Clock TikTokking on deadline for Microsoft deal
Microsoft’s bid to carve out parts of TikTok from its Chinese owner Bytedance will be a technically complex endeavour that could test the patience of President Donald Trump’s administration, say sources familiar with the set-up.
Trump has given Microsoft until September 15 to put together a blueprint for an acquisition that safeguards the personal data of Americans stored on the short-video app, and he has issued an order to ban it if there is no deal by then.
Microsoft is negotiating a transition period that will give it time to ring-fence TikTok technologically from Bytedance after they agree to a deal, Reuters reported on August 2. The clean break Trump and legislators envision could take a year or more, some of the sources said.
TikTok is functionally and technically similar to Bytedance-owned Douyin, which is available only in China, and shares technical resources with it and other Bytedanceowned properties, people familiar with the matter said.
Bytedance started working on their technological separation several months ago amid scrutiny from the US government, a source familiar with the process told Reuters. It began planning for a split as part of a strategy to shift its power from China, Reuters has reported.
While the code for the app, which determines the look and feel of TikTok, has been separated from Douyin, the server code is still partially shared across other Bytedance products, the source said.
The server code provides basic functionality of the apps such as data storage, algorithms for moderating and recommending content and the management of user profiles.
To ensure uninterrupted TikTok service, Microsoft would need to rely on ByteDance’s code while it reviews and revises the code, and moves to a new back-end infrastructure to serve users, according to cybersecurity expert Ryan Speers at River Loop Security, which provides services including cybersecurity due diligence for deals.
Any continuing technical or operational reliance of the US business on the Chinese company after the sale generally would have been unacceptable to the committee on foreign investment in the US (CFIUS), said Aimen Mir, former deputy assistant secretary of the treasury responsible for CFIUS, now a partner at the law firm Freshfields Bruckhaus Deringer.
In the past, CFIUS has required adoption of increased protections pending a sale, including separation of the US business from foreign sellers as much as possible, he said.
Another challenge Microsoft faces is how it will transfer what is viewed as TikTok’s secret sauce, the recommendation engine that keeps users glued to their screens. This engine, or algorithm, powers TikTok’s “For You” page, which recommends the next video to watch based on an analysis of user behaviour.
TikTok uses recommendation algorithms that are independent from Douyin, say two sources familiar with the matter. But what makes it tick is the content and user information that is fed into the algorithm.
“Algorithms are not worth anything without the data,” said Jim DuBois, a former chief information officer at Microsoft.
DuBois is a venture adviser at Ignition Partners. “Segmenting the data for those countries is a significant task.”
Microsoft’s negotiations for the acquisition of the US, Canada, New Zealand and Australia operations of TikTok complicate a separation. Not only would TikTok have to be separated from Bytedance, it would have to be broken up from TikTok’s other regions. This adds to the technical challenges because of the amount of data involved.
“The biggest part is separating the user data — both content and data about users,” said DuBois.
The proposed timeline makes consummating a deal challenging, said Karen C Hermann, a deal lawyer at Venable: “It can sometimes take months and months just to identify the business needs of the divested business, what IP [intellectual property] and other assets it uses exclusively, and what assets and IP it shares with other businesses in the company group.”
THE BIGGEST PART IS SEPARATING THE USER DATA — BOTH CONTENT AND DATA ABOUT USERS