What happens to TikTok isn’t just a question for its millions of American users.
The short-form video app, the latest flashpoint in tensions between the United States and China, is also of interest to investors. As the geopolitical conflict between the world’s two biggest economies intensifies, the fate of TikTok will send an important signal to businesses trying to figure out the consequences of a less globalized world.
Microsoft says it’s still discussing a potential purchase of TikTok, days after President Donald Trump said he would ban the popular app from operating in the United States, my CNN Business colleague Clare Duffy reports.
In a blog post Sunday, Microsoft said its CEO Satya Nadella talked with Trump about buying the app, which is owned by Chinese startup ByteDance. US policymakers have for weeks expressed concerns about the app, with many asserting it could pose a national security risk.
“[Microsoft] is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury,” the company said, adding that it will “move quickly” to talk with ByteDance “in a matter of weeks.”
The post suggests that TikTok could avert the ban that Trump threatened late Friday, when he said he could use emergency economic powers or an executive order to block the app from operating in the United States.
Microsoft would own and operate TikTok services in the country, as well as in Canada, Australia and New Zealand.
But the app’s future is far from certain. Trump’s position on TikTok isn’t set, while the South China Morning Post reported over the weekend that ByteDance may prefer to spin off TikTok instead of selling it. A British tabloid, The Sun, reported Monday that ByteDance is planning to move its headquarters from Beijing to London.
Why it matters
Decisions regarding TikTok hold significance for China’s other tech stars, like Tencent’s WeChat. US Secretary of State Mike Pompeo said Trump is due to “take action in the coming days” on Chinese apps.
They also highlight the increasingly tricky world global companies need to navigate as the relationship between Washington and Beijing deteriorates.
Noel Quinn, CEO of global bank HSBC said this Monday: “Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint.”
What is TikTok?
The app is a home for fun, goofy videos that are easy to make and to watch. That’s made it immensely popular, particularly with young people, and U.S. tech giants like Facebook and Snapchat see it as a competitive threat. TikTok says it has 100 million U.S. users and hundreds of millions globally. It has its own influencer culture, allowing people to make a living from posting videos on the service, and hosts ads from major U.S. companies.
ByteDance Ltd., a Chinese company, launched TikTok in 2017, then bought Musical.ly, a video service popular with teens in the U.S. and Europe, and combined the two. A twin service, Douyin, is available for Chinese users.
What concerns U.S. officials about the app?
TikTok, like most other social networks, collects data about its users and moderates what’s posted. It grabs people’s locations and messages they send one another, for example, and tracks what people watch in order to know what kinds of videos they like and how best to target ads to them.
Similar behavior has raised concerns about American social networks, but Chinese ownership adds an additional wrinkle, because the Chinese government can demand that companies help it gather intelligence. In the case of TikTok, this remains a hypothetical threat, said Samm Sacks, a researcher at Yale Law School’s Paul Tsai China Center — but it could be happening.
TikTok has vowed that U.S. user data is not stored in China and that it would not hand over user data to the government. But experts have said that if the Chinese government wants information, it will get it. The U.S. government has also cracked down on Chinese telecom companies Huawei and ZTE because of this worry. The companies deny that they facilitate spying.
There are also concerns about TikTok censoring videos critical of China, which TikTok denies, or pushing propaganda. Advocates in the U.S. also say the company is violating children’s privacy laws.
Is the threat from TikTok unique?
No. China’s economic espionage is a well-known threat, and similar user data concerns were raised about Huawei, the telecom equipment maker. The Chinese military or groups with ties to it are accused of massive hacks of sensitive information from credit bureau Equifax and the federal Office of Personnel Management.
But several experts say that the U.S. government is lashing out at Chinese tech companies without taking significant steps to protect Americans’ privacy with federal legislation and while working to undermine encryption, which allows secure communications that can’t be easily read by outsiders.
“We’re trying to solve the issue of how you manage all the security risk that comes from massive data collection in an unregulated space, and we’re trying to solve it by playing whack-a-mole with different Chinese companies that we see as threats,” Sacks said. “We get into dangerous territory where the U.S. government is controlling what Americans can and can’t do…. This is technonationalism.”
Trump may also have reason to personally dislike TikTok, which has started to join the U.S. political conversation. In June, young people carried out a campaign on TikTok and other apps to troll the president by artificially boosting expected turnout for a Trump rally in Oklahoma. Sarah Cooper, a comedian who lip-syncs Trump’s statements in videos that make him look ridiculous, is a TikTok star.
Would a purchase by Microsoft address the administration’s concerns?
“I think the security concern frankly has come down to the parent company is Chinese and that’s what U.S. lawmakers have a problem with,” Sacks said. If that’s the issue, a Microsoft deal would solve the problem.
In remarks to reporters Monday, Trump said he supported such an arrangement. He said “we’ll close down (TikTok) on September 15 unless Microsoft or somebody else is able to buy it.” He said such a deal would require that the U.S. government “gets a lot of money” because it’s enabling the deal to happen. But not everyone in the White House may be in agreement; presidential trade adviser Peter Navarro said on Fox News Monday that the deal was a problem because of Microsoft’s operations in China.
So, Microsoft might buy TikTok? Really?
Really. Other potential Big Tech buyers, especially Facebook and Google, would likely face antitrust concerns if they tried to buy TikTok.
Microsoft does already own the professional and job-hunting site LinkedIn, and it is the No. 4 digital ad company in the U.S., after Google, Facebook and Amazon. But TikTok would be a sharp change in direction away from workplace services for Microsoft.
What happens next?
Microsoft is in talks with ByteDance and plans to complete those by Sept. 15. Any deal may involve other American investors as well.
Microsoft’s plan would be to own and operate TikTok in the U.S., Canada, Australia, and New Zealand. That might complicate things if the service has different owners in different parts of the world.
Q. How would a ban of TikTok work, anyway?
A. That’s also not clear. TikTok could have been put on a Commerce Department list, like Huawei is, that cuts it off from business with U.S. companies. That could mean it wouldn’t work on the Apple and Google app stores. But it’s an unprecedented situation for a consumer app.
“Never in our history since we’ve had app stores on smartphones have I been able to find an example where an app was actually banned by the U.S. government,” said Theresa Payton, the former White House Chief Information Officer and CEO of a cybersecurity consultancy.
Q. What are the political consequences for a ban on TikTok?
A. Tensions between China and the U.S. have been increasing over trade policy, diplomatic relations and cybersecurity concerns. The U.S. has pressed allies to crack down on Huawei and imposed sanctions. Trump has also misleadingly blamed China for the coronavirus pandemic, calling it the “China virus.”