ByteDance Chooses TikTok to Die in the US Rather than Selling Shares

It is unlikely that Tiktok will sell its shares as the algorithm that is the mainstay of Tiktok's operations is the most important aspect of ByteDance's entire operations. Tiktok and ByteDance cannot be separated. Meanwhile, US laws signed by US President Joe Biden require them to separate.

This dead option information was provided by four sources who did not want to be named to the Reuters news agency, Thursday (25/4/2024). ByteDance, through the Toutiao media platform, has also stated that they have no plans to sell Tiktok.

Previously, ByteDance was reportedly exploring the scenario of selling TikTok's business in the United States without the algorithm that recommends video uploads to users. This news was reported, among others, by the business-technology news website, The Information.

Also read: Tiktok and US-China Rivalry

"Foreign media reports that say ByteDance is exploring plans to sell Tiktok are not true," said ByteDance's statement via the official account of its own social media platform, Toutiao. ”ByteDance does not have any plans to sell TikTok.”

Congress members and US government officials have stated that Tiktok is a threat to US national security as long as the social media is controlled or linked to ByteDance. They accuse the Tiktok platform of being exploited to gather data and spy on the US, as well as becoming a channel for spreading US propaganda.

TikTok strongly denies those allegations. They assert that they have never and will never share user data in the US with Beijing.

Tiktok contributes a small portion of ByteDance's total revenue and daily active users. This is what makes ByteDance prefer to close Tiktok in the US if there is no other way. Tiktok shares the same core algorithm as ByteDance's domestic application, such as the short video platform Douyin.

Also read: Tiktok does not fade under anti-China sentiment in the US and Europe

Its algorithm is better than rivals ByteDance, such as Tencent and Xiaohongshu. One source said that it is impossible to divest Tiktok with its algorithm. This is because their intellectual property licenses are registered under ByteDance in China. This makes it difficult to separate Tiktok from its parent company.

In addition, separating Tiktok's algorithm from its assets in the US would be a complicated procedure. For this reason, ByteDance will not choose that route. ByteDance also does not want to sell one of its most valuable assets, namely Tiktok's algorithm, to its competitors.

Tiktok CEO Shou Zi Chew, on Wednesday (April 24, 2024), stated that they hoped to win the legal lawsuit to block the new US law. The bill, which was passed by a majority of the US Senate on Tuesday (April 23, 2024), was driven by US Congress' concerns that China could access US citizens' data or use Tiktok to surveil US citizens.

Also read: Tiktok Fights Back, Sues for Ban in Montana in US Federal Court

The law signed by Biden sets a deadline for the sale of Tiktok on January 19, 2025. However, that deadline may be extended by three months if there are positive developments from ByteDance. "China must allow the sale of Tiktok," said White House spokesperson Karine Jean-Pierre.

The National Security Advisor of the United States, Jake Sullivan, stated that the US is focused on divesting Tiktok from its Chinese owner due to national security concerns.

However, the Chinese Ministry of Commerce had already confirmed at the end of March 2023 that China will not sell Tiktok. The sale or divestment of Tiktok involves the export of technology and must go through administrative licensing procedures in accordance with Chinese law.

In 2020, China launched the Export Control Law and parts were amended, especially the definition of “controlled goods.” The amendment ensures that exports of algorithms, source code and similar data must go through an approval process. Not just algorithms, but TikTok's main assets also include user data as well as product operations and management.

Also read: Tiktok Surpasses Google, Dynamics of Digital Content Trends 2022

Another source stated that ByteDance will not want to publicly disclose its financial performance or financial details of any of its units. The majority of ByteDance's revenue is obtained in China, especially from other applications, such as Douyin. The US contributes around 25 percent of TikTok's total revenue in 2023.

Reuters interviewed more than half a dozen investment bankers who admitted that it was difficult to assess how much Tiktok is worth compared to similar competitors such as Meta Platforms, Facebook, and Snap because Tiktok's financial information is not widely available or easily accessible. According to sources, ByteDance's revenue is expected to increase from USD 80 billion in 2022 to USD 120 billion in 2023.

Former US Treasury Secretary Steven Mnuchin will form an investor group to try to buy Tiktok. However, it may be difficult to do so if the algorithm is not included in the sale. ByteDance, supported by Sequoia Capital, Susquehanna International Group, KKR & Co, and General Atlantic, was valued at around 268 billion US dollars in December 2023.

Alternative platforms

There are two parties that benefit the most from the banning of Tiktok, namely Meta and Google. Both have launched their own Tiktok-like applications, namely Meta's Reel and Youtube Shorts. These alternatives attract many users in the US market, just like Tiktok. Experts suggest that Tiktok needs to be rebuilt in the US using new technology.

Professor of Information Science at the University of Colorado Boulder, Robin Burke, said that some aspects of Tiktok's algorithm may be imitated by industries in the US. However, this may not be easy as Tiktok is superior to its competitors in certain areas.

Also read: Tiktok-Instagram Compete for Creators' Attention

"TikTok has all the experience and data needed. It is unlikely that there is any business in the United States that can build something equivalent. Of course, not in the near future, unless they inherit technology from ByteDance," said Burke.

Without popular social media platforms, content creators and small businesses around the world are feared to experience a decline in revenue. In the US alone, there are 170 million users who benefit from the presence of TikTok. Many can earn money through TikTok.

According to Tiktok's data in March 2024, as quoted by BBC News, more than 7 million small businesses in the US use Tiktok. They generated a revenue of 15 billion US dollars in 2023. This platform is also a significant global economic power.

Also read: Tiktok Polemic in the US, Indonesian Government Chooses Not to Intervene

In January 2024, Tiktok reported that small and medium enterprises using the platform contributed 5.14 billion US dollars to the Gross Domestic Product (GDP) of Germany, France, Italy, the Netherlands, and Belgium. This was for the year 2023 alone.

Now, due to the TikTok ban, US entrepreneurs are worried about their income stream. Likewise, global businesses that rely on US audiences to buy their products and interact with their content are also concerned.

However, experts assess that the TikTok ban will probably not have a bad impact on the business world. This will only force them to adapt and look for other ways to shift their efforts to other online platforms. (REUTERS/AFP/AP)