Tik Tok, Stop?

With efforts to force a divestiture heating up in the United States, I contemplate potential scenarios to follow in the coming months for one of the world's most popular apps

This week there will be much focus on Bytedance and its global business this week with Tik Tok’s CEO Shou Chow scheduled to testify to the US House of Representatives’ Energy and Commerce Committee on Thursday March 23.  

For several years it has seemed highly likely that Bytedance would find its global ambitions for Tik Tok challenged by governments around the world, despite rapid growth in usage by consumers and advertisers alike, and those challenges are particularly pronounced in the US at the present time.

Many of us have been mindful of this possibility since at least June of 2020 when the Indian government banned Tik Tok and other apps with Chinese ownership.  For those following that news, it wasn’t hard to fathom that significant action would occur elsewhere given the growing political tensions between China and other countries’ governments at the time.  While personal grievances may have been at play, shortly afterwards then-US President Trump took a specific interest in Tik Tok as well.  Although motivations may have differed, it so-happened that the presence of the app in the United States was one of those rare topics where many politicians in both parties and security agencies shared some alignment with Trump.   Although efforts to take action in 2020 fell apart (in part because of the government’s failure to allow for due process), it was never likely that Trump’s loss at the polls later that year would have had much of an impact on Tik Tok’s fate.

Although I consider myself a non-expert on matters of national security, I was certainly aware that the US government’s CFIUS  committee forced the divestitures of digital media businesses bought by Chinese entities, including Applovin in 2017 and Grindr in 2020.   I can see many differences between those situations and Tik Tok’s, but they also represented very real examples of the US government taking action in part because of the possibility that data about Americans could be potentially accessed with relative ease by a government with whom the US had poor relations.   Consequently, it always seemed likely that with enough political will and due process, the US government could force through changes to Tik Tok if the government deemed it necessary to do so.

Subsequent reporting related to Bytedance or TikTok censoring or diminishing content that is politically sensitive to the Chinese government and surveillance of reporters certainly didn’t help the company’s case to be left alone, and neither did deepening geopolitical tensions.   As a result, reports in the past week that CFIUS is demanding a divestiture of Tik Tok’s US operations was unsurprising.

Even if the CFIUS demand doesn’t play out neatly in the months ahead, it seems likely that the US government will attempt to force some kind of action in the near future, partially limited by what Tik Tok, Bytedance and – given its golden shareholding in a Bytedance subsidary and ability to impact the company’s Chinese operations – what the Chinese government will accept as well.

Towards these ends, I thought it would be useful to consider a few possible scenarios that might evolve, whether they occur because of a government imposition or a voluntary choice, with implications for Tik Tok and its stakeholders.

Scenario 1: Tik Tok agrees to separate US operations from the global business and the Chinese government does not object.

I can imagine something playing out that looks like what was envisaged by the American government in 2020, where investments and services could be provided by a collection of companies (as was the case with Microsoft, Oracle and Walmart three years ago) who might lead an ownership group.   Although it would likely need to end up as the largest transaction of its kind, I could imagine how a consortium of US-based financial buyers could acquire the asset outright as well.  The big questions here are whether or not a product would still be managed in part or in whole from China via the current parent company, or if it would operate in an independent manner despite some globally similar features and branding, much as we saw with Yahoo Japan after it was founded by Softbank and Yahoo in 1996.

In the short-term such an outcome would probably have a limited impact on consumers and content creators, but over time – presuming an eventual separation of product development teams – success or failure and gains or losses in usage relative to other platforms would depend on the evolution of the product itself.   Advertisers who look to arrange for global deals with major vendors would likely downgrade the importance of Tik Tok vs. other global media companies, although any revenue impact might be relatively modest.   Scale efficiencies would be harder for both a US-only and global operation  to realize , but then again the businesses would probably end up looking very different over time.  While consumers in any given country wouldn’t likely be very concerned, creators who desire global scale would probably need to approach Tik Tok’s US and global platforms as differently as they do Tik Tok and Snap or Instagram today.  This fragmentation would then likely hurt Tik Tok’s usage relative to global competitors, at least on the margins.

Scenario 2: Tik Tok agrees to divest itself completely from Bytedance.

If Bytedance essentially gave up on its global ambitions and sold all of Tik Tok outright, the company would probably realize maximum value for the business vs. any alternative approach.  At the same time, a completely new global product team and infrastructure would be needed, as there wouldn’t be any shared resources with Bytedance.   This outcome would most likely help Tik Tok to sustain its existing momentum and minimize any impact on most of its stakeholders, especially global advertisers who welcome the competition with Alphabet, Meta and Amazon in as much of the world as is possible.   For competitors this would probably be the worst outcome, as an independent Tik Tok would probably have access to effectively limitless resources via fresh capital raises.   Of course, such an outcome might be the least desirable one from the vantage point of the Chinese government, which presumably would prefer not to see such an acquiescence to a foreign government.

Scenario 3: Tik Tok does not agree to divest its US operations, which are then shut down.

Whether because of principle or because they prefer to maintain favor with the Chinese government by “standing up” to the American one or perhaps because there is no solution which allows for the  separation of Tik Tok’s technology in China and its operations abroad, it’s not hard to imagine a country-specific shut down like we saw in India.  Perhaps similar actions might then follow in other countries around the world. In this scenario, lost access to the US would clearly be significant for Tik Tok given the volume of revenues generated in the US and the presence the app has in the minds of globally-oriented advertisers, agencies and creators based in the market.  Creators would shift production to other platforms and consumers would probably follow suit, benefitting Alphabet’s YouTube, Meta’s Instagram and Snap in particular, although to what degree is hard to anticipate.  Advertiser budgets would similarly mirror these trends.

Anticipating the future here is particularly challenging given the range of actors involved and all of the difficult-to-know factors from the outside.   There will certainly be many other scenarios to consider, some of which couldn’t possibly be contemplated until they occur. However, if there’s one thing I have some confidence in it’s that the future for Tik Tok is not likely to look like its recent past.