The Whitehouse has made a complete U-turn, going from threatening to ban TikTok in the US to giving tech giant Microsoft the go-ahead to buy the popular app. TikTok is currently owned by a Chinese company called ByteDance. Despite his nod of approval, President Trump still warns TikTok that he will ban the app if it is not taken over by a US company before September 15.
TikTok under CFIUS Review
TikTok has exploded in popularity around the world. The app has been downloaded over 2 billion times globally and 165 million times in the US in Q1, 2020 only.
In 2017, ByteDance, the Beijing based internet technology company, acquired the US-based short-video app musical.ly. In August 2018, ByteDance merged musical.ly into TikTok. At the time, it did not seek approval from CFIUS, a US Government inter-agency committee that reviews possible national security implications of foreign investments.
However, when TikTok became the most downloaded app in the US, in Q4 of 2019, privacy concerns and possible censoring of politically sensitive content sparked an investigation. ByteDance has been in talks with CFIUS since then about measures it could take to avoid divesting TikTok’s US operations. However, CFIUS recently came to the conclusion that TikTok must be sold.
Most Downloaded App to be Sold to US Tech Giant
On 7 July, US Secretary of State Mike Pompeo mentioned that he is “definitely considering a ban on TikTok”. Pompeo’s announcement followed the ban of 59 Chinese apps in India, in June 2020, including TikTok. India used to be TikTok’s biggest market, with over 660 million downloads since 2017. A ban would be more difficult to uphold in the US, as users could still get around such restrictions by using virtual private network services (VPN).
Three weeks later, on 31 July, President Trump told reporters that he planned to personally ban the app in the US. Earlier referring to the possible ban in retaliation for what he sees as China’s role in spreading the coronavirus. However, following a conference call of Microsoft’s CEO Satya Narayana Nadella with the White House over the weekend, the US President seemed to have made a complete U-turn. He has since agreed to give ByteDance 45 days to negotiate the sale of TikTok to Microsoft.
On Sunday, Microsoft issued a statement suggesting they would move forward with the transaction. “Microsoft fully appreciates the importance of addressing the President’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including to the US Treasury.”
ByteDance in a Difficult Position
ByteDance is in a very difficult position. The company faces the possibility of being shut-down in the US or potentially be sold to a US buyer. Several government organizations, including the US department of State and Homeland Security, the US Army, and the US Navy, had already banned the app as early as in December 2019, calling TikTok a security threat. Democratic and Republican committees also warned their staffers against TikTok use.
What must make ByteDance even more uneasy, is that the discussions involving its purchase are very public, possibly forcing their hand, and that President Trump is taking a very direct role in the likely take-over. The US President even insists that the Treasury Department gets a “very large percentage” of the deal proceeds because “we’re making it possible for this deal to happen”.
Zhang Yiming, the founder and CEO of ByteDance, told staff that the company “initiated preliminary discussions with a tech company to help clear the way for us to continue offering the TikTok app in the US”. However, in the same email to his employees, Zhang also showed his frustration: “We disagree with CFIUS’ conclusion because we have always been committed to user safety, platform neutrality, and transparency. However, we understand their decision in the current macro environment.”
Shift in the Tech Landscape
If the TikTok-Microsoft deal goes through, there will be a big shift in the tech landscape. Being able to add TikTok to its portfolio increases Microsoft’s position to compete with Zuckerberg’s Facebook and Google’s YouTube. Microsoft is currently largely absent from the social media market, although it does own professional networking platform LinkedIn.
Microsoft is one of the most valuable companies in the world, worth around $1.55 trillion. At the moment, the tech giant is only interested in TikTok’s business in the US, Canada, Australia and New Zealand. Nothing had been said about India.
The expected revenue of TikTok, worldwide, is projected to be $1 billion globally in 2020. ByteDance investors value TikTok at $50 billion. Bloomberg’s tech columnist Tim Culpan estimates Microsoft’s bidding will be closer to $20 billion.