Marketplace Briefing: What TikTok’s legal battle to stay in the U.S. means for brands
This is the latest installment of the Marketplace Briefing, a weekly Modern Retail+ column about the ever-changing e-commerce marketplace landscape. More from the series →
All eyes are on TikTok ahead of a U.S. Supreme Court hearing Friday over a law that requires the social media app’s parent company to divest from the app or face a nationwide ban.
TikTok, which has 170 million users in the U.S., could be pulled from app stores in the country as soon as Jan. 19 after President Joe Biden signed a bipartisan law in April requiring TikTok’s Chinese owner ByteDance to sell to a government-approved buyer. TikTok has pursued legal action to prevent the law from going into effect, arguing that the legislation is unconstitutional and violates the First Amendment. The federal government is on track to force the app out by the divest-or-ban deadline, which is also the day before Donald Trump’s inauguration.
It’s a coin toss whether the law will actually take effect. Brands, agencies and creators have told Modern Retail they are optimistic that TikTok will sidestep the ban. History favors this prediction, as prior attempts to ban the app in the U.S. have fallen through. Nevertheless, many are bracing for impact. Some are doubling down on TikTok while they still have access to the app. Others are diversifying to similar platforms like Instagram Reels and YouTube Shorts to work with creators and reach audiences.
But TikTok isn’t just a social media channel. It’s also become a crucial sales driver for brands thanks to TikTok Shop, the social media app’s e-commerce marketplace, which launched in September 2023. TikTok has courted 500,000 merchants in the U.S., and while many of these are small or independent businesses, some are top brands, such as Estée Lauder.
“When you think about the scale that TikTok Shop reached, it went from launching at the end of 2023 in the U.S. to over the course of 2024 doing $7.3 billion in sales,” said Alex Nisenzon, the CEO of e-commerce intelligence firm Charm.io, which tracks product sales on TikTok Shop. “That is insane.”
The impact of a TikTok ban may have far-reaching consequences beyond the app itself. For one, brands and sellers will need to migrate to new platforms to recoup the loss of revenue. That could be a windfall for competing marketplaces like Amazon. The ban could also lead to a spike in digital advertising prices, as well as stunt the growth of social commerce in the U.S.
Here’s the latest on Tiktok’s legal battle and what the ban means for brands and the e-commerce landscape as a whole if it goes through.
What is the current status of TikTok’s legal case?
In the U.S. government’s view, the crux of the ban revolves around national security concerns. The federal government has asserted that ByteDance’s ownership of TikTok poses a risk of Chinese influence over American users’ data and content.
In December, a U.S. appeals court issued a ruling that ultimately sided with the federal government’s action against TikTok. The court also said that the law doesn’t violate the First Amendment, which is a touchstone of TikTok’s argument against the ban. In response, TikTok made a last-ditch appeal to the Supreme Court, asking it to intervene.
Shortly after, Trump filed an amicus brief asking the Supreme Court to delay the Jan. 19 deadline in order to let him negotiate a deal that would avoid a TikTok shutdown while preserving national security. Unless the Supreme Court reverses the law or pauses its implementation, the bill will take effect on Jan. 19.
How will the Supreme Court rule?
Looking ahead to Friday’s hearing, University of Minnesota law professor Alan Rozenshtein said he’ll be on the lookout for what kind of reception TikTok receives from the Supreme Court compared to the appeals court in Washington, D.C., where the social media company made its case in September.
“Basically all of the judges, and it was a cross-ideological panel of judges, showed TikTok no love whatsoever,” Rozenshtein said. “I’ll be really curious to see if anyone on the Supreme Court seems more sympathetic to TikTok than they did.”
It’s difficult to predict how the Supreme Court will respond, in part because of the accelerated timeline of the case, according to law professor Eric Goldman of the University of Santa Clara.
“The Supreme Court adopted an expedited review procedure for this case, so the case is not proceeding in a normal fashion, and as a result, it’s a little less predictable what’s going to happen,” Goldman said.
It’s unclear when the court will issue its ruling. But Goldman added that the expedited nature of the case and the Supreme Court’s refusal to pause the ban suggest it’s prepared to make a decision quickly.
How would a TikTok ban impact e-commerce in the U.S.?
In recent years, brands and retailers have flocked to TikTok to connect with Gen Z consumers. The platform has become a crucial platform for influencer-driven marketing, in particular. To Aron Bohlig, managing partner at ComCap, an investment bank, TikTok is one of the top social media channels for e-commerce companies, in part because it provides greater reach to a younger consumer base.
As such, a ban would force brands to find alternative platforms to showcase their products. “What will happen if the ban takes place is that you’ll see a huge amount of advertising inventory suddenly disappear,” Bohlig said. “This will result in lower e-commerce sales, as consumers will increasingly purchase the same things offline, or perhaps through Amazon or other kinds of scaled channels.”
“This will also drive up the cost of advertising inventory because you’ll still have the same demand by retailers and brands for that consumer traffic, so it’ll be the same amount of money going after less inventory, which ultimately, will not be great for the brands and retailers,” Bohlig said. Conservatively, the cost of advertising for brands could rise between 10% to 15%, he said.
Beyond influencer marketing and advertising, TikTok has become a fast-growing destination for online shopping via its e-commerce marketplace TikTok Shop. The marketplace’s gross merchandise volume is projected to grow to $50 billion in 2024, more than double from the year before, according to EcommerceDB.
Still, TikTok Shop represents a small piece of online shopping in the U.S. compared to marketplaces like Amazon, which is expected to see $757 billion in GMV in 2024.
If TikTok is banned, where would brands and consumers go instead?
For brands, there are more third-party marketplaces than ever before, from more established platforms like Amazon and Walmart Marketplace to emerging upstarts like Temu and Whatnot.
Whatnot, a fast-growing marketplace known for live shopping, has increasingly become a viable alternative to TikTok if the app is shut down. On Wednesday, Whatnot announced that it secured $265 million in a Series E funding round, which puts the platform’s valuation at $4.97 billion. The investment in Whatnot shows that platforms for live shopping, which is a focus of TikTok Shop, are gaining traction in the U.S.
Still, there is no direct counterpart to TikTok Shop, and therefore, its recent success may be difficult for other platforms to replicate, according to Charm.io’s Nisenzon. Small brands that started out on TikTok are more likely to feel the effects of the ban compared to large mainstream brands, which have an established reach on other retail channels.
“There really isn’t another place that’s a really apples-to-apples equivalent for all of those emerging brands to go to,” Nisenzon said. “They could attempt to penetrate the market with their own direct-to-consumer site and e-commerce experience, but that’s really difficult. There’s a steep learning curve there.”
The loss of TikTok Shop as a marketplace in the U.S. will also have a detrimental impact on the growth of live shopping in the country. Although social media channels like YouTube Shorts and Instagram Reels “have replicated the core TikTok experience” and therefore will see users and creators migrate to those platforms, they are not social commerce platforms, according to Juozas Kaziukėnas, founder and CEO of Marketplace Pulse. As such, a TikTok ban will significantly erode the growth of live shopping in the U.S.
As Kaziukėnas put it, “While brands that sell through TikTok Shop will shift their ad budgets and focus to other channels, those will not be social commerce.”
Marketplace news to know
- The holidays were big for e-commerce. According to new data from Adobe Analytics, online retail sales rose 8.7% year over year between November 1 and December 31.
- Amazon said it will invest $8 billion to support AI and cloud computing infrastructure in Georgia.
- One of TikTok’s top ad executives is leaving the company, according to Business Insider.