Media

Tick-tock, tick-tock, tick-tock

Bytedance’s TikTok faces a growing risk of shutdown in the US and UK

Ian-Duncan-Smith-w

Former Tory leader Ian Duncan Smith says Britain may ban TikTok as well

In 2017 Fujian native Zhang Yiming became obsessed with learning English. Aside from reading more English language materials himself, the 37 year-old software engineer – and founder of the tech giant Bytedance – also asked his staff to take English classes.

The goal was to support an even greater mission: turning his Beijing-based start-up into a global enterprise where half of its users would come from abroad by 2021.

With TikTok, the short-video social-networking app that has taken the world by storm, Zhang is not far from realising his ambition. Downloaded over 2 billion times globally as of the first quarter this year, the platform has at least 800 million monthly active users, with a little more than half coming from its home market China where it operates under the brand Douyin.

Impressively, TikTok is currently the world’s highest-grossing non-gaming app, according to a ranking compiled by Sensor Tower. TikTok’s revenue soared nine times on the year to $264 million between April and June. That quarter alone topped its full-year income of Rmb180 million in 2019, the San Francisco-based research firm estimated.

Mounting tension between China and the US and its allies, could derail its expansion, however.

India recently banned TikTok (see WiC502) and the Netherlands has been investigating how the firm treats children’s data.

Reports over the weekend also suggested that the Chinese company has suspended talks to open a 3,000-person global headquarters in Britain after months of negotiations, citing the “wider geopolitical context”.

The Sunday Times, which broke the news, viewed the move as a sign of “a tit-for-tat economic war” brewing between London and Beijing. The rift has deepened after the UK government decided to drop Huawei from the country’s 5G infrastructure buildout (see WiC504), and to halt extradition arrangements with Hong Kong after Beijing’s passing of a national security law for the city on July 1.

Bytedance denied that its decision was linked to worsening relations between the two countries. “The UK is one of our most important markets globally, with a talented and diverse team in London, including senior leadership,” a spokesperson said in a statement. “UK employees have quadrupled over the last year and we expect continued strong growth. We remain fully committed to investing in London.”

In June the company announced that it would shift its data centre for European customers to London and Dublin, where it has already hired 80% of its 1,000 staff in Europe. A key reason is that its UK market has been scaling up rapidly since 2017, with its number of users expected to cross 10 million by the end of next year, the Beijing News reports. The UK was also TikTok’s second largest market by revenue outside of China in 2019, behind the US.

Looking at how the US is trying to curtail Huawei, Bytedance’s concerns over possible political backlashes are understandable.

The US government has also turned hostile towards the app. In a recent interview with Fox News, Secretary of State Mike Pompeo acknowledged that the Trump administration is considering a ban on TikTok on national security grounds. He warned that people who downloaded the app are putting “private information in the hands of the Chinese Communist Party”.

On Wednesday the House of Representatives also voted to bar federal employees from loading TikTok onto their government-issued phones.

The suspicious mood has spread to the UK, as Pompeo urged the British to join a “broad alliance” against China during his meeting on Tuesday with the UK leader Boris Johnson in London. Pompeo’s stance enjoys support among an increasingly anti-China wing of Johnson’s own Conservative Party (these MPs have formed the China Research Group to put forward a more hawkish stance).

To alleviate international concerns on lax data privacy and any perceived links with Chinese intelligence services, Bytedance has made a point of building data storage centres and “transparency centres” outside China (the latter offer oversight of TikTok’s practices to third parties). It has also hired Western executives, most prominently poaching Kevin Mayer from Disney to be TikTok’s CEO (see WiC497), and Theo Bertram from Google to be its head of policy for Europe, the Middle East and Africa. In recent weeks it recruited 35 Washington lobbyists, including one with “deep ties” to President Trump, reported the New York Times.

The rising tension is prompting speculation that Bytedance might be forced to sell a majority stake in TikTok to US investors in order to signal its independence from Beijing. The Financial Times reported this week a group of investors led by venture capital firms General Atlantic and Sequoia Capital has launched an ambitious plan to buy TikTok from Bytedance. The potential suitors are already in discussions with US regulators to see if spinning out TikTok and “firewalling it from its Chinese parent” would satisfy Washington’s security concerns.

Based on its forecasted revenue of $1.5 billion this year, the app is said to be valued at $25 billion, representing a quarter of Bytedance’s worth.

The buyout plan does sit well with Zhang, the Bytedance founder, according to The Information, a US technology news outlet. But in the wake of so much uncertainty overseas he is hedging his strategy. In a reversal of his go global approach, he is now “reshoring” in a bid to compensate for potential closures elsewhere by making bigger Chinese revenues. Two weeks ago Bytedance announced it will bulk up its Shanghai office to 20,000 people from the present 6,000. It has signed a Rmb20 billion advertising deal with Taobao and has also established new units focusing on edtech and online games.


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