US-TikTok Deal: A New Reality for China’s Tech Champions?
One in seven people worldwide now use TikTok, making it one of the most influential social media platforms today. However, the journey for its parent company, ByteDance, has been anything but smooth. Over the past several years, the app has faced significant scrutiny, particularly concerning data privacy and national security.
– Initial Concerns: Concerns over TikTok began more than five years ago. By 2020, President Trump signed an executive order aimed at banning the app from U.S. stores, citing fears that the Chinese government could access personal data from the 200 million American users and manipulate their content feeds.
– Project Texas: In response, ByteDance launched Project Texas, which involved storing U.S. user data on servers owned by American company Oracle. To further distance itself from its Chinese roots, ByteDance also relocated some operations to Singapore and Los Angeles. These drastic steps were taken to alleviate fears among U.S. lawmakers but did not quell the suspicions entirely.
– Legislative Actions: In 2024, Congress enacted a law threatening an outright ban of TikTok unless ByteDance agreed to shift majority ownership and modify its operations within the U.S. This ultimatum led to a significant deal, where ByteDance agreed to separate the U.S. app from its global business, creating a consortium that includes Oracle.
The Implications of the US-TikTok Deal
The U.S. deal allows TikTok to continue its presence in a vital market, but at a cost. While ByteDance retains access to 200 million American users and 7.5 million businesses, it loses control over TikTok’s algorithm and user data. Instead, ByteDance will license the algorithm to the new U.S. entity, a transaction valued by the Trump administration at an estimated $14 billion (£10 billion).
– Impact on Content: Kelsey Chickering, a principal analyst at Forrester, notes, TikTok’s power lies in its content graph—an algorithm that learns from thousands of user signals to deliver hyper-relevant, highly addictive videos. The reconfiguration of the algorithm could significantly change user experience in America.
– Effects on Creators and Advertisers: This split could diminish global virality, as content that resonates in one region may not transfer effectively to the U.S. Subsequently, brands might need to restructure advertising deals, potentially paying higher costs for visibility within the U.S.
TikTok’s Financial Landscape
Despite the anticipated fallout, TikTok’s global revenue is estimated to reach $20-26 billion in 2024, with roughly $10 billion derived from the U.S., largely through advertising. Though the new arrangement may impact its profitability in the U.S., ByteDance will maintain a 19.9% stake, ensuring a share of profits.
– Challenges Ahead: As ByteDance navigates this new landscape, it must contend with the operational complexities of managing separate algorithms and teams, leading to increased costs and slower innovation, according to Charlie Dai, Principal Analyst in Technology Architecture & Delivery at Forrester.
Learning from India: A Cautionary Tale
ByteDance has previously encountered regulatory challenges, notably losing access to India in 2020, which at the time was the app’s largest market. While this setback was significant, Chris Stokel-Walker, author of TikTok Boom: The Inside Story of the World’s Favourite App, argues that the company has shown resilience, continuing its growth despite geopolitical tensions.
– Broader Bans: The ban in India was not isolated to TikTok, as the Indian government targeted around 200 apps linked to China. This opened avenues for indigenous competitors, although none have matched TikTok’s success.
Navigating Geopolitics: Comparisons to Huawei
The recent TikTok deal has drawn comparisons to Huawei, another Chinese tech giant constrained by geopolitics. Huawei has faced exclusion from Western markets due to U.S. sanctions, while TikTok, although hindered, retains the ability to operate under strict conditions.
– Shifting Government Strategies: Chris Stokel-Walker notes a changing landscape for Chinese tech companies. Some are completely excluded, while others are allowed to function under strict regulatory frameworks.
TikTok’s Future and Strategic Moves
While TikTok faces challenges outside of China, its sister app, Douyin, operates independently within the Chinese market, thriving and contributing significantly to ByteDance’s profitability. Douyin remains politically aligned and retains full control over its algorithm.
Furthermore, ByteDance is investing in data centers, cloud technology, and artificial intelligence, diversifying beyond its advertising-led model. Chris Stokel-Walker posits that TikTok’s struggles are less about data security and more about the control over discourse, culture, and influence in the U.S.
In summary, while the U.S.-TikTok deal allows the platform to persist in America, it comes with distinct limitations and potential impacts on data handling and creative expression. As ByteDance adapts its global strategies, it may redefine how other Chinese tech firms approach expansion amid growing skepticism towards Beijing.