A TikTok buyout by an American company appears to be the only way for the app to survive in the US, and potentially in Europe too. But potential buyers could find themselves paying a lot of money and not getting the one thing they really want: the algorithm.
Real-estate billionaire Frank McCourt and former Treasury secretary Steven Mnuchin are among those who have confirmed they are planning bids for the app …
Forced sale of TikTok to a US company
Back in March, the House voted overwhelmingly to either ban TikTok from the US, or to force the sale of the app to an American-owned company.
Senators had seemed less convinced of the need for the legislation, so the Department of Justice pushed the sale option rather than the ban. President Biden last week signed off on the bill, which gives Chinese owner ByteDance up to nine months to sell to a US company – though that deadline could be extended to 12 months.
It’s the algorithm, stupid
With both TikTok itself, and a number of its creators, arguing that the threatened ban is unconstitutional, it’s by no means certain that the app will be sold. But even if it is, investors could easily find themselves over-paying.
TikTok is, of course, a valuable brand. But the thing that made it successful – and may be key to its continued popularity – is its algorithm. Unlike rival video sites like YouTube, TikTok isn’t centered around users choosing what to watch. Instead, a highly sophisticated algorithm tries to figure out your interests, and then presents you with a video feed.
The experience isn’t 100% driven by this any more. You can follow particular creators, and search for content, but the feed remains the primary interface.
The healthiness of the algorithm has been questioned many times. A very disturbing analysis back in 2022 caused particular concern. But there’s no doubt that it’s absolutely key to the success of the app.
TikTok buyout could be a really bad deal
A Wired report says that potential investors could pay $100B for the app.
The latest suitor to emerge is the real estate billionaire Frank McCourt, who announced this week he’s assembling a group of investors to acquire TikTok and has brought on financial advisers from Guggenheim Securities and the law firm Kirkland & Ellis to help. The app could be worth $100 billion, according to some estimates […]
[Another potential buyer] is former Treasury secretary Steven Mnuchin, who said earlier this week he too was assembling a group of investors to make a bid for TikTok.
The Chinese government has placed a legal block on the algorithm being sold to a US company, and even would-be investors appear to accept that they’d have to buy the app without it.
TikTok noted that the Chinese government has “made clear” that it would not permit the company to sell its recommendation algorithm to a foreign buyer, citing regulations that Beijing introduced after Trump first targeted TikTok in 2020. The measures put limits on the export of certain technologies such as “personal interactive data algorithms” […]
“Of course, TikTok isn’t worth as much without the algorithm. I get that. That’s pretty plain,” McCourt said. “But we’re talking about a different design, which requires people to move on from the mindset and the paradigm we’re in now” […]
Mnuchin told Bloomberg he understands that the Chinese government is unlikely to allow ByteDance to sell TikTok’s algorithm, but he planned to “rebuild the technology.” That would be quite a lofty endeavor, especially given that TikTok competitors like YouTube and Meta have been trying to copy its product for years with only mixed success.
TikTok without the algorithm is basically just a brand name and a very basic app; it doesn’t seem a very likely route to a billionaire making more billions …
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