How TikTok had been sold

How TikTok had been sold

In August 2020, something happened that has never happened before the US government threatened to ban an app, President Trump signed an executive order making it illegal for US companies to conduct transactions with Bytedance, the Chinese owner of TikTok beginning September 20, unless it was sold to an American buyer.

Unlike the Huawei ban one year earlier, which also invokes the international emergency economic Powers Act.

This was a force to transfer and involved something far more tangible, something millions of Americans use every day, and so began on August 6, an unprecedented 45 day race to solicit offers draft agreements, negotiate terms seek approval and finalize a deal the likes of which have never been attempted before.

Which companies would the Trump administration approve? How would it affect the presidential election? Did Bytedance have any legal recourse? How would a ban logistically work? And what exactly would a buyer of tech talk receive?

  1. Bytedance’s attempt to delay the ban
  2. Panic at Tiktok US
  3. Microsoft and Walmart interests
  4. China’s list of restricted technology
  5. Oracle reach out Bytedance

Bytedance’s attempt to delay the ban

The answers to all these questions were fuzzy, it would seem the app would be split in three, one version for the Chinese market as now, one for select countries like the US, Canada, Australia and New Zealand and a third regular Tik Tok, for the rest of the non-Chinese world.

Unsure of whether a deal would be made Tick Tock engineers worked day and night preparing to completely disconnect from one of its largest markets at the last second. On top of this Bytedance sued the government in a last-ditch attempt to reverse or at least delay the ban. Adding to the panic was the confusion around dates.

Trump continued mentioning September 15, despite already signing an order for the 20th and on August 14, the President signed a second executive order this time ordering Bytedance to destroy all US user data by November 12.

Panic at Tiktok US

American employees of TikTok even wondered if they would still be legally allowed to receive their salaries before clarification was made. Despite all these questions and complications, it actually did seem as though a deal might be reached.

Mostly because its hands were tied with nearly zero negotiating leverage and a fast ticking clock Bytedance might as well cash out on its inevitable way out of the country.

But like a well-designed roller coaster, there have been alternating up and down periods where a sale seemed either absolutely certain or utterly impossible.

But the question was, to who the list of possible buyers was relatively short because a even with a Trump banned fire sale discount, it would surely be one of the biggest tech acquisitions in history likely more expensive than Facebook paid for WhatsApp or Microsoft for LinkedIn, and be the otherwise likely contenders like Google and Amazon are already under historic levels of antitrust scrutiny.

Microsoft and Walmart interests

A deal this high-profile would not help make their case. At first, it seemed to Microsoft and Walmart in a joint offer would take on that unenviable challenge. Although Walmart sounds like a bizarre match, there are several reasons why it might make sense.

In China influencers or key opinion leaders as they’re known there use the app to sell everything from books to clothes to make up the modern version of As Seen On TV infomercials. Imagine Brad Pitt casually live streaming about a product he likes: a mix of entertainment and advertising.

Chinese social commerce as a whole is a $168 billion a year industry. And if Walmart could replicate this phenomenon in the American market, it might be an effective way of competing with Amazon while also positioning its brand as younger and more relatable.

Together, the two companies made a strong pair Microsoft could credibly handle the technology while Walmart provided the business model. The former even made a nod to Trump’s request that the US government benefit financially from the deal by vaguely committing to economic contributions.

Kevin Mayer, CEO of TikTok USA

The deal was said to be valued at around 20 to $30 billion and appeared imminent. TikTok newly hired American CEO even resigned around that time, which analysts interpreted as a sign an agreement had been reached without him. But things took a different turn.

With everyone focused on the specifics of a potential deal. No one paid much thought to whether China would approve a full transfer of Tiktok to a US company would not only damage its global influence, but also and more importantly, set a precedent that Chinese companies could simply be forced to sell on command.

China’s list of restricted technology

And so for the first and only time since 2008, China’s Ministry of Commerce and science and technology updated their lists of restricted technology exports.

New items included a quote personalized information recommendation service technology based on data analysis and artificial intelligence interactive interfaces both plenty vague enough to be applied selectively.

What this means is that Bytedance would need to request approval for the sale from provincial authorities up to 45 days in advance. If it didn’t face an impossible task before this change.

It certainly did then, it would now have to satisfy a buyer the Trump administration and China simultaneously in order to secure a deal to highlight just how Sisyphean this task was it CEO Zhang aiming was simultaneously called a trader in China and a spy in America.

Oracle reach out Bytedance

Not unsurprisingly, Microsoft announced its offer had been rejected, and soon after Oracle confirmed it had reached a deal with Bytedance.

Although it specializes in enterprise not consumer technology, its founder Larry Ellison helped fundraise for Trump earlier this year. The company’s current CEO was also on the President’s 2016 transition team.

The proposal submitted to the Trump administration and eventually to authorities and China would have Oracle become the trusted technology provider of a newly formed TikTok and also Walmart could hold a combined 20% stake in the new company would be headquartered in the US have an American Board of Directors and hire 1000s of new US employees.

The apps data and source code would be stored monitored and reviewed by Oracle in the US while Bytedance would remain in control of the algorithm. To be absolutely clear, this is a deal, not a sale.

By maintaining control of the algorithm and engineers and the PRC, very few of the original national security concerns would be addressed. In essence, Oracle would be paid to certify the security of Tiktok.

Making it more like a glorified American inspector or custodian than an owner. The deadline for the original order was extended by one week to Sunday, September 27th then approved.

Digital Laoban