In under 2 years, viral video-sharing app TikTok has burst from nowhere to be the most downloaded non-game app across much of the world in 2020. Only launched in 2018, TikTok is already the 6th biggest app in the world in terms of the amount of money users spend in it, either directly or by clicking on ads.
But unlike the other top tier apps in the USA, TikTok is not a product of Silicon Valley, nor owned by its venture capitalists. TikTok is owned by Beijing-based ByteDance, an internet giant whose ascent has been almost as rapid as its smash hit product.
Now TikTok’s been caught up in the Trump-administration’s trade war with China, with the app succeeding Huawei as the focus of the president’s ire. The forced sale to an American company, that looks like being Microsoft, has been framed as a response to a national security threat posed by the personal data TikTok gathers on its mainly young audience of teens and tweens.
Neither TikTok-parent ByteDance nor Beijing are happy. This is the story of TikTok’s rapid rise to prominence and reluctant new role as the lightening rod in the economic and political power struggle between Washington and Beijing.
The Rise Of TikTok – Gen Z’s Social Media Of Choice
The social media landscape has evolved over the 15 years or so since Facebook appeared and a big chunk of our discretionary leisure time disappeared, consistently allocated to the scrolling and clicking of addictive voyeurism. Facebook is a bigger company than ever, valued at $765 billion and the hungry recipient of 22.1% of all digital advertising spend in the USA over 2019.
The social media landscape is now diverse and Facebook competes for our screen time with other social media formats from Instagram (which it bought), to Snapchat, Twitter, Pinterest et al. But the social media market itself has grown, which has allowed Facebook to continue to grow despite competition.
But Facebook has also become the social media of older generations. In developed markets, user growth rates have since 2012, as can be seen in the chart below, been driven by the Boomer generation and those born even earlier, pre-1945.
Source: Advertisemint.com
The elder statesman of the social media ecosystem may be getting fat on the advertising spend of companies and solopreneurs targeting 25-65+ year-old potential customers of anything from cookery classes to insurance, online courses and subscription-based exercise apps. Youngsters towards the younger end of the Millennial range and below may even well have a Facebook account, even if likely to confine their use of it to wishing Uncle Charlie a happy birthday. But it’s not ‘their’ digital space.
Younger generations spend their time elsewhere online. Watching favourite vloggers on YouTube or gamer-focused streaming platform Twitch is popular and Facebook-owned Instagram still is too. But for Generation Z (born mid-1990s-early 2010s) and the even wetter-behind-the-ears (born early 2010s-mid 2020s) Gen Alpha, even under-10s are on social media now, TikTok has established itself as the dominant social media.
The ‘viral video app’, whose users post and view short videos of themselves and others doing pretty much anything and everything they think might be entertaining, amusing or thought provoking, only launched in 2018. But it has had the kind of surge in awareness and popularity that is comparable to the virality of the best video clips it has been built around.
With over 800 million active users at the beginning of 2020 (that’s almost certainly grown to well over 1 billion over the first half of the year), TikTok is already officially the 6th most popular social media in the world. According to mobile data and analytics company AppAnnie, it’s been the most downloaded app of 2020.
Source: Digital in 2020
TikTok’s demographic is young. 13-17 year-olds account for over a fifth of all users:
- Age 13-17: 27%
- Age 18-24: 42%
- Age 25-34: 16%
- Age 35-44: 8%
- Age 45-54: 3%
- Age 55+: 4%
TikTok’s parent company Bytedance is now worth somewhere between an estimated $80 billion and $100 billion, making it the most valuable private company in the world, a title long held by Uber.
The United States only accounts for a 5% share of TikTok’s global audience, but its popularity in the country, and elsewhere in the developed world, is showing exponential growth. There were around 30 million TikTok users in the USA at the end of 2019 and year-on-year growth figures are reported at 375% and rising. The TikTok app has regularly been the most downloaded non-game app in the U.S. over the past year. Some estimates say there are now 100 million active users in the country.
