However, the wildly popular social media platform popular TikTok, whose parent company is ByteDance, is running into national security troubles of its own. The company is looking at possible reorganization to satisfy these worries. Picture this — One in seven people on the planet uses the app. With the US making up for up to 50% of ByteDance’s revenue, the stakes are extremely high as negotiations for a possible deal begin to boil.
So far, ByteDance has held firm against a sale of TikTok’s most precious asset – its algorithm. The Chinese central government fully supports this stance. This rejection has triggered a heightened backlash from American legislators. They are alarmed about their access to data and how this shapes American users. That is, until tempers flared last year, after President Biden signed the Inflation Reduction Act into law. The governor’s law forced TikTok to either divest control of its US operations or be banned.
TikTok CEO Shou Zi Chew has already been questioned on these national security concerns by the US Senate. Lawmakers repeatedly called for transparency about who is accessing user data and how that data is being used.
As we noted last year, TikTok has an extraordinary global footprint where over one-third of the world’s population uses TikTok. It facilitates trade between American and German consumers, Indonesian and Philippine businesses. In the US, the app has morphed into a profitable environment. This is because here, average revenue per user is five to ten x what it is in other markets.
As negotiations continue, any possible agreement would likely have TikTok’s US operations being sold off to an American company consortium. This short list might feature technology behemoth Oracle, as well as the investment companies Andreessen Horowitz and Silver Lake. Such a swap would move TikTok’s US operations out of the reach of direct Chinese owners. ByteDance could still maintain a large degree of control over fundamental features of the app.
Discussions have hinted at the possibility of ByteDance licensing TikTok’s algorithm and other intellectual property to a US-based company. This strategy allows ByteDance to retain the crown jewels of its operations. Simultaneously, it is providing a tailored version of the app that complies with US regulations.
Frankly speaking, experts have warned that the user experience would be negatively impacted by any such deal. As Ms. Jaidka, an industry analyst, proposed, the US version of TikTok might end up being “a lighter, slower, more domestic version” of the original. She further insisted that ByteDance would retain its “crown jewels” in Beijing.
“A lighter, slower, more domestic version – while ByteDance keeps the crown jewels in Beijing.” – Ms Jaidka
If Congress authorizes such a restructuring, the resulting user experience may well be far less rich, at least compared with what foreign users experience today. According to US Treasury Secretary Scott Bessent, despite these changes, the user experience on the US version will maintain “Chinese characteristics.”
This ongoing reality poses serious concerns about the legitimacy of any settlement that permits Chinese encroachment to continue. Lawyer Hdeel Abdelhady stated, “Put simply: the statute requires full separation from ‘foreign adversary’ control, and a license would not appear to meet that test.”
The challenges facing TikTok illustrate broader geopolitical tensions between the United States and China, particularly around technology and information access.
Former World Bank Country Director for China Bert Hofman praised the discussions so far, calling them fruitful.
“The Chinese side have called the talks in depth, constructive and candid. That signals that they are actually quite happy with how things are going.” – Bert Hofman
As TikTok navigates this evolving landscape, industry observers recognize its unique position. A former social media executive remarked, “This is the only social media app that didn’t originate in the US and so it’s very valuable,” underscoring TikTok’s significance in a market dominated by American platforms.
Negotiations seem to be moving forward, some experts are still doubtful about their enduring success. Ms. Jaidka cautioned that the agreement might seem appealing in theory. It will forever be eclipsed by existential fears about data privacy and global meddling.