Will TikTok succumb to tensions between global powers?
The days of booing TikTok for cringe content are long gone – at least for some of us – as the social media app’s soaring valuation shut down naysayers and proved that it deeply understood the business of content.
The short-form video sharing platform has become popular enough to shunt aside both Facebook’s Instagram and Google-owned YouTube, making celebrities out of users lip-syncing from their bedrooms along the way.
The tide has turned, however, for the app that is one of Asia Pacific’s biggest unicorns. Owned by 2012-founded Chinese Internet multinational Bytedance, TikTok has abruptly run into big trouble, with threats approaching from all sides.
Early Days and TikTok’s Rapid Growth
ByteDance first launched Douyin, the original version of TikTok made for the Chinese Millennial population, in 2016.
The app took only 200 days to create, but within a year of launch, it already had 100 million users on board who were viewing a billion short-form videos every day.
Going global seemed the obvious next step. However, ByteDance had to make Douyin more appealing to the international market in terms of data privacy and censorship. International authorities believed the Chinese government had full control over data ownership within Chinese-owned firms, leading watchdogs to raise red flags over Douyin’s expansion.
Subsequently, TikTok was created in 2017 and launched overseas. Its initial few quarters were slow, but by the end of 2018, after it had acquired Musical.ly for $1 billion and shifted Musical.ly users to TikTok, its global downloads crossed the 200 million mark.
Today, TikTok has 300 million monthly active users (in addition to Douyin’s 500 million in China), and made $3 billion in 2019 revenues. Its parent company ByteDance is reportedly valued at $105 to $180 million, with the backing of investor giants such as Sequoia Capital China and SoftBank Group.
With Ant Financial moving steadily toward a public listing, ByteDance has overtaken it to become the most valuable startup in the world. However, given current circumstances, the victory lap may not last too long.
Putting TikTok On the Back Foot
The backlash that TikTok is facing has a lot to do with data privacy. The app has, amongst other things, access to the user’s location, contact list, and even the user’s messages, in addition to sourcing user-data from third-party providers. International authorities are concerned that TikTok could potentially relay this information back to the Chinese government.
Seeds of trouble for TikTok were planted when Indian and Chinese soldiers collided on the Indo-China border in April this year, with India subsequently banning 59 Chinese apps, including TikTok. This was a huge blow, since the app was the most downloaded in 2020, and depended heavily on the app’s 200-million strong Indian user base.
In addition to two other ByteDance apps that were banned – Vigo Video and Helo – ByteDance may end up taking a $6 billion loss this year.
The U.S. is not far behind India. The Trump administration has taken the decision to ban TikTok under consideration.
Moreover, a U.S. Senate Committee unanimously passed the ‘No TikTok on Government Devices Act’, which prohibits the use of TikTok on federal devices. The bill will proceed to the U.S. Senate for vote, leaving ByteDance Founder Zhang Yiming in a scramble.
While India is TikTok’s biggest market by user base, the U.S. accounts for over half of its in-app purchases, making it a steady source of revenue.
In another twist, Pakistan has also issued an ultimatum to TikTok over obscene content on the platform, which, failing to resolve the issue, the company could be faced with strict action.
TikTok’s Conciliatory Efforts
Around a week after the Indian ban was declared, TikTok withdrew its operations from Hong Kong on account of the newly-introduced National Security Law in the Special Administrative Region.
In order to allay fears that the company would be pressed to share user data with Chinese institutions, TikTok had to differentiate itself from its Chinese counterpart with repeated assurances that user data is kept private. However, under the new National Security Law, the company can no longer guarantee this – forcing it to pull out of Hong Kong.
ByteDance does not stand to lose much, as TikTok’s Hong Kong departure has created a void that will likely be filled by Douyin.
However, TikTok has also halted months of discussions with British officials over a possible London headquarters for the company, following an open offer issued by the U.K. government that would grant citizenship to eligible Hong Kong individuals.
Moreover, with plans for TikTok to reportedly go public possibly dashed, Zhang is now faced with options of a possible buyout by U.S. investors, with ByteDance reduced to a minority stakeholder.
TikTok had officially announced that it was making changes to its corporate structure, but the company also suggested that the buyout may be mere “rumours or speculation.”
Eventually, however, ByteDance agreed to divest 100% of its U.S. operations after President Donald Trump reiterated his threat to ban the app on Friday last week. The company is in preliminary talks for a deal with Microsoft.
The negotiations were reportedly put on hold after Mr Trump’s comments on Friday, but Microsoft issued a fresh statement on its blog yesterday affirming that the two companies will be continuing discussions “following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump.”
“Microsoft will move quickly to pursue discussions with TikTok’s parent company, ByteDance, in a matter of weeks, and in any event completing these discussions no later than September 15, 2020,” the statement said. “During this process, Microsoft looks forward to continuing dialogue with the United States Government, including with the President.”
In another effort to become more America-friendly, TikTok has also announced a $200 million fund for U.S. creators this week.
The TikTok Creators’ Fund aims to financially support creators in the U.S. over the year, and will be accepting applications from August. It will also be creating 10,000 new jobs in the U.S. under the TikTok banner, the company said.
Further, in addition to appointing former Disney executive Kevin Mayer as CEO, the company has reportedly brought together a group of 35 lobbyists in a bid to convince U.S. lawmakers and administration that the app is markedly different from Douyin, and only has superficial ties with its parent company in China.
TikTok began the year on a high note–its global downloads for Q1 2020 saw a record peak at 315 million. However, ensuing developments quickly turned the tables for the social media app, Zhang, and ByteDance.
With each new day sparking new twists in the global geopolitical tug of war, TikTok is now faced with a potential make-or-break scenario, involving players far bigger than itself.
Header image by Nitish Gupta from Pixabay