When the outside world believes that TikTok’s acquisition negotiations have come to an end, China adjusted the release of the “No Export Restrictions Export Technology Catalog”, which restricts the export part of the “personalized information push service technology based on data analysis” clause, was interpreted by the media as directly targeted at TikTok algorithm technology. The Wall Street Journal quoted sources as saying on September 1st that the new rules had stalled takeover talks.
The Wall Street Journal reported on the 1st: TikTok negotiations because of the fate of the algorithm into trouble.
TikTok’s core algorithms were thought to have been included in the deal until china’s new rules were introduced, the report said.
A source familiar with the negotiations said that for bidders, “an algorithmless TikTok is like a luxury car with a cheap engine” because a large part of TikTok’s value lies in its core algorithm, which would completely change their vision of acquiring TikTok if the deal did not include it.
Another person close to the bidder said the deal was likely to go ahead if the algorithm could not be obtained through the acquisition.
But it has also been revealed that one of the bidders could still buy TikTok, which does not contain algorithms, and write new algorithms for them.
It is worth noting that after the introduction of China’s new rules on August 28, the U.S. Consumer News and Business Channel revealed on the 31st that TikTok has identified a buyer and announced the deal as early as September 1st. But it is clear that this has not been achieved. On September 1st Bloomberg quoted another source as saying that ByteDance founder Zhang Yiming was weighing the impact of the new rules and was considering other options.
TikTok’s U.S. business has grown rapidly in recent years, with 100 million monthly active users in the U.S., up nearly 800 percent from January 2018, according to a document filed by TikTok in late August. Industry analysts believe that having a powerful core algorithm is key to TikTok’s success, which recommends different types of content to users based on their preferences. According to the Wall Street Journal, as TikTok’s “secret weapon”, it was these algorithms that generated strong interest in TikTok.
Eugene Wei, a San Francisco start-up investor and former tech executive, believes TikTok’s success is the result of ByteDance’s mastery of artificial intelligence technology. TikTok is able to observe how users interact with video and then fed the results back to the algorithm, enabling the app to provide users with highly personalized content.
Now, negotiators are trying to figure out whether the transfer of the algorithm needs to be approved by the Chinese government, which remains in doubt, and complex questions make it unlikely that the deal will close quickly.
On August 30th, after the new rules were announced, ByteDance, TikTok’s parent company, said it would deal with technology exports in strict accordance with national regulations. ByteDance is asking the Chinese government how the TikTok acquisition will go if it is included in the new rules, the sources said.
There are two main groups involved in TikTok’s bid, one of which is a alliance between Microsoft and Wal-Mart, and the other, Oracle, which has partnered with investors including Sequoia Capital and Transatlantic Investment Group.
27 U.S. media have revealed that ByteDance’s sale of TikTok’s operations in North America, Australia and New Zealand could close within the next 48 hours, with a deal that could be between $20 billion and $30 billion. However, china’s new rules add to the trading variables, Bloomberg analysis said, given the Chinese government’s approval time, the sale of TikTok may be delayed until after the U.S. election in November, TikTok deal can be finalized, it is still uncertain.
It’s worth noting that in this case, U.S. President Donald Trump, who pushed for “buy and sell” TikTok, threatened again. On September 1, Mr. Trump insisted that the deadline for a deal must be September 15 and that the federal government must receive a “substantial compensation.”
On August 30, Chinese Foreign Ministry spokesman Zhao Lijian stressed that the main purpose of China’s promulgation of the List of Technologies for The Prohibition or Limitation of Exports is to regulate the management of technology exports, promote scientific and technological progress and foreign economic and technological cooperation, and safeguard national security.
Zhao Lijian stressed that the U.S. side is trying to take economic bullying and political gimmicks against non-U.S. enterprises, whether it is political coercive transactions or government forced transactions are no more than a gimmick, not only in violation of market principles and international rules, but also the U.S. side has always touted the principles of market economy and fair competition.
Zhang Yiming reconsiders TikTok’s prospects and may even refuse to sell.
ByteDance founder and chief executive Zhang Yiming is reconsidering the fate of the overseas version of TikTok and has even chosen not to sell its U.S. operations, people familiar with the matter said Tuesday.
ByteDance’s regulatory team and deal negotiators are discussing TikTok’s bid in the hope of brokering a deal that would win approval from the government, acquirers, venture investors and ByteDance itself, according to people familiar with the matter.
Microsoft and Oracle, which have been in-depth talks to acquire TikTok’s U.S. business, are seeking approval from the Trump administration while submitting proposals. Microsoft is bidding with Wal-Mart, while Oracle has won the support of venture capitalists such as Sequoia Capital.
However, actions by the Chinese government have prompted Mr Zhang to continue to own TikTok’s US business after the US deadline set, or even opt out of selling it. Because of the complexity of the talks, a final deal could be delayed until after november’s U.S. election, according to people familiar with the matter.
“From the very beginning, Mr. Zhang wanted to build a global company,” said Rebecca Fannin, author of “China’s Tech Giants” and founder of Silicon Dragon Ventures. Without the U.S. market, he would not have achieved that ambition. He is a unique and independent entrepreneur. He may eventually decide not to do the deal. “
People familiar with the matter said the talks were fraught with uncertainty and that Mr Zhang was still likely to continue selling TikTok’s US business. He can also negotiate a deal with the acquirer, but may not be able to complete the deal for other reasons.
Zhang Yiming has several reasons to resist the sale of TikTok. First, he and ByteDance don’t need the money at all. Privately held ByteDance is valued at $140bn and is said to have revenues of more than $17bn in 2019 and net profits of more than $3bn, according to CB Insights, an entrepreneurial tracker. Investment bankers have begun lobbying Mr Zhang’s team for the possibility of a listing in Chinese mainland or Hong Kong, which could add billions or even tens of billions of dollars to his net worth.
Second, if he chooses to sell TikTok’s U.S. business, Mr. Zhang may never succeed in the U.S. market. He will be forced to relinquishos control of TikTok’s U.S. business, which has more than 100 million users in the U.S. and is about to begin moren monetaryization. If TikTok is banned in the U.S., the direct result is that the software update stops off the shelves from Apple and Google App Stores. In addition, sanctions could cut off TikTok’s access to on-premises cloud services, which are critical to maintaining data and streaming services.
But even if banned, U.S. teens can still download TikTok, bypassing U.S. restrictions on obtaining software from abroad. At the same time, TikTok can continue to operate in other parts of the world (except India) and further develop its business. It also leaves the possibility of re-entering the United States in the future.
In addition, ByteDance is seeking to use U.S. law to see if it can delay Trump’s ban. “Zhang Yiming is betting that the court will issue an injunction in the hope that the case will be closed after the deadline or even after the end of The Trump presidency,” said Lu Xiaomeng, senior geo-technical analyst at Eurasia Group. His last hope is that the U.S. legal system will still act as a guardrail when the White House is ‘abnormal’. “
Wen/Observer Network Liu Chenghui