Washington holds the future of TikTok and ByteDance in its hands.
Who wouldn’t want to own a piece of the world’s most valuable startup?
ByteDance, valued at $220 billion last year by some estimates, could easily claim that title. It boasts a majority stake that includes financial giants KKR, Sequoia Capital, Susquehanna International, General Atlantic, Tiger Global Management and SoftBank. In addition to its crown jewel TikTok, its creations include popular apps such as editing tool CapCut, workplace collaboration tool Lark, and news platform Toutiao.
And it seems like there will always be something else along the way. At the core of ByteDance’s product pipeline is a purpose-built shared services platform designed to quickly deploy the right resources to the right project and get the final product off the shop floor quickly, which has drawn widespread admiration, including a 2022 analysis by Harvard Business Review.
Benefit for the private company: 2022 revenue was $80 billion, gross operating profit was $25 billion, and 2023 earnings grew 60%. Largely thanks to its most popular app, it was the first Chinese company since tech giant Huawei. to create a truly global brand and be the first to become a runaway success with non-Chinese consumers,” notes Fabian Ouwehand, CEO and co-founder of FRL, a social shopping platform, who has worked with clients looking to use the app to launch a business since TikTok’s debut.
But much of ByteDance’s early success – it opened its doors just a decade ago – could be in jeopardy if TikTok is found to be blocked from entering the US by Congress. There are rumors about the future of the mega-popular video hosting service if it loses this market. It is already banned in more than a dozen countries, from Afghanistan and India to the Netherlands and Taiwan; in February the EU launched a formal investigation into its presence in Europe.
To complicate matters, TikTok is in intense competition with other social media providers; Last month, the company launched TikTok Notes, a text and image app that will directly compete with Instagram Meta. Many of the members of Congress who will decide TikTok’s fate no doubt own Meta stock in their portfolios.
What about the company that created the app?
TikTok, along with its Chinese market counterpart Douyin, is more than just ByteDance’s most visible and successful product, close observers say. It is at the core of the company’s ambitions to become a global power and an innovator in the commercial application of artificial intelligence. While the U.S. market still represents only a small portion of TikTok’s revenue stream, it is vital to BydeDance’s efforts to leverage the brand’s global reach, Ouwehand says.
Ivy Young, founder of New York-based consulting firm Wavelet Strategy, goes even further. Without TikTok’s U.S. market prospects—users, advertisers and, more recently, Chinese and other e-commerce providers eager to sell to Americans—its parent company will have a hard time raising the funding it needs for the next stage of its own growth, she argues.
“With a possible ban, ByteDance is between a rock and a hard place to either do an initial public offering or continue to raise money privately,” Young says. “The US has the largest audience, but that’s important not just because it’s just numbers, but because it’s potentially the most valuable market given the lifetime value of its customers.”
Douyin is still ByteDance’s biggest cash cow, but it’s already used by nearly half of China’s population, Yang notes, and so it probably won’t grow as quickly in the future. Given the decline in consumer sentiment in the country, Douyin’s revenue growth may slow. This increases the weight of the United States in the eyes of investors; The shrinking of that market will make an IPO, which once looked like the next logical step for ByteDance, a tougher sell, Yang said.
It has been argued that the TikTok ban may be less of a disaster than predicted for its creator; In China, many users of banned foreign apps still access them through VPNs. But while VPNs may keep many if not most current TikTok users in the US on board, Young notes that they will add several steps for potential new users looking to sign up and form a user habit, and therefore could slow down future growth in the US: all still not a very good result. look for a candidate for IPO. Additionally, if Congress passes a bill against TikTok, ByteDance will likely challenge the law in court; while he may ultimately prevail on First Amendment grounds, the price will likely be years of legal uncertainty and yet another disincentive for potential supporters.
How bad the US ban will be for ByteDance’s long-term prospects is debatable, Ouwehand counters. E-commerce is a key component of the company’s long-term strategy, and it has found early success by integrating its TikTok Shop platform into an app; in just a few years, he predicts, it could surpass Amazon worldwide, if not in the United States. Meanwhile, the slow pace of action on TikTok’s status in Washington is giving ByteDance time to consider its next move.
“If a sale is forced, ByeDance will find a way to structure it in a way that benefits them,” he predicts. Additionally, the company has found ways around similar dilemmas in the past; When TikTok was banned in Indonesia, he notes, the company pivoted and acquired the largest e-commerce platform in that large market.
But even people who know the company well blame ByteDance’s public relations and government relations strategy for getting things to this point. “The US is still a small part of a big global company, and it hasn’t been a priority for too long,” Ouwehand says. “I think they should campaign there every day.”
TikTok’s problems in the US date back to at least 2020, when then-President Donald Trump ordered ByteDance to sell the app. The new Biden administration reversed this decision.
In response, the company spent $1.5 billion to launch “Project Texas,” which moved all of TikTok’s U.S. user data to Oracle servers located in Austin.
It was a misunderstanding of the problem, Yang accuses; ByteDance tried to solve a geopolitical problem with a technical solution that failed to convince any of its critics in Washington. Efforts to find TikTok’s US owner only raise questions about how “American” the app must become to satisfy Congress, which has yet to pass a bill to define it, and ignore Beijing’s firmly stated reluctance to allow TikTok’s prized algorithm to fall into disrepair. other people’s hands.
“The crux of the problem, in our opinion, is that China/Bytedance will never allow the source code to be sold to a US technology company, which makes the whole thing a cobweb for any potential strategic buyer,” Dan Ives, managing director of Wedbush Securities, told Nikkei Asia last month.
So for ByteDance, a lot depends on its ability to lobby Congress and regulators not to shut down its biggest product in its most strategic market, not least the future of the next wave of new products. In February, the company launched Coze, a generative AI competitor to Chat GPT. It was previously reported that the company was recruiting American talent for new initiatives in the field of life sciences and drug development. And in March, ByteDance announced that it was starting to develop new online games after closing previous projects.
The usual question is whether any of these projects will be related to TikTok in any way; the app is now a news source rather than just an entertainment hub. But with the app’s future – at least partially – in the hands of Congress, the bigger question is whether ByteDance can continue to raise the capital it needs to continue innovating, both through TikTok and the investors it has attracted to it.