ByteDance would rather shut TikTok in the US than sell it – all thanks to its ‘secret sauce’

In the worst case scenario, ByteDance would rather shut its loss-making app, TikTok, in the US than sell it. This comes after US President Joe Biden signed a bill banning the short-video app in the country unless it is sold to any company in the US within a year. Meanwhile, TikTok CEO Shou Zi Chew expects to win a legal challenge to block legislation. 

According to a report in Reuters that quoted four sources, if ByteDance exhausts all legal options to fight the legislation then it would rather shut down the app. Then there is the matter of its algorithms, which ByteDance deems core to its overall operations – another reason to hold on to the app, instead of selling it away. 

BYTEDANCE IN NO MOOD TO SELL TIKTOK

TikTok only contributes a small share of ByteDance’s total revenues and daily active users, so it would rather not go the length of selling it in the US to a local company, seeing as a shutdown would have a limited impact on the parent company’s business and it would not have to give away the precious core algorithm. 

The Chinese parent company also made it abundantly clear that they have no plans to sell TikTok after a report stated that they are looking to sell TikTok’s US business without the algorithm that recommends videos to users. 

The bill to ban TikTok in the US unless it is sold to a company in America was passed overwhelmingly by the US Senate on Tuesday. This bill was passed amid concerns that China would access Americans’ data or use the app for surveillance. TikTok is used by 170 million Americans so far. A source told the news agency that the US accounted for 25 per cent of TikTok’s overall revenues last year.

Biden set a deadline of January 19, a day before his term ends, but said could extend the deadline by three months if he determines ByteDance is making progress. 

WHAT’S IN THE ALGORITHM

TikTok shares the same core algorithm with other domestic apps by ByteDance such as short-video platform Douyin, as per three sources. Its algorithms are better than its rivals Tencent and Xiaohongshu, said a source. 

Detangling TikTok from its algorithms, registered under ByteDance’s intellectual property licence in China, would be near impossible, said the sources, not to mention, it would be an extremely complicated procedure. ByteDance would hence, not like to sell its “secret sauce” to rivals, the sources said.

Apart from the algorithms, TikTok's main assets also include user data and product operations and management, said two of the people.

Former US Treasury Secretary Steven Mnuchin expressed interest in putting together an investor group to try and buy TikTok, but without the algorithms there might be no buyers altogether. 

ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co, General Atlantic and others, was valued at $268 billion in December.