Why is TikTok trying to be like Netflix?

The reason why Tik Tok or reels work is because there is no cognitive effort of choosing. It doesn’t require minutes of scrolling through potential content and checking out their descriptions to decide what to watch. Instead, the algorithm keeps throwing stuff at you checking your real preferences.

Over time this algorithm knows your deep dark secrets more than your own mother. Maybe you pretend to be sophisticated and keen on documentaries, but in reality, spend time watching celebrity spotting.

I am certain that even on Netflix where massive high quality exists, most people default to “what’s trending”. Using the wisdom of the crowd as a surrogate for your choice to reduce the cognitive load of choice. But once you make a choice, a series can be a serious time commitment. Each episode leaves you with a question that you must answer. Dropping off this journey is far more difficult than skipping disjointed content on TikTok.

Each company is busy emulating the other. Youtube added shorts after Tiktok. While TikTok has announced “series”, allowing creators to create 80 episodes of up to 20 minutes each. This content will be paywalled, allowing creators to monetize. One benefit is that creator’s dependency on brands can reduce, thereby allowing them to create more authentic content. Another is a more stable source of income.

The question however arises, will people pay for it? And how will discovery happen? Even in India, where there is a perception that people don’t like to pay, companies like Kuku FM catering to tier 2–3 cities audience has managed to charge a fee due to the high-quality content.

For TikTok, this launch could boost up the quality of content, and the time spent on the app. But discovery must be as effortless as possible. One difference is that earlier one was exposed to a buffet of content. A typical session would cover various topics of interest like parenting, book reviews, business, home care, etc. From this buffet, one is shifting to a single idea. Imagine watching multiple episodes of makeup tutorials back to back. For the format to really increase time spent, it must be connected, each episode must leave the audience with a question.

The good thing though is that while a session of binge-watching on Netflix often leaves you smothered in guilt, the shorter content on TikTok may allow you to be more forgiving to yourself.

But choosing which creators to subscribe to, basically a “pay for what you watch” model adds significant risk to each choice, making it difficult to choose. A more effective way is to provide a default plan option of X number of creators or a watch-all-you-want plan like Netflix. This helps spread the risk among multiple options, just like mutual fund vs equity investing.

Can live shopping work in the US?

Big tech’s attempts have fumbled badly. But one startup is bucking the odds. Whatnot, founded in 2019, is exhibiting a classic hockeystick trajectory.

Big names like BOND (Mary Meeker’s fund), CapitalG (Google), A16Z, and DST backed it at a $3.7B valuation in July last year — ie, post the tech multiple compression.

What are the famous VC’s seeing? Let’s break it down in 3 parts:

1. The History of Digital Live Shopping

In 2016, Alibaba copied the company Mogujie’s initial attempts at live shopping and improved them.

Since then, live shopping has been on a tear in China. Between 2019, and this year, live shopping 10x’d. It’s projected to compromise 20% of e-commerce sales in 2023. It’s so big a trend that the question for most industry analysts has been: can this work in the US?

2. Whatnot’s Story

Whatnot was founded in a garage in Arizona in 2019. It didn’t start as a livestreaming service. Instead, it authenticated Funko Pop collectibles.

But when the Covid pandemic struck, the company (at the time in YC) tried live streaming. Using the same original focus the company had in authentication, Whatnot only onboarded trusted sellers to livestream.

It saw immediate traction. That’s what’s so compelling about its story: livestreaming found it, not the other way around.

Since then, the company has shot up in valuation enormously fast on the back of scaling to more categories beyond Funko Pops. Air Jordans, baseball cards, and many other collectibles are available now. It’s even trying electronics & fashion.

3. Potential Roadblocks to Whatnot’s Success

• Unclear PMF outside core:

Right now, Whatnot has mainly shown PMF in collectible-like categories.

In the US, the biggest live shopping company (parent of QVC) has an old demo and is focused on selling them houseware & women’s fashion via cable. It’s unclear if digital live shopping will be able to scale with that demo in those categories.

• Tough competitors:

Big tech players from Instagram & Amazon to Etsy & eBay have their eyes on live shopping. Etsy & eBay, for instance, already have great networks of collectible buyers & sellers.

Whatnot mitigates this by helping sellers with sell through on eBay, but it’s telling the channel is eBay. They’re a threat.

• Managed marketplace model:

The biggest e-commerce players — Amazon, Alibaba, and Walmart — supplement marketplace inventory with their own. It helps selection depth.

Whatnot doesn’t because it is costly and makes you less a tech company.

But it makes Whatnot highly seller dependent and niche. This caps its upside. Ultimately, these 3 roadblocks exist, but are not severe. Thus, you can understand the VC optimism (they also get to see GMV & revenue numbers we don’t).

So, going back to our original question at the beginning: can live shopping work in the US? Yep. Whatnot has shown live shopping can work in the US, for markets like collectibles.