ByteDance Exploring Scenarios for Selling TikTok Without Algorithm
ByteDance is internally exploring scenarios for selling a majority stake in TikTok’s U.S. business, preferably to companies outside the tech industry, and without the algorithm that recommends videos to TikTok users, said three people with knowledge of the deliberations.
ByteDance’s internal discussions come as President Joe Biden on Wednesday signed into law a requirement that TikTok cut its ties with ByteDance within nine to 12 months or face a U.S. ban. TikTok is planning to fight the law in court, the company has said, defending the First Amendment rights of the app’s users. As a backup option in case ByteDance loses the lawsuit, staffers have been plotting out scenarios for the potential divestiture of TikTok.
The Takeaway
• ByteDance’s corporate strategy team is considering sale scenarios
• Sale is backup option to legal challenge
• ByteDance doesn’t want to sell to “tech-centric” firm
Staffers involved in the discussions include the corporate strategy team led by Zhao Pengyuan, the people said. Zhao’s strategy team is responsible for providing industry and business research based on management requests. Zhao reports to Bytedance CEO Liang Rubo.
One scenario under discussion involves ByteDance selling more than 50% of TikTok U.S. but retaining a minority stake. ByteDance could retain 20%, the limit that the law puts on Chinese ownership. ByteDance hasn’t reached out to potential buyers, said one of the people.
TikTok in its entirety could theoretically fetch as much as $100 billion, given social media valuations. The U.S. portion would be less, while the forced nature of any sale would also likely reduce the price.
A ByteDance spokesperson said “This is categorically untrue. Pengyuan’s team doesn’t have that responsibility and has not worked on any plans for the scenarios discussed.”
The internal discussions suggest ByteDance executives want to do whatever they can to avoid a ban of the app in the U.S., which would severely hobble its global potential as a business. TikTok last year generated about $20 billion in revenue, mostly from advertising, with the bulk of that coming from the U.S. Executives see shutting down TikTok in the U.S. as a last resort, two of the people said, noting that it would set a bad precedent for other Chinese tech firms that want to operate in the U.S.
The sale options being discussed wouldn’t include the algorithm that powers TikTok, but it would include the TikTok brand. China would probably block the sale of the algorithm anyway. In 2020, when ByteDance last considered selling TikTok, China changed its export control rules to include technology such as the algorithm.
The sale scenarios being discussed also prioritize selling to a company that isn't directly involved in the tech industry, two of the people said. That would exclude, for instance, tech companies such as Oracle and Microsoft, which both made offers in 2020 when it briefly conducted an auction of TikTok in the face of a threatened ban of the app by then-President Donald Trump, the people said.
Both tech companies are seen to be in the crosshairs of both China and the U.S., which would complicate the sale of TikTok to either party. If ByteDance stuck to this approach in any sale discussions, it could open the door for Walmart, which was involved in a bid with Oracle for TikTok in 2020. (It’s not clear whether Walmart, Oracle or Microsoft would be interested. Neither Oracle nor Walmart responded to a request for comment. Microsoft declined to comment.)
While the likely steep price of TikTok could pose an issue for many buyers, ByteDance could reduce the cash cost by spinning off TikTok into a new company owned partly by U.S. investors that already own about 60% of ByteDance.
But without the algorithm, TikTok may have limited appeal to buyers. A potential purchaser would need to rebuild its back end, which would require expensive and hard-to-acquire computing resources. Many of the staff engineering TikTok’s algorithm work at ByteDance, meaning a purchaser would also need to staff up in a competitive market for machine-learning engineers.
It’s not clear whether China would allow a sale of any part of TikTok. The Chinese government and state media have criticized the law. China’s Ministry of Commerce said last month that China would “take all necessary measures” to protect its rights and interests in response to a question about the bill, and the country’s state-run English-language newspaper China Daily called it “another attempt at theft on a grand scale.”
Publicly, TikTok has positioned the bill as an outright ban. “This unconstitutional law is a TikTok ban, and we will challenge it in court,” the company’s policy team posted on X on Wednesday.