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Facebook Is Going After TikTok's Top Creative Talent

By Adam Levy – Jul 29, 2020 at 10:18AM

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Facebook is offering financial incentives for creators to switch to Instagram Reels.

Facebook (META -1.69%) is about to launch its TikTok clone Instagram Reels in 50 countries after successful tests in Brazil, India, Germany, and France. As it prepares Reels for wider launch, Facebook is courting some of TikTok's top creators with financial incentives, according to a report from The Wall Street Journal

The strategy here appears to be twofold. First, Instagram needs to seed Reels with interesting content in order to attract an audience to the feature. Second, some of Instagram's offers are for exclusive rights or first looks at content, which could cause TikTok's existing user base to follow their favorite creators to Instagram.

The move echoes some failed attempts to win audiences in the past: one by Facebook itself, with its Live and Watch products, and the other by Microsoft (MSFT -1.27%), when it paid top e-sports talent to switch from Amazon's (AMZN -3.01%) Twitch to its now-shuttered Mixer platform.

Here's why Facebook's latest effort to win over talent to a new platform should see greater success.

The sign at the entrance to Facebook's headquarters at 1 Hacker Way in Menlo Park.

The entrance to Facebook's Menlo Park campus. Image source: Facebook

An existing audience

Instagram already has a massive audience, and the app has demonstrated in the past that it's able to draw that audience to products beyond the basic user feed. Instagram has over 1 billion monthly active users, over 500 million of whom watch Stories daily. That's considerably more than Snap's (SNAP -1.34%) daily user count for Snapchat, the originator of the content format that Stories mimics. Instagram will integrate the new Reels format with the established Stories to increase engagement with the new product.

That said, Instagram has occasionally failed to draw in a sizable audience to new features. IGTV -- Instagram's long-form video hub -- hasn't taken off like the company thought it would, but it also hasn't entirely fallen flat. The stand-alone IGTV app had been downloaded just 1.1 million times as of January when the company decided to remove the direct link to the hub at the top of its main app. Instagram recently moved to allow creators to monetize their IGTV videos and share revenue with Facebook. That indicates the audience for the feature is substantial enough to warrant continued investment from Facebook.

When Microsoft signed Ninja and other popular gamers who record and broadcast their gaming exploits to Mixer, Microsoft didn't have much of a plan to funnel users. Their strategy was to sign talent and hope users followed. Ultimately, they never did. Unlike Microsoft, which was trying to build a user base from scratch, Instagram merely wants to plug the leak of its user engagement to TikTok, in the same way that its Stories feature largely plugged the leak to Snapchat. 

Few financial incentives to compete with

Facebook's chances of pulling talent away from TikTok are relatively strong, as there aren't many other companies offering similar financial incentives. 

Facebook had to compete with Alphabet's (GOOG -1.39%) (GOOGL -1.40%) YouTube for Watch content. It also found itself bidding against more traditional media companies for some content on Watch. Likewise, Microsoft couldn't offer the same level of ad revenue to gamers that they made on Twitch because it didn't have the same sized audience.

Some TikTok creators get paid by companies to include specific songs in their videos, wear certain clothes, or simply promote a product. TikTok also provides a marketplace for companies and creators to find each other and collaborate on influencer marketing campaigns. Still, the platform doesn't have an easy way to monetize content through simple ads like YouTube does. To be clear, Instagram isn't currently offering to share revenue with creators, but its recent moves with IGTV indicate it's not opposed to the idea.

But TikTok and its creators are more akin to Snapchat than YouTube. Both TikTok and Snapchat don't have an easy way for amateur creators to monetize their content directly, and the content is more short-form creatives compared to YouTube. Facebook has notably had a lot of success copying Snapchat.

TikTok appears to be concerned about Facebook's deep pockets, too. It announced a $200 million creator fund last week to retain its top talent. The news indicates that TikTok sees Facebook's ability to take talent away from the platform as a serious threat to its well-being.

Accelerating growth

Facebook has already seen some success with Reels in Brazil, France, Germany, and India, as indicated by its decision to launch globally. Granted, TikTok's presence in those countries is far lower than in some of the new markets where it's planning to launch Instagram Reels. But attracting talent that's already popular in those markets could accelerate the adoption of Reels in markets where TikTok is competitive.

With some successes under its belt already, Facebook should be able to capitalize on the early engagement and scale it quickly. That's what the FAANG member is best at.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares), Amazon, Facebook, and Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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