaign of historic proportions — but that’s not the whole story. Much more importantly, TikTok is a new kind of game that people are excited to play.

And, left unchecked, it’s likely to put a permanent dent in Facebook’s business.

Social media is an increasingly zero-sum industry. In mature markets people are approaching the limit of time they can spend online, and every minute you spend on social platforms other than Facebook means lost ad inventory, lost data that can be used to personalize better experiences, and reduced likelihood of future content, which leads to worse consumption experiences. It’s a dangerous spiral. The compounding “consumption → creation” loop that drives social networks can be amazing if it’s spinning the right way, but vicious when it slows down.

So the stakes for Reels — Instagram’s answer to TikTok — are sky high.

If Instagram can’t get a substantial percentage of their users to use Reels instead of TikTok, the magnitude of this threat to Facebook’s business, now valued at $766 billion in public markets, is hard to overstate. We’re talking easily hundreds of billions of dollars in enterprise value.

So, the question is: will Reels work?

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There is some reason for optimism. Here’s what happened the last time Facebook copied a competitor:

But past performance is no guarantee of future results, and many people learned the wrong lesson from the success of Stories.

What made Instagram Stories work was not that it simply copied a popular format within Snapchat and put it into its own product. What made it work was that it created a release valve for the pressure that individuals felt in wanting to connect with their friends and family through visuals without the heaviness of having things live permanently on their feed. It extended a core behaviour that was fully aligned with the purpose Instagram served in its users’ lives, and the structure of Instagram’s network.

TikTok is totally different. Like Snapchat, it has a novel format. But if you just focus on the format, you miss the point. The most important thing is the purpose and structure of the network. TikTok users aren’t sharing with their friends, they’re performing for the world. They’re not keeping up with familiar faces, they’re discovering new ones. It’s hard to prove this is true, but one statistic I’d look for is the percent of accounts on each network that are private. I’d guess on TikTok it’s substantially less than Instagram. But regardless of proof, to the extent that public performance is what people use TikTok for, Instagram’s network structure makes it a seriously flawed substitute.

What makes TikTok so amazing is that it broke all our previous assumptions of how content can be valuable. Most companies fall along a spectrum where the wider the intended audience, the more professional the creation process tends to be. It makes sense. It’s hard to be globally interesting, so you usually need professional levels of talent and resources to do the job.

But TikTok somehow defied gravity, and stands alone as the only successful content platform where amateurs entertain the world.

Of course, there were hints that something like this was possible. Vine is an obvious direct comparison. YouTube videos aren’t as easy to create as TikToks, but the “viral home video” genre has a long history. There also is/was a similar culture on Reddit and Tumblr, to some degree. But hints and precursors aren’t the same thing as success at scale, and TikTok is the undeniable pioneer of the upper-right quadrant.

The reason it happened is because of TikTok’s unique network structure. On every other social network, you sign up and follow accounts from people and brands you know. But on TikTok most people just scroll their For You page, which is driven by a terrifyingly good algorithm that selects the most interesting videos for you from the entire catalog of videos in their database. Following is a secondary feature that most people use to collect the most interesting accounts they discover along the way.