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Aug 5, 2020

News | Business| Tech Deals: Is TikTok a Good Buy? It Depends on What’s Included


By Kevin Roose


The Shift

TikTok’s most valuable assets, a hyper-effective algorithm and a community of popular creators, may not be as easy to acquire as the company itself.
Credit...Manjunath Kiran/Agence France-Presse — Getty Images
TikTok is going to get acquired or die trying.
The hit video app appears headed for a shotgun wedding after President Trump has decided to force its owner, the Chinese tech conglomerate ByteDance, to sell TikTok to an American acquirer or be barred from operating in the country. On Monday, the president — acting as a combination of investment banker, regulator, and back-room mafioso — said he would approve a bid by Microsoft for TikTok’s U.S. operations, provided that both parties meet his as-yet-unspecified demands and hit a Sept. 15 deadline.
There are a million questions still swirling around a possible TikTok-Microsoft deal.But the most glaring question mark is that nobody I’ve talked to has figured out exactly what “buying TikTok” will mean, or whether what many experts consider TikTok’s golden goose — the complex algorithms that make the app so addictive — would be included in a deal.
A Microsoft spokesman declined to comment. A TikTok spokeswoman, Ashley Nash-Hahn, declined to offer details about what parts of TikTok’s technology were and weren’t up for sale.
“While we do not comment on rumors or speculation, we are confident in the long-term success of TikTok,” she said in an emailed statement.
Some corporate acquisitions are straightforward. In the simplest kind of deal — say, a big restaurant buying a smaller restaurant — the acquirer buys everything on the other company’s balance sheet: all its assets and liabilities, including its kitchen equipment, its secret recipes, and any real estate it owns. Lawyers and bankers try to place a value on those things, and estimate the company’s future cash flows. Then they hash out terms, negotiate a price and sign a deal.
A TikTok acquisition is far, far more complicated.
For starters, even though TikTok has gone to great lengths to distance itself from its Chinese parent company, the app is still very tightly integrated with ByteDance’s Chinese operations. As The Information recently reported, most of TikTok’s core features were developed by ByteDance’s Chinese engineers using a suite of shared software tools — known as “zhongtai,” or “central platform” — that is available to all of ByteDance’s more than two dozen apps. And most of the important decisions about TikTok’s operations and strategy have been made by executives in China.
Separating TikTok from ByteDance would, by definition, require untangling many of these Chinese connections. That could present problems. Many of TikTok’s top American executives — including Kevin Mayer, its chief executive — are new to the company, and presumably still getting up to speed. And while TikTok does have engineers based in the United States who could theoretically help with the technical untangling, many of the engineers with the deepest knowledge of TikTok’s systems are presumably Chinese nationals in Beijing.
Image
Credit...Wu Hong/EPA, via Shutterstock
And what about the algorithm? By all accounts, TikTok’s core algorithm — which selects videos for the central feed users see when they open the app, called the “for you page” or FYP — could be the most valuable asset the company owns. Eugene Wei, a longtime tech executive and blogger, likens TikTok’s FYP algorithm to the Sorting Hat from the Harry Potter series — a “rapid, hyper-efficient matchmaker” that analyzes users’ behavior and places them into personalized niches, based on their interests.
The FYP algorithm is TikTok’s secret sauce, and a big part of what makes it so accurate is ByteDance’s global reach. Every swipe, tap and video viewed by TikTok users around the world — billions and billions of data points a day — is fed into giant databases, which are then used to train artificial intelligence to predict which videos will keep users’ attention.
Sometimes, that might mean showing American users videos made in India or China. (I once fell into a delightful rabbit hole of TikTok dances by multigenerational Chinese families.) Other times, it could mean using data from one country’s users to inform another country’s recommendations. It could even mean using data gleaned from an entirely different ByteDance app — such as Douyin, the Chinese equivalent of TikTok — to inform what TikTok users are shown.
ByteDance considers itself, first and foremost, an A.I. company. And the nature of building A.I. is that the more data you have, the better your algorithms generally are. Would an American TikTok algorithm, trained only on American users’ data, be less addictive? It’s certainly possible.
But even if ByteDance was willing to part with TikTok’s algorithms and the machine learning models they rely on — a big if — it’s not clear that an American acquirer would be able to recreate TikTok’s magic right away.
Karl Higley, a recommender systems engineer who previously worked at Spotify, said that without access to historical data — data about what TikTok’s users swiped, tapped and lingered on weeks or months earlier — a new, Americanized TikTok might essentially need to start from scratch.
“In order to personalize the app for existing users, they’re going to need historical data for U.S. folks unless they want to wipe the slate clean, which would be a terrible user experience,” Mr. Higley said.
American tech giants, of course, are no slouches when it comes to building addictive algorithms. And it’s possible that an American-owned TikTok could rebuild the app’s core technology without users even noticing a difference. But it’s not trivial work, and it could take months or years to do — months or years in which Facebook, Snapchat and other competitors would be nipping at TikTok’s heels. And if users sensed that their algorithm was degrading in the meantime, or showing them fewer interesting videos than it once did, they could be tempted to jump ship.
In addition to recreating TikTok’s algorithms, an American acquirer would also need to work quickly to preserve TikTok’s other valuable asset: its creator culture. As my colleague Taylor Lorenz has written, TikTok is home to a large, vibrant community of creative talent, some of whom make a full-time living from the app. Those people are attracted to TikTok partly because the platform gives them a way to reach a mass audience. But they’re also attracted to it because TikTok has cultivated an aura of cool through advertising, striking partnerships with music festivals and other popular events, and hosting exclusive parties for TikTok creators at industry events like VidCon.
Already, Facebook is reportedly trying to poach popular TikTok creators for Instagram Reels, its new TikTok clone, by dangling six-figure deals in front of them. And if TikTok is acquired by Microsoft — a company not historically known for its youth appeal — creators could sense that it’s time to move on.
TikTok could try to lower the risk for an acquirer by striking multiyear exclusive deals with its most popular American creators, the way that platforms like YouTube and Twitch have done. It could also accelerate its plans to let popular users earn money from the platform. But without a firm grip on its A-list talent, TikTok’s acquirer won’t be assured that the platform isn’t losing its edge.
Hank Green, a YouTube star and chief executive of the education company Complexly, who has more than 600,000 followers on TikTok, said that a TikTok acquisition could make creators more skeptical of the company’s motives.
“One of the things about TikTok is they’ve been able to make lots of changes really fast, and people are open and receptive to that,” Mr. Green said. “If you see that change as coming from outside the ecosystem, that can feel like a foreign change.”
Many of the people I spoke to agreed that even with the potential pitfalls and unresolved questions, the opportunity to buy TikTok is a once-in-a-decade deal for the right acquirer. Popular, growing social networks are exceedingly rare, and TikTok has already made itself a fixture of American culture in a way that few other apps ever have.
“TikTok is compelling, not just because of its large and growing user base, but also because of its platform potential to expand into e-commerce and livestreaming,” said Connie Chan, a partner at the venture capital firm Andreessen Horowitz. “Video is a fantastic way to sell things and short videos are perfect for product discovery.”
Mr. Green, the YouTube star, agreed.
“If I had the opportunity to buy TikTok, I’d buy TikTok,” he said. “There’s so much value on that platform right now that is completely untapped.”

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