TikTok Has Broken The Mould By Being Chinese-Owned And Not A Product Of Silicon Valley
In the context of this article, the most notable aspect of TikTok’s rapid rise in popularity is the relative uniqueness of its ownership. Until now, every other major social media popular in developed economies outside of (especially Chinese-speaking or culturally close) Asia, have been products of (or at least bankrolled by) Silicon Valley.
The complex and intimate relationship between large social media platforms and their users’ personal data is controversial for American companies. Facebook especially has often stood accused of manipulating access to and then exploiting its users’ personal data to make more money from better targeted advertising.
That’s been particularly controversial when accompanied by the suspicion advertisers spending money to target social media users based on detailed digital profiles may have political goals and interests. Facebook and other U.S.-owned social media selling advertising more effectively targeted thanks to personal user data that has been collected by means often perceived as underhand has attracted plenty of criticism. Especially because there is a strong suspicion social media companies, especially Facebook, have not made as much effort as they could to ethically screen advertisers.
But the reality is, the revelation that large, capitalist corporations may sometimes deviate from a strict interpretation of ethical business standards where their bottom line is in question, has limited shock factor. Activists may make some noise and a social majority may even have a vague sense they are probably right. But keep on using popular social media that have become a fixture of leisure time, indulging in data-harvesting games and apps and occasionally clicking on well-targeted ads.
Against that backdrop, reports that TikTok gathers reams of data on its active users should come as little surprise. It is, after all, a social media that is free to use and monetised by owner ByteDance through digital advertising. TikTok ranks 6th for consumer spending across all applications worldwide, ahead of Disney+.
The difference is TikTok’s parent company is from Beijing, not Silicon Valley. Rightly or wrongly, it is that fact that has been weaponised by the Trump administration, which last week said TikTok posed “significant threats to national security”.
That dramatic assertion was part of an executive order issued by President Trump, instructing U.S.-owned companies to break off all business ties with TikTok and Tencent-owned WeChat, before mid-September. The data being gathered by the apps could potentially, the same executive order went on to say, be used to
“track the locations of federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.”
Is The USA’s Concern Over A Potential Sinister Side To A Chinese-Owned Viral Video App Justified Or Scaremongering To Justify Trade Protectionism?
TikTok’s response to the recent accusations from the Trump administration that it may well be offering Chinese State access to personal information it gathers on users is that it has done everything right and should be trusted. It says user profiles are held on servers located in Singapore and the USA, not China. And it insists it would not hand that data over even if directly ordered by Beijing to do so.
That’s what TikTok says. But the less trusting point to the app’s privacy policy as highlighting a more opaque reality. Its Ts & Cs read
“We may share your information with a parent, subsidiary or other affiliate of our corporate group”.
That parent is Bytedance, the 8-year-old internet giant based in Beijing and operating under China’s national security laws. Those laws say internet companies must hand over data to the State, if asked to do so.
While legal experts might debate if these laws apply to data held outside of China, such finer details are unlikely to matter if an authoritarian state like China’s, with no independent judiciary, were to make the request. Bytedance’s 37-year-old founder Zhang Yiming would most probably practically have a straight choice between complying and prison.
Whether or not Beijing ever has, or will, ask for access to the data TikTok has on millions of American teens and tweens is almost besides the point. The theoretical possibility that it could is enough for the Trump administration to extend its U.S.-Sinai trade war to a social media app that threatens Silicon Valley’s hegemony of the domestic digital economy.
Internationally, China’s tech giants of Alibaba, Baidu and Tencent, and to a lesser but growing extent Bytedance and handful of other Chinese-owned start-ups, are now in active competition with U.S. rivals for market share. Silicon Valley companies dominate in the West and China’s big tech equivalents in the huge market of the Chinese-speaking world.
For a decade or so, both sides were more or less content with that market split. But market pressure to keep growing has seen the big tech beasts of both Silicon Valley and China aggressively target large emerging markets such as India and Brazil. It is there they are now, for the first time, in active competition with each other.
