TikTok on the Clock: The Latest Flashpoint in American Data Privacy

Earlier this month, US President Donald Trump signed an executive order banning US transactions with Chinese tech firms ByteDance and Tencent. This move received a strong reaction, especially from members of Gen Z, who became frequent users of the ByteDance owned app TikTok after a surge in popularity during the COVID-19 lockdown. Although the new executive order buys time for sorting out a potential deal, it leaves ByteDance with an ultimatum: sell operations to an American company in 90 days or suffer a ban from operating within the US.

Both Twitter and Microsoft have entered preliminary talks with TikTok’s parent company, ByteDance, regarding a potential acquisition of TikTok’s North American operations, with Microsoft emerging as the clear frontrunner in negotiations. While Microsoft’s interest in TikTok may seem ostensibly out of place, Microsoft has long played a role in bringing Chinese IP to the United States and vice versa. 

#FYP: TikTok’s Recipe for Addiction

The TikTok model is simple: using an advanced algorithm for video recommendations, a bespoke, and ultimately addictive, user experience is created. During the global lockdown, TikTok’s North American user base exploded as teens filled their copious amounts of free time by watching and creating short videos uploaded onto the platform. However, increased scrutiny accompanied TikTok’s growth in the United States; as the number of American users and data points increased, so too did concerns over TikTok’s ability to collect private data from users ranging from location and image to biometric data. More concerningly, as a Chinese company, ByteDance is legally obligated to share user data with the Chinese government as per the China Internet Security Law. Concerns regarding ByteDance’s vast data troves prompted Reddit CEO Steve Huffman to go so far as to call the app a “spyware”, with many politicians agreeing that the app threatens national security. 

Regardless, the political motivations for banning TikTok go beyond national security concerns; in fact, when US Secretary of State, Mike Pompeo, announced that the “US was looking at banning TikTok”,  many believed it to be an act of retaliation for a teen prank. In early June, TikTok users booked tickets for a Trump rally in Tulsa without attending it, sparking a nationwide trend amongst users who followed suit with the goal of decreasing total attendance at Trump rallies. However, when Democratic candidate Joe Biden cited concerns over national security and asked his staff to delete TikTok off their phones, the app became a concern on both sides of the aisle. As politicians from either camp continue to voice their concerns over TikTok’s data harvesting and sharing practices, ByteDance is now forced to choose between divesting from the US or risking a complete shutdown of its app in one of its largest markets.

Sino-US Tensions: A Tech-Sector Story

Political relations between the two titans have only ever seen friction and uncertainty and the case of TikTok is no break in the mold. In times where China is expected to soon outpace the United States as the world’s largest economy in terms of GDP, concerns over China’s rivalry of American hegemony exist. With the Belt and Road Initiative, China attempts to consolidate its influence in Asia, Eastern Europe, the Middle East, and Africa, which it views as the next China. Within that context, TikTok opens the market for Chinese tech giants to take advantage of the large North American market, a move that the US countered earlier this year by banning Huawei’s 5G network until 2021. As a result of such defensive measures, American operating systems continue to dominate the US market with roughly 60% of smartphone users choosing iOS, iPhone’s operating system over foreign alternatives. While the US may be accused of being protectionist and monopolistic in this light, it is worth noting that China censors most of western technology as a part of its Great Firewall and Monopoly Law, which serve to push American internet giants out of the domestic market.

One American tech conglomerate that China has historically welcomed in the domestic market is Microsoft, the current leader in the race for TikTok. While other Silicon Valley giants with a younger customer base may seem better suited to acquire TikTok, a look at Microsoft’s history with Chinese technology and innovation paints a clearer picture of the company’s role as a bridge between the US and China. In 1998, Microsoft solidified its presence in China with the establishment of Microsoft Research, a tech lab in the country’s capital that attracted the nation’s top computer science Ph.D graduates. As a by-product of its research platform, Microsoft sparked an age of innovation in China, with its alumni leading breakthroughs at the helm of nascent Chinese facial recognition and mobile phone development companies. In fact, the founder of ByteDance, Zhang Yiming, worked at Microsoft before starting what would become TikTok’s parent company. Moreover, Microsoft’s relationship with China is such that it was the only American company invited to an entrepreneurship conference hosted by Chinese president Xi Jinping in July, solidifying Microsoft’s status as China’s favourite American tech company. Setting aside its contribution to a culture of technological innovation in China, Microsoft's pursuit of TikTok hints at a broader appetite for engagement with a new generation of consumers. Activity on YouTube, Google’s digital media platform, amounts to more than a billion hours of content viewed each day, contributing immense amounts of data for targeted digital advertising, as well as approximately $15 billion in annual revenue. With the company’s direct competitors leveraging social media to amass information on its users, acquiring TikTok would allow Microsoft to better understand the tastes and trends of a new demographic. Ownership of TikTok will provide Microsoft with its piece of the lucrative social media pie, as the video app already boasts 800 million monthly active users worldwide, with 80 million of them from the US.

Blitzkrieg: Microsoft’s Race to Close the Deal

Any US company with aspirations of acquiring TikTok must deal with the challenge of separating its technology from the operations of its parent, ByteDance. A significant portion of TikTok’s technology overlaps with that of its Chinese equivalent, Douyin. While ByteDance has spent months untangling TikTok from its Chinese affairs, the algorithms governing the app’s data storage and content recommendations have yet to be disconnected from ByteDance’s other products. However, given Microsoft’s extensive experience with Chinese technology, these technical complications give the American tech giant advantage over its competitors in the race for TikTok. In its negotiations, Microsoft proposed an additional clause that would give it one year to cleanly detach TikTok’s technology from ByteDance and to comply with US security restrictions, which would require ByteDance to retroactively destroy all American user data. 

While Microsoft’s technological abilities and ties with the Chinese government make it a promising candidate to acquire TikTok, the acquisition is by no means a home run for Microsoft. Following President Trump’s proposed ban of TikTok in the US, American social media giants have raced to capitalize on the move by initiating the development of their own TikTok spin-offs. Earlier this month, Facebook launched Instagram Reels, a feature that allows users to create, edit, and share short videos within an interface analogous to that of TikTok. Google is also rumoured to be developing a TikTok-like feature for YouTube called YouTube Shorts, and Snapchat is following suit by launching its own version this fall. 

As the clock is ticking for Trump’s executive ban to go in effect, the pressure to reach an agreement continues to mount for both Microsoft and ByteDance. For the former, missing the deadline means a lost opportunity to connect with a generation of future consumers. For the latter, a shutdown means forgoing all of its operations in the world’s largest economy. With less than three months left to divest from its TikTok US venture, ByteDance has little choice but to become the latest battlefront in the Sino-US cyber sovereignty war.

– With assistance by Lauren Coady, Kayra Aker, and Czara Awad