Why is TikTok for sale?
Donald Trump has accused the video-sharing social networking service, which is wildly popular in the US, of being a threat to national security. He claims its Chinese parent company, ByteDance, would give the Chinese government access to user data upon request. TikTok denies the accusation.
The US president has demanded a full sale of TikTok to an American owner. In August, he gave ByteDance 90 days to sell up or face a shutdown. He later issued twin executive orders banning US transactions with ByteDance and also the owner of the Chinese messaging and payments app WeChat.
But later that month China complicated a potential sale, with an amendment to its export restrictions requiring companies to seek government approval before exporting Chinese tech. It was widely believed to be aimed at the technology driving TikTok’s algorithm – AI interfaces, voice recognition, and content recommendation analysis.
Last week, the US department of commerce said if an acceptable deal was not reached it would ban new downloads and updates of TikTok from 20 September before banning the app completely on 12 November.
The new deal. What is it?
In an attempt to get Trump to cool his jets, ByteDance made a tentative deal over the weekend to create a US subsidiary called TikTok Global, part-owned by the US entities Oracle and Walmart. Four of the company’s five board members would be American, and the fifth likely to be the ByteDance founder, Zhang Yiming. Trump delayed Sunday’s ban by a week.
The proposed ownership structure is murky, with conflicting statements from the different companies involved. Oracle and Walmart say they will own 20%, ByteDance says it will own 80% and will float the rest, bringing increased scrutiny in a move likely aiming to allay privacy concerns. Then there’s a statement attributed to Oracle’s vice president: “Upon creation of TikTok Global, Oracle/Walmart will make their investment and the TikTok Global shares will be distributed to their owners, Americans will be the majority and ByteDance will have no ownership in TikTok Global.”
Got that?
“There are competing claims [about ownership] because no one is really telling the full story,” said Prof Paul Haskell-Dowland, associate dean (Computing and Security), at Edith Cowan University in Perth, Australia.
“The best information I can gather is that the Trump administration is supportive of the Oracle Walmart combined bid while at the same time saying the whole ownership must be in the US. But at the same time you’ve got the Chinese owners saying they are retaining the majority share [of 80%]. Then you’ve got news releases from Oracle and Walmart about their respective proposed percentages which amount to 20% with a 12.5% to 7.5% split.”
If ByteDance retains 80%, and Haskell-Dowland said they’ve made it clear they don’t intend to completely divest, then the deal won’t meet Trump’s expectations of US ownership.
“They actually have no authority to reject the bid, but they can put hurdles in place and they can reinstate the ban,” Haskell-Dowland said.
Is the TikTok algorithm still an issue?
Absolutely, said Haskell-Dowland. TikTok is still indicating it is not seeking to provide the algorithms driving the apps’ recommendations to the new buyer.
“So either it would have to be redeveloped, and that could be part of Oracle’s contribution, or there would have to be some compromise by the parties,” he said.
“The platform is valuable because of the algorithm. Oracle and Walmart can still make money out of the platform … but without the key features a lot of the user base will move on.”
TikTok’s recommendation algorithm relies on domestic technology. Last month Bloomberg likened a sale of TikTok without the algorithm to a sale of KFC without the 11 secret herbs and spices.
What next?
The deal seems to be “changing by the hour”, said Haskell-Dowland. China and the US will likely engage in a bit more back and forth over the structure of the deal. Haskell-Dowland says in the end, it’s a political fight between two sparring nations, and not really to do with national security or intellectual property. At the moment, it looks like China is winning since they hold the ace card: the technology. But if Trump rejects the deal and bans the app, he might chalk it up as a win, albeit one that makes a lot of young Americans unhappy.
Then there’s WeChat, which is also in Trump’s sights but has been running along a slightly different track. A US court overturned a ban on the messaging app, finding that WeChat users who filed a lawsuit “have shown serious questions going to the merits of the first amendment claim, the balance of hardships tips in the plaintiffs’ favour”.