TikTok is a popular short-form video app owned by the Chinese company ByteDance. Originally launched in 2016 as Douyin in China, TikTok was introduced to the international market the following year. Within a few years, TikTok became one of the world’s fastest growing social media platforms, with over 1 billion monthly active users as of September 2021.
TikTok’s core feature allows users to create and share 15 to 60 second videos set to music and augmented with filters and effects. The app’s algorithm is exceptionally effective at profiling users and recommending addictively entertaining short videos based on each person’s interests and engagement. This has led to TikTok’s explosive growth, especially among younger demographics.
TikTok’s Valuation
TikTok’s valuation has skyrocketed in recent years. In 2018, ByteDance, the Chinese company that owns TikTok, was valued at $75 billion. Just two years later, analysts estimated TikTok’s standalone valuation between $50-60 billion (https://routenote.com/blog/bytedance-the-company-behind-tiktok-looks-to-180-billion-valuation/).
As of late 2020, ByteDance was seeking investments that would value the company at $180 billion before its planned initial public offering (IPO). At that valuation, ByteDance would be worth more than companies like Intel and Cisco (https://routenote.com/blog/tag/tiktok-valuation-2020/).
TikTok’s massive growth, especially during the COVID-19 pandemic, has made it one of the most valuable private technology companies in the world. With over 100 million monthly active users in the U.S. alone, TikTok has leveraged its viral videos and algorithmic recommendations to become a top social media contender.
Acquisition Offers
In 2020, several major U.S. companies entered negotiations to acquire TikTok amid threats from the Trump administration to ban the app. Microsoft emerged as an early frontrunner, with CEO Satya Nadella reportedly speaking directly to President Trump about a potential deal. As reported by The New York Times, Microsoft proposed acquiring TikTok’s operations in the U.S., Canada, Australia, and New Zealand for an estimated $50 billion.
However, in September 2020 ByteDance announced it had rejected Microsoft’s offer and instead chosen Oracle as TikTok’s “trusted technology provider” in the U.S. As reported by Reuters, this partnership deal involved Oracle housing TikTok’s U.S. user data on its cloud infrastructure. Walmart also partnered with Oracle on a potential acquisition bid.
Ultimately, a full sale of TikTok never materialized. But Oracle’s cloud hosting deal allowed TikTok to continue operating in the U.S. while assuaging data privacy concerns raised by the Trump administration.
Trump Administration Pressure
In 2020, the Trump administration raised national security concerns over TikTok’s ties to China and the potential risks around data privacy. President Trump signed an executive order in August 2020 prohibiting transactions with ByteDance, TikTok’s parent company, citing concerns that data from US TikTok users could be accessed by the Chinese government. The order alleged that TikTok “automatically captures vast swaths of information from its users,” posing risks of blackmail and corporate espionage.
Trump’s executive order referenced the International Emergency Economic Powers Act, banning any transactions with ByteDance. It claimed TikTok may share US user data with the Chinese Communist Party, threatening to undermine US national security. The order set a deadline for ByteDance to divest its US TikTok operations and data.
TikTok vehemently denied the allegations of data sharing with China. However, the pressure from the Trump administration sparked acquisition talks with US tech firms in an effort to alleviate data privacy concerns. TikTok even threatened legal action against Trump’s executive order before reaching a deal to partner with Oracle.
TikTok’s Response
TikTok has made sustained efforts to distance itself from its Chinese ownership amid growing pressure from the U.S. government. TikTok emphasizes that its U.S. user data is stored on servers in the U.S. and Singapore, not China. In May 2020, TikTok also hired Disney executive Kevin Mayer as its CEO in a move aimed at assuaging U.S. regulatory concerns over Chinese control of the app (Source). However, Mayer resigned just three months later as tensions rose.
TikTok has claimed it operates independently from its Chinese parent company ByteDance. However, former TikTok employees have said final authority rests with ByteDance’s Beijing headquarters (Source). TikTok maintains its operations are not influenced by the Chinese government despite Chinese laws that require companies to support and cooperate with intelligence work.
Oracle Partnership Details
In mid-September 2020, Oracle announced a partnership with TikTok to become the “trusted technology provider” for TikTok’s US operations. According to the proposed deal, Oracle would store all US TikTok user data on Oracle Cloud servers located in the United States. This aims to address national security concerns around TikTok’s Chinese ownership and data privacy.
Under the proposed terms, Oracle would become a minority investor in TikTok Global, a new US-based company that would be formed. TikTok Global would be majority owned by American investors, and ByteDance, TikTok’s current Chinese owner, would retain a minority stake. The exact breakdown of ownership stakes was not disclosed.
