ByteDance May Prefer Shutting Down TikTok Over Selling Due to Algorithm Concerns

Key Points:

1. Algorithm Importance: TikTok’s algorithms, crucial for its operations, are shared with ByteDance’s domestic apps like Douyin. It is highly unlikely to sell TikTok without these algorithms, given their fundamental role and the complexity of disentangling them from ByteDance’s infrastructure.
2. Preference for Shutdown: ByteDance, if compelled to sell TikTok’s U.S. business, would rather shut down the app than relinquish control of its algorithms. The company views the algorithms as proprietary and essential to its competitiveness, making divestiture unfavourable.
3. Financial Impact: TikTok constitutes a small portion of ByteDance’s overall revenues and daily active users, making a potential shutdown in the U.S. less impactful on the parent company’s business. ByteDance has yet to disclose detailed financial information about TikTok.
4. Legislative Challenges: Efforts to ban TikTok in the U.S. stem from concerns about data security and potential Chinese surveillance. Previous attempts by the Trump administration to ban TikTok faced legal hurdles, and China signalled opposition to forced divestment of the app.
5. Investor Interest: Despite the possibility of a TikTok shutdown, former U.S. Treasury Secretary Steven Mnuchin has explored assembling an investor group to acquire the app. However, ByteDance may struggle to attract buyers for TikTok’s U.S. assets without including its algorithms.
6. Regulatory Hurdles: China’s export control laws and regulations pose additional challenges to the divestment of TikTok, particularly regarding the transfer of algorithms and proprietary technology. ByteDance’s valuation and investor backing further complicate potential divestment negotiations.

ByteDance faces a complex dilemma regarding the future of TikTok in the U.S., balancing legal challenges, regulatory constraints, and the preservation of its core algorithms. While the company may explore various options to navigate legislative pressures, the preference for shutting down TikTok over selling it underscores the significance of its proprietary technology and strategic considerations in the face of regulatory scrutiny.