Could TikTok's owner lose its killer app?

image source, Good pictures

image caption, The United States is TikTok's largest market, with 170 million users accounting for about 17% of its global users.

U.S. lawmakers could vote this weekend on a second bill to block TikTok's Chinese owner, ByteDance — selling its U.S. business or face a ban.

Fears that information about millions of Americans could end up in Chinese hands have driven congressional efforts to separate TikTok from the Beijing-based company.

TikTok has said that ByteDance is “not an agent of China or any other country”. Byte Dance insists it is not a Chinese company, pointing to several global investment firms that hold a 60% stake in it.

But the app's extraordinary success in the US has created another flashpoint between Washington and Beijing.

About 170 million Americans spend at least an hour of their day swiping on TikTok. That includes six in 10 teenagers, and a fifth of them say they are “almost constantly,” according to the Pew Research Center. More than 40% of US users say it is their regular news source.

A ban on TikTok can be challenged as a violation of freedom of speech. This is difficult to police and undesirable in an election year. While forcing ByteDance to sell the app is seemingly simple, that option also faces hurdles.

For one, analysts say Beijing will try to avoid a sale. But who will buy TikTok's US operations, which some estimates could fetch up to $100bn (£80.2bn)?

Tick ​​Tock

Founded in 2012 by Chinese entrepreneurs, ByteDance first hit the jackpot in China with the short video app Duoin. A year later, it launched the international version, TikTok. TikTok was banned in China, but gained a billion users in five years.

It is now run by a limited liability company based in Los Angeles and Singapore, but essentially owned by Byte Dance. While its founders own only 20% of Byte Dance, it is the company's controlling stake. About 60% are owned by institutional investors, including major US investment firms such as General Atlantic, Susquehanna and Sequoia Capital. The remaining 20% ​​belongs to employees around the world. Three of its five board members are Americans.

image source, Good pictures

image caption, Some believe that the ban will be imposed, especially in an election year

But Beijing's grip on private companies in recent years has the U.S. concerned about how much control the Chinese Communist Party has over Byte Dance and the data it holds. These concerns are not unfounded. Last year, a former ByteDance employee alleged in a lawsuit that Beijing accessed TikTok user data in 2018 to spy on pro-democracy protesters in Hong Kong — claims ByteDance dismissed as “baseless.”

Beijing has dismissed these concerns as US paranoia and has warned that the TikTok ban will “inevitably come back to bite the US”.

TikTok's Singaporean CEO Shou Zi Chew has been grilled by Congress twice in less than a year, and has downplayed the app's ties to Chinese authorities — and his personal connections. His repeated reminders that he was Singaporean, not Chinese, went viral. And he He said after the House vote TikTok “will continue to do it all [they] Can include exercise [their] Legal rights to protect US users' access to the app”. TikTok pointed to its statement in response to questions from the BBC.

video title, TikTok boss grilled about CCP ties: 'I'm Singaporean'

Despite Bitton's attempts to reassure Washington, the US House of Representatives voted in March to give ByteDance six months to sell TikTok to non-Chinese owners or block use in the US. The bill is still pending Senate approval. They're expected to vote again on the same measure on Saturday — except this time, it's bundled with other bills that promise aid to Ukraine, Israel and Taiwan.

The new version gives Byte Dance nine months to decide TikTok's fate — if the Senate passes it and prospects for a sale look promising, President Joe Biden can extend the deadline by another 90 days. Mr Biden has already said he will sign it into law once it reaches his desk.

Pricing on TikTok

Valuing TikTok for sale is tricky.

As a privately held company, it does not disclose financial details, but reports estimate its US revenue was between $16 billion to do $20 billion By 2023, it will account for 16% of ByteDance's revenue.

“In a normal market, it would not be difficult to get a $100bn valuation. However, under the current political risks and lack of liquidity, the valuation will be greatly affected if a transaction happens,” said Li Jiangan. It is run by Singapore-based venture capital firm Momentum Works.

In other words, it would be tantamount to a distress sale, a further blow to ByteDance's bottom line.

image source, Good pictures

image caption, TikTok's US business is its most profitable

Researchers say hand-twisting bite dances don't work.

“It will be closed like that [in the US] rather than making a few billion dollars,” said Ling Wei-Cern, a consultant for Asia technology at Swiss private bank Union Bancaire Privée.

A ban would “allow it to return as circumstances change, while a sale represents a more concrete outcome”, Mr Li said.

The US wouldn't be the first to ban TikTok — India banned the app in 2020, citing security concerns. But TikTok escaped that ban because the Indian market, then as big as the US market, was not profitable, said Jayant N Kolla, founder of technology consultancy Convergence Catalyst.

The US is now TikTok's largest market, accounting for around 17% of its total users and the most profitable. “If TikTok were to lose its US operations, it would not only lose its user base, but lose a large portion of its revenue. That would be a huge loss,” Mr Kolla said.

Who needs TikTok?

For one thing, not many companies can afford TikTok. Those with deep pockets, such as Meta or Alphabet, may be deterred by anti-competitive laws.

The other major hurdle is whether the deal will include TikTok's so-called referral engine. An AI-driven secret sauce that delivers content to users is critical to the app's success.

When the U.S. last tried to force a sale in 2020, ByteDance said its proprietary addiction algorithm was off the table. But selling TikTok without an algorithm won't assuage Washington's concerns or attract buyers.

video title, See: How do young Americans feel about the ban on TikTok?

The algorithm is the “most contentious” part of any deal, Mr Li said. “Any potential buyer of TikTok's user base and content can expect a huge discount.”

That's hard to replicate, as analysts say companies operating in China are much better at targeting users. They have a bigger market to tap, which means more information and practices in AI models are better. Because regulations are lax and the Communist Party itself runs a sophisticated surveillance state, companies can collect more data.

A sale also leaves open the question of how US-owned TikTok interacts with the app elsewhere. “Imagine if Tik Tok [users from outside the US] I want to send TikToks to America,” said Anupam Chander, a law professor at Georgetown Law who specializes in global technology regulation.

“How do we know it's not Chinese propaganda? Should foreign accounts be blocked from being viewed by Americans? It's starting to sound a lot more like what China did a quarter of a century ago.”

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