Video-sharing app TikTok was developed by the Chinese company ByteDance. It has created a viral sensation with its predictive artificial-intelligence algorithms and short, fun music videos. It has become the millennials’ app of choice and a growing force to reckon with in all the international music industries. TikTok emerged first in the U.S. hence entering the international market, in 2017. ByteDance bought the Shanghai-headquartered lip-syncing app Musical.ly. ByteDance merged that with its own similar app for the Chinese market – Douyin. They decided to change its name to TikTok in 2018 when entering the international market.
The Committee on Foreign Investment in the U.S. (CFIUS) has been reviewing the acquisition deal for potential threats to U.S. national security since last year. Considering this and the growing concerns, including the ban of TikTok by the Indian government in the country, along with backlashes from the Donald Trump Government, it has taken steps to distance itself from its China origins in fears of being completely out of business. The company has tried to distance international users from strict Chinese censorship laws. Instead, ByteDance operates Douyin as a highly censored subsidiary of TikTok. After Beijing recently imposed a controversial national security law in Hong Kong that restricts the freedom of expression, TikTok pulled out of the market entirely in July. TikTok also has tried to separate its management team from Douyin’s, hiring former Disney executive Kevin Mayer as their new CEO. They also decided to store user data in the U.S. and Singapore instead of in mainland China to regain user trust. Despite all the controversies, ByteDance is currently the world’s most valuable tech startup, estimated to be worth more than $100 billion. Although it has such a huge global market, the company still makes most of its revenue from the Chinese market. In 2019, ByteDance’s 67% revenue, including net profits came from ad sales on its own Chinese app Douyin. This is keeping the company connected to its Chinese roots.
Hence at the start of the month of August, Donald Trump signed an executive order that will force the sale of TikTok to a U.S. company or ban it from the country. Trump cited the app’s ties to China as a threat to national security and data privacy, saying that its collection of data on U.S. citizens could “potentially [allow] China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.” ByteDance must now find a buyer for TikTok before Sept. 21 or pull out of the U.S., its most lucrative market.
So far, from the U.S. companies, Microsoft has emerged as the leading potential bidder for TikTok as its acquisition could make the company a prominent player in the digital advertising space competing next to Facebook and Google. TikTok has a large, young user-base of 80 million users only in the U.S. and it has been growing fast due to the Covid-19 pandemic. Twitter also has reportedly discussed a merger with TikTok, and other investors have been said to be interested. But a problem for Twitter is it simply does not have the money to make the purchase alone. Twitter has a market cap of $29 billion, while TikTok is valued between $15 billion and $50 billion. Although unclear as to who will buy the company, any potential sale of TikTok will be complicated. Microsoft will have to separate the app from ByteDance and address any security concerns from the US government, FinancialTimes reports. Splitting the app off from ByteDance might take far longer than expected, as there is the technical issue of separating the code for TikTok from Douyin, as the two apps share common underpinnings.
The deal, which would have to be concluded by September 15, could be worth up to $50billion – which Trump has suggested the government should get a cut of. Bill Gates, who co-founded Microsoft in 1975 and quit the board this year, has already described the deal as a ‘poisoned chalice’ – and it seems the employees agree with him. Posting on the company’s internal social network called Yammer, employees said that they feel like they are not doing the right thing by entering the negotiation. In a survey on Yammer, seen by Business Insider, 63% of staff said ‘no’ when asked whether Microsoft should buy TikTok.
The purchase could double the growth in the digital advertising market for Microsoft. The market could grow strongly in 2021, projected at about 17%. But wading into the social media space would mean Microsoft contending with issues such as content moderation and free speech, which have piled pressure on the likes of Facebook and Twitter in recent weeks. As the app grows, it could also expose Microsoft to antitrust investigations that saw Mark Zuckerberg, Jeff Bezos, Sundar Pichai and Tim Cook brought to testify in front of Congress two weeks ago. It is difficult to predict what will happen next. Will this be an opportunity or the path to Microsoft’s doom?
Written by Preya Pandya
Sources- 1. https://variety.com/2020/digital/news/donald-trump-ban-tiktok-bytedance-1234731011/
2. https://www.theverge.com/2020/8/6/21357231/microsoft-tiktok-global-operations-deal-report
3. https://www.cnbc.com/2020/08/04/why-microsoft-wants-to-buy-tiktok.html