Just 48 hours after reports indicated that Beijing would prefer ByteDance simply shut down TikTok in the US rather than sell the wildly popular video app to an American company, sources said the Trump administration was informed that TikTok’s algorithm is not for sale.
Late last month, in what amounted to an eleventh hour intervention by Xi Jinping, China revised a list of products subject to export controls, effectively asserting Beijing’s right to veto the deal, which Donald Trump insists must be completed by the middle of this month.
The new restrictions put in place by China’s Ministry of Commerce in August were seemingly designed to prevent TikTok’s artificial intelligence technology, including algorithms that parse data in order to produce tailored recommendations, from becoming the property of a US corporation. On Friday, Reuters said Beijing was prepared to cite those restrictions in delaying a deal.
Fast forward to Sunday, and The South China Morning Post said ByteDance “will not sell or transfer the algorithm behind [TikTok] in any sale or divestment deal”.
That’s according to a source with knowledge of what SCMP described as “boardroom discussions”.
If you’re wondering whether that’s a problem for the US tech companies angling to acquire the app, you’d have to ask their development teams, but according to SCMP‘s source, ByteDance effectively told Trump that “the car can be sold, but not the engine”.
To be clear, cars are not as useful without their engines, and, in almost all cases, removing the engine from a car prior to selling it dramatically reduces the resale value. (And, yes, that’s a bit of dry humor.)
But, there is some nuance. A engine-less car that’s otherwise desirable would be more valuable to a manufacturer of quality engines than to someone bereft of engineering expertise. So, one imagines an American tech giant can simply buy the brand and the employees, and work with the latter to develop a copycat.
Indeed, SCMP‘s source suggested as much. “[ByteDance] will not hand out source code to any US buyer, but the technology team of TikTok in the US can develop a new algorithm”, the person said.
Later, Microsoft confirmed that its bid for the app was rejected, paving the way for Oracle to emerge as TikTok’s “trusted tech partner”.
“ByteDance let us know today they would not be selling TikTok’s US operations to Microsoft”, the company announced, in a statement. “We are confident our proposal would have been good for TikTok’s users, while protecting national security interests”.
“Oracle won the bidding for the US operations of TikTok”, The Wall Street Journal subsequently reported, citing a person familiar with the matter. The deal likely won’t be structured as an outright sale, the Journal said.
SCMP went on to write Sunday that if Trump wasn’t prepared to accept a deal that didn’t include the algorithm, there would be no sale, leaving TikTok to simply “turn dark” for US users when the clock strikes midnight on Tuesday.
It wasn’t immediately clear why it should be up to Trump to decide, on behalf of a potential US buyer, whether it makes sense to acquire the company and then re-write the algorithm. That decision should be up to the buyer, not The White House, as long as the national security concerns purportedly at the heart of Trump’s demands are addressed.
Although one assumes that copying the algorithm is eminently possible, that takes time and resources, and it obviously reduces the value of the deal, although, as noted, TikTok’s US operations are quite clearly worth something sans algo to someone capable of duplicating the technology.
Prior to resigning last month, TikTok CEO Kevin Mayer was on offense, lampooning Mark Zuckerberg’s attempts to launch what Mayer derided as “failed copycat products”. While Facebook’s version of TikTok (now in what amounts to its second iteration) may be inferior, its very existence proves that launching similar offerings is hardly a Herculean task for Silicon Valley.
And yet, that in itself is a problem, because while an acquirer is busy remaking TikTok, competitors like Facebook will be grabbing for an even larger share of the user base.
One assumes Oracle has an answer for all of these questions.
SCMP‘s reporting also confirmed that ByteDance’s alleged refusal to sell the source code was, in fact, the result of Beijing’s new export control list. That, in turn, means that for all the bluster out of the Trump administration, Xi was able to jeopardize part of the deal with a simple tweak to existing Chinese regulations.
Of course, this may have been three-dimensional chess. The irony may be that Trump always wanted the app to disappear in the US. After all, it hasn’t been kind to him, between the Tulsa rally debacle and Sarah Cooper’s meteoric rise to fame.
I suppose inquiries can now be directed to Oracle’s PR department.