Unfair pressure on TikTok, WeChat to harm US consumers
The Chinese government is highly unlikely to approve the TikTok deal between ByteDance and Oracle- Walmart because the US presidential decree that forced the deal created such unfair pressure on ByteDance that it amounts to an expropriation of the company’s assets. If it were to go through, this deal sets such a bad precedent that it endangers the rule- based system of international investments. Also, the Chinese government has a strong legitimate interest in controlling the export of highly valuable artificial intelligence algorithms that were developed in China, especially under such forced circumstances.
Although the terms of the proposed deal have not been fully disclosed, estimates are that the forced fire- sale reduced the price of TikTok’s assets in the US to about $ 10 billion, much lower than the estimated free market value of $ 20 billion to $ 50 billion.
The presidential executive order that forced the fire sale of a product that was created fully legally was a major blow to the commercial rule of law in the US. Future investors will think twice about building a company in the US knowing that their assets could be confiscated on a whim without warning and without being allowed enough time to sell those assets in an orderly way.
In September, a US federal judge ordered a delay of the ban on the grounds that the decree violated the constitutional rights of ByteDance and of TikTok’s users. Earlier, another federal judge ordered a delay on the ban on US use of WeChat on similar grounds. So, it’s likely that the presidential order was illegal under US law.
Somewhat selfishly, as an American, I had hoped that both TikTok and WeChat could remain in the US market because they provided great service to American users and competition for the big, anti- competitive, tech companies of Silicon Valley.
A key problem in the US is that its online markets have become oligopolistic, with just a few dominant companies, that are doing their utmost to control the market and stifle competition. Facebook, Google and Amazon together control 70 percent of the online advertisement market in the US. Amazon is by far the dominant player in online sales within the US and was recently caught using data from companies that sell on its platform to create a copycat product and steal the original producer’s customers. Because there is no alternative platform, producers of videos for Google’s YouTube platform live in fear that Google will ban their channel for some unclear reason with no appeal and no explanation.
Of course, these companies don’t want to see the growth of competitors such as TikTok or WeChat. The bottom line is that both of these are great products. People around the world simply want to use them. Little wonder that Facebook CEO Mark Zuckerberg actively lobbied to have them banned.
I’m well beyond the age to be in the target demographic for TikTok, but it’s clear that ByteDance has created a new short video art form that appeals to hundreds of millions of producers and consumers of content. It has helped many people fulfill the need to communicate their ideas and to display their talents. In China, Douyin, the domestic equivalent of TikTok, is a key platform that enables communication, entertainment and online sales.
One thing that makes Douyin/ TikTok and other Chinese apps so good is that they face constant and strong competition.
In online sales, ByteDance competes with Alibaba’s Taobao market, Jingdong, Pinduoduo and many others. There is no equivalent level of competition in the US market. The competition among all these sales platforms has allowed the development of a very vibrant online e- commerce market in China. In rural areas, many people have transformed their lives by manufacturing products or growing food and selling directly to customers. Almost unique to China is the livestreaming phenomenon that allows individuals around the country to communicate directly with potential customers. The big oligopolies quash any such competition in the US.
Even in its core short video market, Douyin faces stiff competition within China. WeChat’s “Moments” allow people to send short videos to their friends. Bilibili shows longer videos. Kuaishou is a direct competitor that is particularly popular in rural areas. Some farmers have become millionaires on Kuaishou by giving viewers a daily taste of farm life. David Evans, a professor at the Beijing University of Chemical Technology does experiments on Kuaishou, which have been viewed tens of millions of times and which are shown in rural schools throughout the country. The lack of such apps in the US has greatly limited the opportunities for average people to build e- commerce businesses.
WeChat is a great app. It combines instant messaging, with social networking, with very convenient payments, with convenient miniapps. There is nothing else like it. It’s not surprising that Google, Facebook and Amazon don’t want to compete with it. It’s too bad that the US government is doing the dirty work of these companies by banning a potential competitor.
In the first decade of this century, the US app market was highly innovative and highly competitive, but it has since consolidated into just a few companies. It is sometimes claimed that this happened because of network effects or natural monopolies. But, in fact, it was largely due to the fact that the US government simply has not enforced antitrust laws. Google never should have been allowed to buy YouTube or Adsense, allowing it to establish its near- monopoly over video- sharing and online advertisement sales in the US. Facebook never should have been allowed to buy Instagram, which was a very near competitor. Amazon never should have been allowed to prevent Apple from establishing an online bookstore that better supported book publishers. The list goes on and on.
The oft- heard claim that this suppression of competition is good for US consumers because many products are provided “free” to the customers is particularly silly. By monopolizing the online advertisement market, Google and Facebook obviously drive up prices of goods. By limiting access to information, these two companies also limit the “market place of ideas.” Amazon’s near- monopoly limits the growth of small businesses. Since American consumers have few options, they are not really able to limit the personal information they give up to these companies.
Most importantly, the big oligopolists are preventing the growth of new products and new ideas that we’ ll never know about because they are killed in their infancy.
In my opinion, countries have a legitimate interest in preventing the export of personal information of their citizens. I’d certainly like to be able to prevent Google from knowing much about me, but the oligopolistic markets in the US give me few options. I expect that countries around the world will move to limit the gathering and export of personal information by the tech giants. It would be a great benefit to the world if more competitors in many countries arise to challenge the oligopolists.
The proposed deal was so unfair to TikTok and its shareholders that it would have created a terrible precedent. It’s fully understandable that the Chinese government could not allow it to stand. The loss of TikTok, WeChat, and probably other potential competitors in the US markets is a big blow to American consumers and a big win for the Google- Facebook- Amazon oligopoly.