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When Joy Ridenhour, a junior communications major at NYU, returned home to Virginia for winter break this year, she heard familiar music coming from her parents’ phones. “I was like, huh, it’s interesting they’re watching TikTok,” she said. “But then I realized they weren't using TikTok, they had discovered Instagram Reels.”

TikTok is giving Facebook an “unprecedented” fight, as Mark Zuckerberg conceded last week, ​​but the battle will be fiercer than many imagine. Despite the narrative that Facebook is cooked, the company is already cutting off TikTok’s growth by feeding its copycat — Reels — to people like Ridenhour’s parents, who might’ve been late TikTok adopters but likely won’t be now.

Reels may still be an inferior product, but it has several advantages that don’t fit neatly into stories about Facebook’s demise. Here are some key factors to consider when assessing the fight between the two social giants, relayed with as much nuance as possible:

Instagram’s 2 Billion Users vs. TikTok’s 1 Billion

TikTok reached 1 billion monthly users last fall — a major feat — but Instagram reportedly hit 2 billion monthly users a few months later. To maintain its fast-paced growth, TikTok must win over people like Ridenhour’s parents, who will likely see no reason to download an app that’s essentially the same as Reels. “They were never interested in TikTok,” Ridenhour said. There are 1 billion people in this camp.

That said, Instagram Reels could be a gateway drug for younger users, who may find TikTok after experimenting with Reels. Ridenhour’s 14-year-old brother, for instance, began using Reels, then downloaded TikTok, and now prefers it over Instagram. 

Facebook’s Cash Reserves 

When a social media company with tens of billions in cash reserves gets scared by a competitor, it typically tries to spend that competitor into oblivion. And that’s exactly what’s happening with Facebook and TikTok. This summer, Facebook said it would spend $1 billion on creators, taking a shot at TikTok, which has disappointed creators with its own fund. Social media platforms are only as good as the people creating content for their users, and Facebook may be able to buy an edge over TikTok.

The India Factor

India was TikTok’s largest market before the Indian government banned it in June 2020. Without India, TikTok’s download growth has slowed. In 2020, more than 911 million people worldwide installed TikTok, according to Sensor Tower. But TikTok’s downloads dropped to 670 million in 2021, a decrease of 26%. Instagram, in the same time period, saw an 8% increase (all data Jan 1 - Nov. 22). TikTok doesn’t seem likely to return to India anytime soon, a major blow. “There have been multiple attempts to revive the TikTok ambition,” said Venkat Ananth, an Indian tech journalist at The Signal. “That boat has sailed.” 

TikTok, however, is still out-downloading Instagram, and people are spending more time on TikTok than on Instagram. “Users spent about 1.6x longer on TikTok than Instagram in 4Q21,” said Sensor Tower insights analyst Dennis Yeh. As Zuckerberg said, the challenge is unprecedented.

The Facebook Ad Platform 

Ad buyers regularly take the path of least resistance, so they’ll keep spending money with Facebook. The company can’t track people as well as it once could, but it’s still a proven commodity that advertisers like, and TikTok will struggle to win away its customers. “I rarely get primary inquiries about spending on TikTok or Snapchat; it’s always about Facebook and Instagram,” said Peter Stringer, a social media ad buyer.

Bottom Line

TikTok is the world’s hottest app. It regularly beats Instagram’s download numbers in the U.S. and across the globe. TikTok, as Ritholtz Wealth’s Josh Brown said on Big Technology Podcast this week, is Facebook’s most serious competition since MySpace. That said, Reels has a lot to lean back on, and you can bet it will use those resources to ward off a quiet death.

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News Briefs

Lawmakers Press Amazon on Sales of Chemical Used in Suicides (New York Times)

Amazon has sold a chemical used in multiple suicides over the past two years. Worse, its recommendation engine figured out what was happening and suggested people looking at the compound buy other products that could aid in the act. Amazon’s been slow to act, and one customer service representative told a grieving parent, “at least your son is now on our God’s hand.” The situation is straight out of a black mirror episode and Congress is demanding answers.

Amazon boosts max base pay for corporate workers to $350,000 (CNBC)  

Amazon’s stagnant stock price is making it harder for the company to retain talent, as Big Technology reported last month. Now, Amazon is making up for it with cash. The company once proudly capped employee compensation below $200,000 per year, but now it’s raising its ceiling to $350,000. Amazon’s max base pay increase doesn’t apply across the board, so it will be intriguing to watch the company attempt to hold onto its top performers as attractive offers build up elsewhere.

Is The Independent Internet Worth Protecting? (Sponsored) 

Is there an alternative to the big tech platforms owning the internet? If so, how do we preserve it? And should we? At the Mediaocean retreat during CES, I went over these questions with Megan Pagliuca of Omnicom Media Group, a conversation you can now watch on-demand. The full two-day retreat is now available for you to watch for free. You can check out my chat with Megan, along with others including speakers from Facebook, Twitter, LinkedIn, and plenty more at mediaocean.com/retreat.

Learn More

What Else I’m Reading

Facebook probably isn’t pulling out of Europe. Inflation hit 7.5%. Twitter missed earnings estimates — but is growing nicely. Laid-off Peloton employees crashed its new CEO’s first all hands. How the crypto-scammers got caught. Fast-delivery app GoPuff shops at Instacart. CNN has a culture problem. SpaceX lost dozens of satellites in a geomagnetic storm. How the U.S. betrayed its allies in Afghanistan. 

Number Of The Week

$70

Cost of a one-way airline ticket from San Francisco to New York this March 

Quote Of The Week 

“If Facebook is an illegal monopoly, how is TikTok able to compete for FB users? Why has Apple hurt FB's ad biz with a privacy tweak? Why is Amazon the fastest growing player in ads?”

— Wired contributing editor Fred Vogelstein

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This Week On Big Technology Podcast: Meta's Stock Plunge + Market Volatility — With Josh Brown of Ritholtz Wealth Management

Josh Brown is the CEO of Ritholtz Wealth Management and a regular CNBC contributor. Brown joins Big Technology Podcast to discuss what's behind Meta's historic $251 billion stock plunge, and Amazon's equally shocking $190 billion rise. This is a discussion about Meta and Big Tech, but as you listen you'll get a window into market fundamentals like "whisper" earnings targets and why growth stocks are going out of style. We also discuss what happens inside companies when their stock prices plummet.

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