TIK TOK SALE WILL STRENGTHEN BIG TECH
Offloading the viral video app’s international business represents a disaster for global competition ‘Zhang Yiming has clashed with the regime in the past and it would be a stretch to portray him as a Communist Party stooge’
It seemed like a fairy-tale story of entrepreneurial flair and riches beyond your wildest dreams. But fairy tales weren’t meant to end quite like this, and fresh-faced entrepreneurs in their 30s are not usually forced into a street fight with the most powerful man on earth.
When Zhang Yiming, a 32-year-old Chinese graduate from Fujian, founded TikTok back in 2015, his company ByteDance was just another scrappy, small technology firm in Beijing’s burgeoning start-up scene.
By this January, however, Zhang’s creation – an addictive short video sharing app fuelled by a powerful AI recommendation algorithm he had crafted himself – had morphed into a colossus that had irked Donald Trump.
Propelled by a swelling army of one billion users hooked on TikTok’s viral formula of pranks, dance and lip synch routines, ByteDance had evolved into the world’s most valuable start-up, worth an estimated $100bn (£77bn) and netting Zhang a $22bn fortune.
It’s no surprise that Zhang had big dreams – plans to grow global revenue to over $1bn this year from $200$300m in 2019 and to lavish billions of dollars on content creation and marketing, to turn TikTok into a media powerhouse.
Now, as Zhang presides over the accelerated carve-up of his empire and a forced sale of TikTok to Microsoft amid pressure from the US president, those dreams lie in tatters.
Perhaps more important for everyone else, Trump’s forced sale of TikTok’s international business, ordered on July 31, represents a disaster for competition in global tech, an industry that desperately needs more not less of it.
Its biggest beneficiaries? Two of the world’s biggest companies, Facebook and Microsoft, whose combined market cap of $2.2 trillion is already higher than the GDP of Brazil and equivalent to the combined value of all of Britain’s FTSE 100 companies.
Of course, many companies could do with a helping hand from the US government, but these two are not among them.
By eliminating a key international competitor and handing it to them on a plate, the move is a gift for Silicon Valley’s giants.
As for Zhang, squeezed by the rising geopolitical pressures between Washington and Beijing, the best he can hope for now is a decent price for the assets he built and a clean end to the saga that will keep him out of the courts while retaining his Chinese business and selling off the international arm that was most alluring to investors.
Sinophobes will point to the fact that many US tech companies, including Facebook and Google, are effectively locked out of China already, and at ByteDance’s seemingly murky data collection practices.
But Facebook et al are hardly model citizens when it comes to the hoovering up of personal data. Either way, the terms of Trump’s executive order – imposed one month after his rally in Oklahoma was disrupted by a band of TikTok teens – nevertheless seem crushingly unfair.
US officials may sound off about the need for more competition in global tech and haul up the odd chief executive before Congress occasionally for a grilling, but actions speak louder than words.
TikTok’s runaway success had already turned many in Silicon Valley green with envy at the steady flow of advertising dollars to a Chinese company. This move will do little to alleviate the monopolistic position of the tech giants and more to entrench their power and dominance than any taken to check the industry in the past 10 years.
Meanwhile, Zhang, a genuine entrepreneur and innovator, is being forced to bin his boldest ambitions. Building a global rival to Facebook is an ambition many people would welcome.
ByteDance had been planning an initial public offering. A big chunk of its projected value was staked on the extraordinary global growth of TikTok, but any listing now will be far less appealing with the company besieged by geopolitical problems.
Moreover, ByteDance is no Huawei – the other Chinese company to have emerged as a political football in the geopolitical fight between Washington and Beijing.
While Huawei, a company founded in the Eighties, has links to the Chinese state and military through its founder Ren Zhengfei, a former Red Army officer, ByteDance retains a very different profile.
Zhang has clashed with the regime in the past and it would be a stretch to portray him as a Communist Party stooge.
Instead, a genuinely innovative and successful Chinese start-up, which had grown through its sheer global popularity among young people, has been shredded in a geopolitical mincer.
The problem now is that the fate of TikTok and Huawei are unlikely to be the end of the story.
While Microsoft is set to gain a hot social media property that will allow it to grab valuable insights from user data, US technology firms can expect Chinese retribution too.
Either way, one thing seems clear. This fairy tale is unlikely to have a happy ending.
Donald Trump wears a mask on a tour of a Whirlpool factory in Clyde, Ohio. The US president ordered the sale of TikTok on July 31