The partnership initially received tentative approval from President Trump. However, details were still being negotiated, and China would need to approve ByteDance shedding TikTok’s US operations. Experts cautioned the partnership was by no means finalized.
Microsoft Bid
In August 2020, Microsoft announced a bid to acquire TikTok’s services in the United States, Canada, Australia and New Zealand in a deal worth between $10 billion and $30 billion. Microsoft’s bid came after President Trump issued an executive order for ByteDance to divest TikTok’s US operations and data within 90 days over national security concerns. According to reports, Microsoft sought to buy TikTok’s operations in certain countries, but ByteDance was not willing to sell only a portion of its business.
Microsoft had given ByteDance a deadline of September 15, 2020 to reach a deal, but the deadline passed without an agreement. ByteDance rejected the deadline, saying it would not be rushed into a deal. One key sticking point in the negotiations was that ByteDance was unwilling to sell the TikTok algorithm, which powers the app’s content recommendations engine. Microsoft wanted full ownership and control of TikTok in the regions it was acquiring, while ByteDance wanted to maintain some stake in the business.
Ultimately the deal fell through, with Microsoft saying its proposal was rejected by ByteDance. Microsoft said it would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation. Though Microsoft did not acquire TikTok, the episode highlighted the company’s interest in consumer social media services beyond LinkedIn.
Sources:
https://www.geekwire.com/2023/microsoft-buying-tiktok-wouldnt-be-so-strange-after-all-heres-why-it-still-wont-happen/
https://www.geekwire.com/2020/microsoft-wanted-tiktok-deal-bid-hit-social-video-app-didnt-pan/
Other Bidders
In addition to Microsoft and Oracle, several other major technology firms have expressed interest in acquiring TikTok’s U.S. operations. Twitter was reported to be in preliminary talks with TikTok, but eventually pulled out after reviewing the company’s algorithms and data security protocols. Facebook also looked into acquiring TikTok, but ultimately decided against making an offer due to anticipated antitrust scrutiny and other issues.
Some private equity firms like Sequoia Capital and General Atlantic, which already have investments in TikTok’s parent company ByteDance, have partnered with Microsoft on its bid. Other technology investment firms like SoftBank and DST Global have also considered teaming up on a bid. However, no other company has made a formal acquisition offer beyond the partnership between Oracle and ByteDance.
While there was quite a bit of initial interest, the complicated geopolitical factors, as well as the tight timeline imposed by the Trump administration for a sale of TikTok, have made it difficult for other bidders to emerge.
Geopolitical Factors
TikTok has become embroiled in the broader tensions between the United States and China. The app’s Chinese ownership has raised concerns in Washington about data privacy and censorship. Some lawmakers see TikTok as a potential tool for espionage or propaganda by the Chinese government. These fears have grown as US-China relations have deteriorated in recent years across trade, technology, and security issues.
In 2020, then-President Trump threatened to ban TikTok in the US unless it was sold to an American company. Trump cited national security concerns and criticized TikTok’s ties to China. After tense negotiations, TikTok’s parent company ByteDance reached a deal to partner with Oracle and Walmart to create a new entity called TikTok Global. However, the deal fell through after President Biden took office in 2021.
While the outright TikTok ban never materialized, the app remains a focal point in the technology rivalry between the US and China. US officials continue to voice concerns about TikTok’s data and algorithm practices. At the same time, China sees Washington’s targeting of TikTok as an attempt to thwart the rise of Chinese tech companies and influence. This larger clash for tech dominance is fueling much of the ongoing scrutiny around TikTok.
Sources:
TikTok: A Casualty of US-China Geopolitical and Economic Tensions?
https://policyreview.info/articles/analysis/geopolitics-platforms-tiktok-challenge
Conclusion
Based on the valuation estimates and bids made public so far, industry experts predict the likely sale price for TikTok to fall between $50-60 billion. Given the app’s tremendous growth, reach, and untapped revenue potential in areas like ecommerce, most expect TikTok’s value to continue rising. While an outright sale to a U.S. tech giant like Microsoft remains unlikely due to data security concerns, the most probable outcome involves TikTok partnering with a trusted U.S. entity like Oracle. This would allow TikTok to maintain control and independence while assuaging government regulators.
Though the specific details remain uncertain, TikTok is poised to solidify its position as a leading social media platform in the years ahead. With over 1 billion monthly active users worldwide, TikTok has already transformed entertainment, marketing, and online culture. As TikTok expands its ecommerce capabilities via TikTok Shop and social commerce, its creators and brands stand to capitalize on immense new opportunities. Despite ongoing geopolitical tensions, TikTok’s future looks bright.