Over the last three years, in these columns, I have chronicled the rise and rise of Chinese social media behemoth ByteDance Technology, which runs the short-form video platform Duoyin (literally “shaking sound”) and its International short-form video version, TikTok, a hugely popular and highly addictive app used by many as an outlet to express themselves through singing, dancing, comedy and lip-syncing. Within four years of its launch in 2016, TikTok became the first serious challenger to two of the largest global Internet firms, Google and Facebook.
The Trump administration initially tried to ban TikTok on national security grounds, then in early 2020 attempted to force the short-form video platform to sell a majority stake to an American company. Oracle, Microsoft and Walmart were among the early suitors.
It also wanted to make sure that all of the video platform’s US data stayed in the country and far away from the prying eyes of Chinese surveillance. Trump issued an Executive Order against TikTok. The order said the short-form video platform “allows the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage”. TikTok’s US data is now officially stored in its cloud infrastructure in Virginia, while backups of that data are stored on Oracle’s servers in Singapore.
After President Joseph Biden took office 18 months ago, TikTok got a reprieve as he reversed Trump’s Executive Order. For its part, TikTok vowed to keep the data of American users on US soil and steadily split from its parent ByteDance’s other mainly Chinese operations.
Indeed, 2022 was touted as the year when TikTok might finally seek a stock market listing. But the US tech bubble began to slowly burst late last year as soaring inflation and higher interest rates became the main concern for investors.
ByteDance, which uses sophisticated modelling and machine learning to deliver a stream of tailored content such as jokes, news stories and short, silly video clips, is now by far the world’s biggest unicorn, venture capital-funded private company with a valuation of over US$1 billion ($1.4 billion).
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ByteDance has 1.5 billion monthly active users and 800 million daily active users across its platforms, including TikTok, Toutiao, mobile messaging app Flipchat, video chat service Duoshan and enterprise collaboration platform Lark.
The current bear market and tech selloff may have cut ByteDance’s valuation from US$400 billion last year to US$300 billion currently, but it is still almost as big as Chinese e-commerce behemoth Alibaba Group Holding (with market cap of US$326 billion).
TikTok’s own rise to the top has been as meteoric as its parent, ByteDance. Last September, its daily active users crossed the one-billion mark, making it fastest growing social media platform in history. Later this year, its daily active users are forecast to surpass 1.5 billion mark. A typical TikTok user now spends an average of 52 minutes on the app every day. Though Facebook users spend 58 minutes on its platform each day, TikTok’s user base is growing far faster and the Chinese-owned app also has far better demographics.
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TikTok is forecast to rake up US$12 billion in revenues this year (up from nearly US$4 billion last year) and nearly doubling them to US$23 billion in 2024. TikTok has huge margins because it doesn’t pay for content. It relies on user-generated content. Indeed, 55% of TikTok users are also creators of its short-form videos.
Trojan horse or sheep’s clothing?
So, what makes TikTok so special? “The app brings the chocolate of social media together with the peanut butter of a streaming platform, commanding more attention per user than Facebook and Instagram combined,” notes Scott Galloway, a marketing professor at New York University.
“Think Netflix, but with near-zero production costs and a recommendation algorithm that responds to an unmatched range of micro signals: whether you scrolled past a video, paused it, re-watched it, commented, followed, and so on.” That, he says, gives TikTok the ability to calibrate its lethal cocktail.
Little wonder, then, that an array of top US internet firms, from Facebook and search engine giant Google, to streaming behemoth Netflix and video gaming firms, have steadily lost market share and mindshare to TikTok in recent years. People have only so much time to spend on online platforms every day. If they are spending an hour or more on TikTok each day, they have much less time for everything else they do, whether it is watching movies or TV, surfing the Internet, playing games or connecting with a friend online.
Yet, as TikTok’s revenues and mindshare grow in the US, regulators and policymakers are taking a closer look. Republican senator Ted Cruz of Texas likens TikTok to “a Trojan horse the Chinese Communist Party can use to influence what Americans see, hear, and ultimately think”.
Last week, a leader of the US Federal Communications Commission lashed out at short-form video platforms. “TikTok is not just another video app. That’s the sheep’s clothing,” Brendan Carr, a senior commissioner on the Federal Communications Commission (FCC), tweeted. Though his fellow FCC commissioners have so far not taken the bait, TikTok clearly has fierce opponents on both sides of the aisle in the US Congress.
