TikTok Ban and Social Side Effects

After a skirmish with China, India banned TikTok, WeChat, and several other Chinese Apps.  With this precedent, President Trump has given 45 days for TikTok to either find a buyer or cease U.S. operations.  TikTok U.S. has 80 million U.S. monthly users and growing.  The Co. is speculated to generate $1b in revenues, and this number is projected to grow to $5-6 billion next year.  Most Chinese companies have a Govt. back end, so it would not be surprising if TikTok shared its user data – to its liking or not - with the Chinese Govt.  Therefore, banning a Chinese app that exposes U.S. user data to the Chinese Govt, at least on paper, seems to be a rational one. 

TikTok, along with Toutiao - a successful news aggregation app - is owned by the parent Company ByteDance.  Together, the business has 1.5 billion monthly users globally.  The data footprint left by users is massive, which is then fed to its Artificial Intelligence (AI) platform.  Using this data, the Co. runs thousands of concurrent tests, and versions of its app to continuously improve its algorithms.  ByteDance’s meteoric rise is truly astounding and the AI platform is the true MVP.

Therefore, while there are multiple public and private contenders to buy TikTok, can an acquirer create any value from the acquisition? The acquirer must transport all the fragmented data over and rebuild the entire team and AI engine.  A successful rebuild could take many months, if not years.  In the interim, the acquirer also needs to keep its influencers, users, and advertisers engaged.  The probability of successfully executing all of the above is low.

Twitter is reported to have shown interest in TikTok’s business.  While Twitter is a great platform and creates a lot of value for its users, it hasn’t created business value   The Dark Horse of Social Media.  Twitter has taken multiple shots at a video service and failed.  The Co. also has primitive AI capabilities that limit the value Twitter can generate from TikTok.

Disney is connected to TikTok.  Kevin Mayer, who is the current CEO of TikTok US, was the head of Disney Plus.  Kevin Mayer was heading the list of potential successors to Bob Iger, the retired CEO of Disney, but was passed up for Bob Chapak, the Head of Parks division.  While Disney is still the best Storyteller, and on the surface has similarities to TikTok (a media network), Disney is not an AI company.  Disney also had several opportunities to acquire Twitter and passed, to avoid the side-effects of Social Media. Following is an excerpt from Bob Iger’s book “A Ride of a Lifetime”.

“Then, that weekend, I decided not to go through with it. If earlier acquisitions, especially Pixar, were about trusting my instinct that it was the right thing for the company, the acquisition of Twitter was the opposite of that. Something inside me did not feel right. Echoing in my head was something Tom Murphy had said to me years earlier: “If something doesn’t feel right to you, then it’s probably not right for you.” I could see clearly how the platform could work to serve our new purposes, but there were brand-related issues that gnawed at me. Twitter was a potentially powerful platform for us, but I couldn’t get past the challenges that would come with it. The challenges and controversies were almost too much to list, but they included how to manage hate speech, and making fraught decisions regarding freedom of speech, what to do about fake accounts algorithmically spewing out political “messaging” to influence elections, and the general rage and lack of civility that was sometimes evident on the platform. Those would become our problems. They were so unlike any we’d encountered, and I felt they would be corrosive to the Disney brand.

Although Disney Plus is a resounding success, Disney is also handcuffed with a considerable amount of debt it took on to acquire Fox.  As long as Bob Iger is the Chairman, a Disney bid for TikTok isn’t likely.

Microsoft is the frontrunner, and the most likely to come away with TikTok.  However, despite its tremendous success under Satya Nadella (CEO), Microsoft is rooted in an Enterprise DNA. Every foray into a consumer-led strategy has met with failure.  While acquiring an already popular platform to compete with Google and Facebook is much easier than building one, it is incredibly difficult for an enterprise led business to change its stripes and succeed at a media business.

The real beneficiaries are Facebook and Snapchat.  TikTok’s viral nature was capturing user mindshare and would eventually capture its share of the advertising dollars.  With TikTok impaired, both incumbents are likely to maintain mindshare in the social wars.

This is what I believe.

What do you believe?