By Andrew Hutchinson
With the US Government’s deadline for the sell-off off TikTok closing in, the Chinese Government has announced new rules which could halt the planned sale by imposing new restrictions on the export of proprietary technology.
As reported by The Wall Street Journal, China’s new rules aim to limit the sharing of technological advancements within international deals:
“The new restrictions, unveiled Friday by China’s ministries in charge of commerce and science and technology, cover such computing and data-processing technologies as text analysis, content recommendation, speech modelling and voice-recognition. Technologies on the list can’t be exported without a license from local commerce authorities.”
That would mean that while parent company ByteDance could still proceed with a sale of TikTok, the platform, there would be limitations on its algorithms and back-end processes – i.e. the things that make TikTok what it is.
Some early reports on the TikTok sell-off estimated that it would involve some 15 million lines of code which would need to be cut off from TikTok’s Chinese parent company in order to wholly separate the app. That provides some perspective on the scope of the algorithmic elements involved, and which may no longer be allowed to be included in any such deal under these newly implemented regulations.
The change could significantly impact the value of the sell-off, and may even render it useless. Essentially, if the new rules do impose significant restrictions, any company bidding for TikTok would be bidding, in effect, for the brand name only, and a shell of the app. They may be able to get some of the basic algorithmic elements down via observation and discussion, but they would need to tread very carefully around what, exactly, gets shared in this respect to stay within the new rules, if they’re applied as it appears.
And really, no business is going to pay for that. They’re certainly not going to pay $30 Billion for such.
As noted, the key strength of TikTok is its sharing and distribution algorithm, which provides opportunity for any user to go viral with any clip. TikTok’s algorithm is focused on each individual upload, not the users’ past performance or relative audience size. That provides more incentive for people to have a shot at tapping into rising trends, while TikTok is also not restricted by your own network of friends and family, as is the focus of most other platforms.
Late last month, when The White House first announced its coming ultimatum for the app, various reports indicated that China’s ruling CCP was not happy with the US Government forcing the sale of a Chinese-owned business.
As reported by the Nikkei Asian Review:
“Plans for Chinese streaming app TikTok to sell its U.S. operations amid regulatory headwinds there have elicited outrage in China, with Beijing threatening repercussions if the deal goes through.”
It seems that the CCP may now have found a way to stop the process from happening. It’s not clear yet whether this is an absolute deal-breaker for the ongoing negotiations (WSJ says that neither ByteDance nor China’s Ministry of Commerce have replied to requests for comment). But it may well be – while it also, once again, underlines the influence that the CCP has over TikTok’s Chinese-owned parent.
Which, of course, is the central focus of the sell-off push.
In other TikTok sell-off news, rival short-form video app Triller has also put in an offer for the app.
Triller CEO Mike Lu confirmed the bid on LinkedIn:
“Yes. Triller put a bid to acquire TikTok today. We believe the two teams can work alongside each other and create the best short-form video platform. Triller would be the best home for all of TikTok’s users as we have always put product and users first. This is the beginning of a new chapter.”
As reported by Bloomberg, Triller is partnering with UK investment firm Centricus, and will offer $10 billion in cash upfront for the platform, along with another $10 billion in shared profit with ByteDance.
Though the bid looks unlikely to match-up to those from Microsoft and the Oracle-lead consortium – as per Bloomberg’s report:
“When asked about a Centricus and Triller bid, a TikTok spokesman replied, “What’s Triller?” Another spokesperson called the potential deal “preposterous.”
I mean, things could change, but seems like not a great initial response.