What is Reels and does it stand a chance against TikTok?

What is Reels?

Reels is the newest product launched by Instagram, largely seen as a direct competitor to TikTok. Reels is a video product that allows users to edit 15-second multi-clip videos with audio, effects and new creative tools and share reels on Feeds or potentially Explore. Users can access a new reels feed in Explore, giving a similar full screen view and scroll user-experience to TikTok. Reels isn’t the only copycat TikTok product new to the social space: Snapchat also recently announced a new music feature.

Will Reels be successful?

On a global scale, TikTok can beat its new competitor, but faces challenges

There is no question that TikTok is experiencing rapid global growth. Latest reports have it at 800 million (compare this to Instagram at 1 billion as of 2019). This is unprecedented growth – growth we haven’t seen a non-Facebook owned platform achieve ever. Let that sink in…

In India, TikTok was projected to grow to 124.9 million monthly users, up 58.1% from 2019. This puts TikTok in the second place position to Facebook for all social media platforms. For perspective, Instagram is projected to hit 79.1 million users and Twitter is projected to hit 31.9 million users in 2019. However, the recent TikTok ban in India could significantly impact this.

If you haven’t been living under a rock, TikTok is also potentially going to be banned in the U.S., or may be selling it’s U.S. business to Microsoft. While China, TikTok’s country of origin, is the number one market by population in the world, number two is India and three is the U.S. Banning TikTok in these markets could be detrimental to its growth trajectory globally.

This means there is a potential opportunity for Instagram to market Reels if TikTok continues to be banned (or is subject to ownership changes that could impact the app’s growth).

Instagram has been successful with other copycat product launches

There isn’t a better platform to try to launch a TikTok copycat than Instagram. If we look at prior launches, Stories is a clear example where Instagram was able to overtake Snapchat’s entire userbase with one singular feature in a matter of months. Now Instagram Stories (one feature) has 59% more users than Snapchat (the entire platform) globally. It has worked before so obviously the social media giant is going to try again.

The main reason that Instagram was able to beat Snapchat Stories so easily is when it launched the product, it had 400MM global users, over 3X that of Snapchat. Instagram also appealed to a larger demographic and catered to influencers (which at the time Snapchat did not). If we compare this to TikTok today, the numbers aren’t quite as clear. Globally, TikTok has 800 million users compared to Instagram’s 1 billion (a much closer margin than Snapchat), but TikTok is still missing a key demographic that Instagram has. More on that next.

Instagram owns Millennials+

When it comes to TikTok usage in the U.S. market, it is clearly heavily Gen Z. While 53% of TikTok’s users are 18-34, 56% of Instagram’s users are 35+ (according to Comscore, June 2020 data). There are also 2.3X more Instagram users over the age of 25 than TikTok. This is a difference of 62.8 million users – a huge gap and a huge opportunity for Instagram (in the U.S.). If Instagram can convert 25% of those users to Reels as it did at launch with Stories, that would put them at 34.7 million U.S. Reels users (based on June 2020 numbers), about half the 65.6 million U.S. TikTok users. If Instagram could continue to grow the product at the same rate it grew stories, especially with the older demographic, it could potentially ultimately beat TikTok.

Many Instagram users also have established followings and the platform has been very influencer friendly. This means that someone creating a Reel might already have a significantly higher potential viewer base than TikTok, a newer platform (for this Millennial+ generation).

But, there’s another demographic on the platform, and it’s powerful: Gen Z.

TikTok owns Gen Z and it will be hard to convert them off the platform

When it comes to Gen Z (let’s use the definition of 13-24 for now), the TikTok gap is much narrower, and growing significantly faster than any other platform. In the U.S., TikTok grew 125% in unique monthly users according to Comscore from July 2019 – January 2020, and another 41% from January 2020 to June 2020. From January to June 2020, Instagram only grew 0.26% and other social platforms are in decline. If TikTok can continue with a similar growth trajectory, or even if it decreases to single digit growth for Gen Z, it will still outpace every other social platform significantly, and will likely overtake Snapchat and Twitter for this demographic in the next 6-12 months.

It is not just in user growth that TikTok has a powerful impact on this generation. Gen Z users are extremely active on the platform: the average U.S. user spends over 18 hours per month on TikTok. This is 1.9X more time than Instagram, 2.5X more time than Snapchat, 4.1X more time than Facebook and 5.8X more time than Twitter. If we look at the potential for Reels as not only a function of users but also a function of engagement, frequency or exposure, this is where TikTok has incredible power and could potentially “win.” If Reels is successful, it will be interesting to see if it drives up time spent on Instagram, which, by the way, is also incredibly high compared to other social networks. If any platform could battle with TikTok, it’s clearly Instagram.

Show me the money

AKA: What about the advertising dollars? Assuming the user behavior is on to something, which platform has the largest advertising potential?

Instagram is projected to hit $16.03 billion in U.S. advertising revenue in 2020. This forecast was before the Facebook ad ban, but current numbers show little impact. According to Pathmatics, the 100 advertisers that spent the most on Facebook in the first half of the year spent $221.4 million July 1 – July 29, 12% less than the $251.4 million spent by the top 100 advertisers a year earlier. You can see in the below chart that the public July boycotters did little to impact the overall ad spending in July, and Facebook has over 7 million total advertisers (most of its revenue is outside the top 100).

So if the July boycott wasn’t significantly impactful, and Instagram is still projected to hit around $16.03 billion in U.S. ad revenue in 2020, this could be a significant opportunity for the platform to gain media dollars in Reels (if the product is opened up). To compare, TikTok’s 2019 revenue was around $177 million. Instagram is an established ad platform that delivers results and gives advertisers the tools they need to bid programmatically against a multitude of audiences. TikTok is still struggling to grow ad dollars in the U.S., running some media as a managed service model and running into a multitude of brand safety issues. Many brands are hesitant still to put their media dollars in this platform, which could give Instagram a significant advantage here.

The bottom line.

There doesn’t need to necessarily be a winner and loser in this battle. There is potential for two successful products, but when it comes to capturing a unique, new user behavior and trying to gain adoption, Instagram will have to leverage the power of its older users. If TikTok is ultimately banned in the U.S., this could give Instagram an advantage to grow users during a period where TikTok may be stagnant. Even with this, Instagram will still have a battle ahead to convert Gen Z.

Sources:

• https://about.instagram.com/blog/announcements/introducing-instagram-reels-announcement/
• Comscore, MyMetrix
• https://content-na1.emarketer.com/tiktok-will-reach-more-than-six-times-many-users-india-snapchat
• https://forecasts-na1.emarketer.com/584b26021403070290f93a15/5851918a0626310a2c186a23
• https://www.cnbc.com/2020/08/04/some-major-companies-will-keep-pausing-facebook-ads-as-boycott-ends.html
• https://www.nytimes.com/2020/08/01/business/media/facebook-boycott.html
• https://www.businessofapps.com/data/tik-tok-statistics/#3