TikTok is having a giant identity crisis
The TLDR: TikTok is having an exceptionally bad week. Japan is considering banning the app. Trump once again threatened to do the same—and US lawmakers are calling for an investigation. The latest: it is being sued for patent violations by a rival app. We look at TikTok’s desperate scramble to free itself from the giant albatross on its neck: that pesky ‘Made in China’ label.
First, tell me who owns TikTok
- A $140 billion Chinese company called ByteDance whose CEO Zhang Yiming is a former Microsoft engineer.
- In 2016, Zhang introduced a video sharing app, Douyin, for the Chinese market.
- In 2017, he launched an overseas equivalent dubbed TikTok—and acquired a similar app Musical.ly the same year.
- In 2018, He then folded both together and relaunched the avatar we all now know and love.
- TikTok has since become a global powerhouse spreading across 150 markets worldwide, offered in 75 languages.
- Its projected revenue for 2020 is $1 billion—which is expected to grow to $6 billion next year!
Then again, maybe not...
Because of this ‘made in China’ problem?
Yes. A TikTok ban has become a handy way to express political anger at Beijing. India is the only country to ban it outright, but Japan, Australia and, of course, the US have all made serious noises in that direction. And in the US, it’s not just Trump mouthing off. Just yesterday, two powerful US senators—one Republican and the other Democrat—asked the Justice Department to look into whether TikTok is censoring anti-China content and sharing user information with the Chinese government.
So is TikTok guilty of these crimes?
The app has a spotty record that has long raised concerns:
- Last year, Washington Post found zero results for the Hong Kong protests on the app.
- A subsequent Guardian investigation showed that TikTok management instructed moderators to censor videos that mentioned ‘anti-China’ topics such as Tiananmen Square and Tibetan independence.
- All this resulted in a US National Security review—and at least one person associated with that review said it found evidence that TikTok was sending data back to China.
- At the time, TikTok pushed back saying it a) stored all user data in the US; b) has never been asked to censor content by Beijing.
- More interestingly for India: “When asked whether criticism of Indian Prime Minister Narendra Modi would be allowed to be prominently featured on the app, TikTok’s operations manager in India responded with a definitive ‘No.’”
- Most recently, TikTok was caught secretly accessing clipboard data on iPhones—i.e. anything you copy/paste. But to be fair, many other apps were doing the same.
A Beijing spy? There is no evidence of TikTok sharing data with the Chinese government. But a 2017 Chinese law requires all companies to cooperate with intelligence agencies. So if asked for access, TikTok would have to comply. And more worrying is what Beijing would do with that information. A research analyst tells Vox:
“The Chinese government has a history of gaining control over nodes in the information system… They don’t always mobilize them right away to harm freedom of expression, until something threatening happens and then they do. It seems clear TikTok is censoring information related to the Hong Kong protests, but at the same time, even if it’s not happening that much now, it’s really only a matter of time before it does.”
So what is TikTok doing now?
A number of things, all of it designed to distance the app from its Chinese ownership. And it has options since it is a privately held company funded by investors. Key point to note: About 70% of the equity capital raised by ByteDance from outside investors has come from the United States. So here are all the things TikTok (read ByteDance) has tried since the India ban:
One: move its headquarters. London remains a top contender—but some reports suggest that move has been nixed by the Chinese government which is angry at the UK for banning the other Chinese company, Huawei.
Two: create a separate management board—which will run it independently from ByteDance. Point to note: TikTok already has an American CEO—former Disney chief Kevin Mayer who replaced one of the founders of Musical.ly in May.
Three: offer to store all data on local servers, and abide with local security laws—as it already has in India.
Four: open up its algorithms. In an unusual move, CEO Mayers wrote a long blog post (read it here as the TikTok website is blocked in India) noting that TikTok had attracted "even more scrutiny" due to its Chinese origins," saying that we “accept this and embrace the challenge." More specifically:
“We will not wait for regulation to come, but instead TikTok has taken the first step by launching a Transparency and Accountability Center for moderation and data practices. Experts can observe our moderation policies in real-time, as well as examine the actual code that drives our algorithms. This puts us a step ahead of the industry, and we encourage others to follow suit.”
Translation: We will be way more transparent than Facebook—which is rolling out its TikTok clone Reels.
Five: sell the company to US investors. According to Reuters, ByteDance’s US investors—including Sequoia and General Atlantic—have offered to buy a majority stake in TikTok for $50 billion. And that isn’t entirely crazy since Zhang has indicated his willingness to sell if the price is right, and it is the best option to protect the app.
The bottomline: For many decades, the Chinese government helped turn its companies into global powerhouses—using political muscle to ensure their access to lucrative markets while keeping global competitors out of China. Now, the same companies are paying a high price for Papa Beijing’s doting support. ByteDance is no different.
Reading list
Harvard Business Review has a good read on how TikTok beat its rivals. The Atlantic explains why America is afraid of it. Vox has the best analysis of its problems with censorship and national security. Human Rights Watch outlines the close relationship between ByteDance and the Chinese government. The Conversation has an excellent read on the rising anger at China, and the retreat of globalisation.