But its Chinese-owned TikTok’s success in breaking into the top tier of the domestic U.S. app market that has really set alarm bells ringing and provoked the current protectionist backlash. A healthy level of suspicion around the economic strategy of China’s authoritarian regime may well be justified. But it would also probably be naïve to think recent actions taken to clip TikTok’s wings are not also, if not predominantly, politically and economically motivated.
But the way TikTok works does open the app up to criticism. While most social media mainly deliver posts published by people or organisations users follow, or those of targets advertisers, TikTok’s algorithms serve the videos they consider most likely to go viral. This has lead to the accusation the app is free to promote whatever videos chooses, which could potentially include those that spread disinformation and propaganda.
On the flip side, information could also be prevented from circulating. Last year there was a leak of internal TikTok guidance to moderators, instructing them to censor content on Tiananmen Square and Tibetan independence. There have been accusations that content related to the Black Lives Matter movement and protests against police brutality and institutional racism was supressed by TikTok in the wake of the death of George Floyd.
Where Does Microsoft Fit In? Why Is It The Favoured Buyer Of TikTok’s North American Business?
For the Trump administration, TikTok’s sale of its USA, Canada, Australia and New Zealand unit to Microsoft would be a valuable win it wants ahead of the November elections. It’s effectively forcing a sale by offering the ultimatum between that and an outright ban of TikTok in the USA.
Microsoft as a buyer makes sense politically because the company has had less run-ins with Congress and regulators on anti-trust and privacy issues than its big tech rivals. For Microsoft itself, the deal would make sense as a relatively cheap way to buy itself into a social media landscape it has so far failed to crack internally. The Trump administration has set a mid-September deadline for a deal to be finalised.
The trickier questions to answer is what the relationship between the rest of TikTok and a Microsoft-owned spin-off operating in the USA and 3 other English-speaking markets, would be? As well as how the deal would be structured financially. Microsoft would have to license TikTok’s algorithms, which are considered the biggest factor in the app’s viral success.
The licensing agreement reached, and details such as the cut of future ad revenues for ByteDance, remains to be negotiated and will determine the size of the upfront payment made by Microsoft. A figure somewhere between $15 billion and $30 billion has been mooted.
Microsoft’s shareholders are enthusiastic about the possible deal, demonstrated by a 5% leap in the company’s share price early last week. But a move into social media also poses risks as well as potentially lucrative new opportunities.
Microsoft has largely avoided the same level of intense regulatory scrutiny applied to Facebook, Google, Amazon and Apple. That would change if it owned a social network, especially if President Trump decides TikTok’s algorithm is favouring the Democrat candidate in the run up to November’s election.
Microsoft’s bet is that it can turn TikTok, which has only just started to monetise the network it has built, into the next great media powerhouse. But there is plenty of risk involved, other than intensified regulatory scrutiny. The company has little to no social media experience and a host of copy-cat rivals to TikTok are springing up.
Some are new video-sharing apps by established social media, like Reels, which was last week launched by Instagram. Others, like Triller and StoryFire, are independent start-ups. Young TikTok star ‘creator’, Josh Richards, who has 20 million followers on the app, has been hired as Triller’s “chief strategy officer”, and has invested in the app.
He says he was motivated
“by the US and other countries’ governments’ concerns over TikTok”, adding “given my responsibility to protect and lead my followers and other influencers, I followed my instincts as an entrepreneur and made it my mission to find a solution.”
He is also hedging his bets, posting over 20 videos on TikTok since announcing his switch to Triller.
Will China Hit Back?
Unless there is a late twist, Microsoft will be the new owner of TikTok in the USA, Canada, Australia and New Zealand sooner rather than later. But neither ByteDance nor Beijing are happy about the forced sale.
The bigger story for big tech in the USA will be how China responds to Trump’s escalation of his trade war with China by opening up a new front in the battle for the global digital economy.