This week’s TikTok news came with a strong feeling of déjà vu. Now, with the Biden administration giving up to a year for the app to be spun off from ByteDance or face a ban from the US, the question is: what happens next?
What happens to TikTok?
With the app facing another potential ban from the US, what would divesting it from ByteDance look like? And just how important is the algorithm?
With the app facing another potential ban from the US, what would divesting it from ByteDance look like? And just how important is the algorithm?
is a contributing writer and author of the Sources newsletter.
ByteDance has been clear that it will fight this new law in the courts on First Amendment grounds, which is how it successfully defeated the Trump administration’s 2020 ban attempt. After talking to sources in and around the company, I think spinning off TikTok is the last-resort measure for leadership. CEO Shou Chew and other execs encouraged staff to stay the course during a humdrum all-hands meeting at TikTok’s New York City headquarters earlier this week, according to two people in attendance.
For the most part, my sources tell me that it’s business as usual internally, especially for those who were around for the last ban attempt. Uncertainty is nothing new if you work at TikTok, and there’s some hope that this new law will, if anything, finally bring much-needed clarity to the app’s fate.
No one knows how the next year will play out, but let’s assume that ByteDance has at least a coin-flip chance of defeating this law in court or that Trump gets elected in November and somehow manages to undo it. With its coming lawsuit, I’d expect TikTok to push on the fact that Congress hasn’t shared any actual evidence, beyond the obvious hypotheticals, that its Chinese ownership is a national security threat. Then there’s the question of why the bill had to be hurriedly squeezed into a larger foreign aid package to get onto President Biden’s desk.
If ByteDance fails in court, its options are to leave the US or spin off TikTok as a non-China-controlled entity. While TikTok left India when faced with a ban and survived just fine, I don’t think it can afford to repeat the same playbook in the US. It’s fun to play the what-if game, but I also don’t see any of the obvious American acquirers — Microsoft, Google, Meta, Amazon — even trying to buy TikTok in this current antitrust environment.
That leaves the option of resurrecting the TikTok Global plan from the Trump years, where ByteDance was going to create a Frankenstein joint venture with Walmart and Oracle to IPO a standalone TikTok company with American leaders. If a TikTok Global-like entity were to be created, it’s worth re-examining how separating TikTok from ByteDance would work and how the process will be easier this time thanks to, strangely enough, the Europeans.
TikTok’s secret sauce is considered to be the algorithm behind its addictive For You page. This algorithm was deemed so important that, when Trump was trying to ban TikTok, China updated its export control laws to make sure it could block the sale of such technology to a foreign entity. If you’ve been following the news this week, you’d think that decoupling TikTok from its algorithm is next to impossible.
TikTok owner ByteDance would prefer to shut down its loss-making app rather than sell it if the Chinese company exhausts all legal options to fight legislation to ban the platform from app stores in the U.S., four sources said…
Moreover, separating the algorithms from TikTok’s U.S. assets would be an extremely complicated procedure and ByteDance is unlikely to consider that option, the sources added.
Except that it already has turned off the algorithm.
In order to comply with the EU’s new Digital Services Act, TikTok recently began letting its European users turn off algorithmic recommendations. When disabled, TikTok essentially reverts to something more like a TV channel. It’s no longer predicting what you want to see next and instead using a more mundane, rule-based system for showing popular content on the platform. Now that this switch has been built for the EU, my sources at TikTok think it will be easier to disconnect the algorithm from the app elsewhere.
One could argue that there’s nothing TikTok could have done differently to avoid being in this situation, given the increasing hawkishness against China in Congress. The company’s multibillion-dollar Project Texas with Oracle to wall off US data did nothing to assuage concerns, and now TikTok is facing a tougher legal challenge than the last ban attempt.
The pressure is specifically on Erich Anderson, TikTok’s general counsel who literally laughed out loud at the idea that the app could be banned a year ago. He has moved into a new special counsel role to lead ByteDance’s coming litigation against the US government, the company announced on Friday. Whatever happens next, one thing is for certain: no one is laughing now.
Notebook
My notes on what else is happening in tech right now:
- Another week of Google layoffs: Google posted a solid earnings report this week. Internally, it kept laying people off. The rolling cuts have been so consistent that now some orgs have been hit twice this year. Based on convos with sources and internal docs I’ve seen, the heaviest cuts this time were in the Core engineering group led by SVP Jen Fitzpatrick. There were also a handful of senior people let go in the Search group. A theme throughout a lot of these reorgs, including one at YouTube last week, seems to be moving more work to lower-cost countries like India and Mexico.
- The Taylor Swift of tech? There was an insanely long line of Stanford students waiting for hours to see Sam Altman speak this week at the fittingly-named Nvidia Auditorium on campus. It’s amazing how quickly Altman has evolved from a relatively well-known investor in tech circles to Steve Jobs-level fame. He reiterated to the crowd that a new model is coming this year and even mentioned GPT-6. Given how Google, Meta, and others are aggressively working to commoditize foundational AI models and put them everywhere, the hype around OpenAI, and not just the technology, needs to stay strong for it to remain relevant. Altman clearly understands this and is embracing it.
- X’s hackathon: For the last several months, I’ve been trying to understand who is driving product decisions at X with Elon Musk shifting more of his focus to Tesla’s troubles. The answer I’ve gotten is that basically no one is driving product when Musk is distracted. He did manage to call into X’s first-ever developer hackathon this week, where about 100 engineers from outside the company demoed their ideas to him. The winner was a browser extension that uses xAI’s Grok to do some sort of sentiment analysis on X posts. Second place went to a “TikTok-clone and X bot that turns any X post into an AI-animated video.” Inspiring stuff.
Interesting links
- If Meta is going to take years to make money from chatbots, what does that mean for all the AI startups?
- “The man who killed Google Search” has been getting passed around inside the Googleplex this week.
- The difference between being a product manager at Meta and Google, written by someone who worked at both companies.
- Mustafa Suleyman’s TED talk is online.
- That’s the sound of “uh-oh” in Menlo Park: Aaron Sorkin says he is writing a sequel to The Social Network focusing on January 6th.
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