“At its core, TikTok functions as a sophisticated surveillance tool that harvests extensive amounts of personal and sensitive data,” Carr noted in identical letters addressed to the CEOs of Apple and Google. He urged the two tech giants, who have a duopoly on smartphone operating systems, to promptly remove TikTok’s app from their app stores “for its pattern of surreptitious data practices”.
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Carr’s tweet and letters came in the wake of a story in online publication BuzzFeed two weeks ago, which found China-based employees of its parent ByteDance have “repeatedly accessed” non-public data about American TikTok users. BuzzFeed obtained over 80 audio recordings of internal TikTok meetings, confirming that Chinese management at ByteDance had unfettered access to TikTok’s data. In one of the recordings, a TikTok manager refers to an engineer in Beijing, known as the “master admin,” who he claims “has access to everything”.
TikTok, which has previously said that it is taking steps to prevent employees in China from gaining access to its data, said the BuzzFeed story was misleading. Like many global companies, TikTok has engineering teams around the world, including China, the short-form video platform said in a statement last week. “We employ access controls like encryption and security monitoring to secure user data, and the access approval process is overseen by our US-based security team. TikTok has consistently maintained that our engineers in locations outside of the US, including China, can be granted access to US user data on an as-needed basis under those strict controls.”
FCC’s Carr saw TikTok’s damage control statement as another attempt at obfuscation. “TikTok has long claimed that its US user data has been stored on servers in the US, and yet those representations provided no protection against the data being accessed from Beijing,” he said. “Indeed, TikTok’s statement that ‘100% of US user traffic is being routed to Oracle’ says nothing about where that data can be accessed from.” TikTok’s board last year agreed to give the Chinese government a 1% stake in the private company.
Is regulation enough?
In a country as sharply divided as America is, between Republicans and Democrats, Galloway believes that addictive Chinese-owned platforms like TikTok seek to pitch Americans against each other. They want to “dial up wholesome-looking American teens with TikTok accounts railing against the evils of capitalism (and) dial down the Chinese immigrants celebrating the freedoms afforded in America”, he claims.
The platforms are also keen on pushing short-form videos about guns to Trump supporters; content on gay marriage into the feeds of liberals; and misguided woke-cancel-culture TikToks for every moderate Republican. “Feed the Trumpists more conspiracy theories. Anyone with a glass-half-empty message gets more play; content presenting a more optimistic view of our nation gets exiled.” Galloway believes TikTok’s algorithm will have far more influence on the next generation’s view of America, democracy, and capitalism than the bully pulpit of the US President or executive editor of The New York Times.
Clearly, more regulation is coming for TikTok. But many American policymakers will not even tolerate a heavily regulated TikTok. If TikTok is allowed to operate in America, and the rest of the Western world, it must cut the cord with its Beijing parent. That means ByteDance selling a 51% stake in TikTok to a US-based company and making sure that it has no ties with Beijing.
TikTok’s secret sauce is its powerful algorithms, and the software engineers behind the algorithms are all based in China. Any US company buying control of TikTok would need to re-examine millions of lines of codes and perhaps rewrite them. The whole process of cleaning up TikTok’s powerful “For You” algorithm, which recommends videos to its more than one billion users, and cutting all ties with Beijing could take years.
Since TikTok’s meteoric rise, nearly every other social network and tech company has tried to imitate it. Google and Facebook, which have the most to lose, have understandably been the most aggressive. Google’s YouTube now claims that its TikTok rival, YouTube Shorts, draws in 1.5 billion users every month — bigger than TikTok’s 1 billion audience.
A recent study by investment bank Cowen & Co found that a growing proportion of Instagram users are now using Instagram Reels, another TikTok clone.
Comparing YouTube figures with TikTok’s is not an apples-to-apples comparison because TikTok numbers are daily active users, while YouTube numbers are monthly. Moreover, neither YouTube nor Instagram has figured out how to monetise their short videos, while TikTok will rake in US$12 billion from them this year.
To win over sceptics, TikTok is rolling out content filters and maturity ratings in a pledge to make the app safer. And imitation cuts both ways. Instagram and YouTube might be copying TikTok’s video styles, but TikTok’s parent is rolling out an Instagram-like clone in China. If TikTok remains under ByteDance’s control for a few more years, it probably will give Instagram a taste of its own medicine.
Assif Shameen is a technology and business writer based in North America
