Brief:

• TikTok is testing sponsored videos that direct users of the video-sharing app to an advertiser's website. A Twitter user observed the native ad in a video clip with a "Sponsored" label from retailer Specialized Bikes and a blue "Lean More" button to tap.
• The music that accompanies the clip is labeled "Promoted Music." When tapped, the label triggers an error message that says, "Ad videos currently do not support this feature." The profile page for Specialized Bikes also showed a verified account badge, per TechCrunch.
• The glitch indicates the video ad unit is being tested and not publicly available. TikTok parent ByteDance last month started to experiment with advertising in the United States and United Kingdom. TikTok and Specialized declined to comment on the test, per TechCrunch.

Insight:

TikTok's in-feed native video ad may be among the new ad products that the company plans to develop. Those products also include a brand takeover, a hashtag challenge and a 2D lens filter for photos, per a leaked document obtained by Digiday. That document also said a 3D and AR lens are "coming soon." An app install ad from food-delivery service GrubHub appeared on TikTok last month, but it's not clear if the five-second video spot is among the new formats.

TikTok's parent company ByteDance is taking steps to monetize the user-generated content (UGC) that millions of people post to the video-sharing platform. TikTok stood out in December as the only top five app ranked by downloads not owned by Facebook, whose apps include WhatsApp, Messenger, Instagram and its main social networking app, per researcher Sensor Tower. As of November, TikTok had been downloaded about 80 million times in the United States and nearly 800 million times worldwide. The app added 75 million new users worldwide in December. Previously, ByteDance acquired Muscial.ly, the music video app popular with U.S. teens, in December 2017 and moved its users to a revised version of TikTok last August.

TikTok has viral appeal with its user-driven challenges that urge people to collaborate on creating original mobile content. The collaboration feature makes TikTok "stickier" for users than predecessor Musical.ly, which went through a high-growth phase before losing popularity in the app stores. Higher engagement, especially among younger audiences who are hard to reach on more traditional media platforms like TV, likely will appeal to advertisers targeting Gen Z. The key challenge for TikTok will be ensuring brand safety, which is an especially hot issue for any platform that thrives on user-generated content, such as Facebook, Twitter and Google's YouTube. Meanwhile, TikTok is facing harsher scrutiny in India over complaints about inappropriate content, but those concerns may reflect protectionist measures to guard India from foreign competitors.