Who owns TikTok?
By Erik Wernberg-Tougaard
While most people have now heard of Tiktok, few people are familiar with its parent company, Bytedance.
How did Bytedance become the world’s highest valued internet startup AND A MAJOR COMPETITOR TO INCUMBENTS SUCH AS GOOGLE, FACEBOOK AND TWITTER? HOW DOES BYTEDANCE’S ALGORITHM WORK, AND HOW DOES THE COMPANY DEAL WITH PRIVACY AND DATA PROTECTION. THESE ARE SOME OF THE QUESTIONS WE ANSWER IN THIS BLOGPOST.
STICK TO THE END FOR MORE ON MICROSOFT´S AND ORACLE’S INTEREST IN BUYING TIKTOK, AND WHY THE TRUMP ADMINISTRATION AND THE CHINESE GOVERNMENT GOT INVOLVED
The rise of Bytedance
Bytedance was founded in 2012 by the Chinese internet entrepreneur Zhang Yiming, and since then the company has been one of the fastest growing companies in the world. According to the Hurun Global Unicorn Index 2020, Bytedance is the second largest unicorn in the world with a valuation of 80 billion USD, and its popular video-sharing app, TikTok, has been downloaded more than 2 billion times globally as of today. With more than 110 million downloads this year alone, TikTok has taken up the spot as the world’s most downloaded app in 2020 thus far. TikTok is available in more than 150 countries, and has an estimated 800 million monthly active users as of July 2020.
In 2019, Bytedance had a revenue of 17 billion USD, up from 7.4 billion USD in 2018. That is, within eight years since Bytedance was founded, it has reached a revenue of more than twice the one that Google reached within its first eight years.
From turner.substack.com
What is Bytedance known for?
Bytedance’s most well-known platform is TikTok. The Chinese counterpart is called Douyin, but there are multiple other companies within the Bytedance ecosystem that count news aggregators and other video platforms.
Source: GGV Capital, Cheetah lab
Jinri Toutiao
Bytedance started off with its news aggregator app “Jinri Toutiao” – Today’s Headlines – which is China's largest news platform. Every day, more than 200 million users open Jinri Toutiao to get customized news that are aggregated and presented by an artificial intelligence, that feed from more than 4,000 news outlets. There are no editors or journalists behind the selection, just an advanced algorithm that can identify user consumption patterns and recommend news based on the users interests. Users spend a daily average of 76 minutes on the platform, nearly twice as long as Facebook, Instagram, and Snapchat. This makes it very attractive for advertisers who can target ads very precisely based on user data (such as age, location and interests) and the bulk of Bytedance’s revenue also comes from this.
In May 2015, Bytedance started to move into the short-video business, initially launching Toutiao’s video channel. On the channel, individual users can create and upload movies, and in 2016, Toutiao’s videos were watched over 1 billion times a day on average, making it China’s largest broadcast platform of short videos back then. However, it became clear to Bytedance, that Toutiao’s monthly active users had reached its maturity, and that Bytedance needed new services. This was Bytedance’s first step towards creating its video-sharing apps TikTok and Douyin.
Modified from turner.substack.com
Tiktok and Douyin
In September 2016, Bytedance used its now well-tested recommendation algorithm to launch Douyin (In China) and TikTok (Outside China, primarily US). On TikTok, users can record small videos by mimicking and dancing to a piece of music and customize it with filters and graphic twists.
Like Jinri Toutiao, TikTok relies on the users app behaviour to create a user profile, to whom it can present customized advertisement. TikTok and Douyin has skyrocketed in users, and Bytedance has also bought Musical.ly, a Shanghai-based short lip-sync and comedy videos app which had gained a lot of traction in the US. In addition, Bytedance has also bought the Indian news platform Dailyhunt and runs the English language platform ‘TopBuzz’.
How advanced is the algorithm?
At the core of Bytedance is its very advanced algorithm that works based on machine learning, artificial intelligence and big data. Bytedance algorithm – which is the sequence of instructions that prepare what goes into your news feed – has been developed since Jinri Toutiao, and today it is generally viewed as one of the most sophisticated on the market. This is probably why Bytedance’s apps are so addictive to consumers. The short-video format of TikTok for instance, makes it very easy for consumers to open the app to “just have a quick look at a video”. However, this often ends up in long sessions on the app, which feed the algorithm to become better. This kind of “bite-sized” content has been a very important part of Bytedance’s rapid growth.
The more users, and the longer use-sessions, the better the algorithm gets. That is how machine learning works. And the algorithms can be trained very fast: While it will take you 10 minutes to watch one video on Youtube, the same time can be spent watching 40 15-seconds videos on TikTok. And the algorithm learns quickly this way. The algorithm has multiple inputs which it weighs when deciding what video to pop up next time. These include watch-length, re-watches, likes, shares, comments, and multiple other inputs, that the algorithm uses to give you “what you need, when you need it”, to suck in and retain as many users as possible.
Privacy and Data Protection
You cannot mention TikTok without mentioning privacy and data concerns, which has taken up a fair share of the debate about TikTok in the media. The company has faced increased scrutiny from US lawmakers, concerned that TikTok is sharing (American) user’s personal information with the Chinese government, and Mike Pompeo, the US Secretary of State, has stated that Tiktok puts “your private information in the hands of the Communist Party”. Also in Denmark, experts has warned (In Danish) that the app may be collecting “so much data that you should basically imagine a person in the corner watching over your screen, following everything you do.”
All over the world, authorities are starting to investigate TikTok due to privacy concerns. On 30th of June 2020, the Danish Data Protection Agency has initiated an investigation that seeks to assess to what degree TikTok is living up to the GDPR requirements of the EU. India has banned TikTok together with 100 other apps with linkages to China. France data watchdog, CNIL, has also decided to take a closer look at how TikTok deals with transparency requirements, user data, and what steps TikTok takes to ensure the data of minors is adequately protected. And the list goes on.
As a reaction to all of this criticism and concern, TikTok has announced that it will open a ‘transparency centre’, which will overlook its privacy and security issues. And according to a comprehensive study of TikTok’s data flows, done by the Wall Street Journal, there were no direct signs of TikTok communicating or sharing private data with the Chinese authorities. As with the case of Huawei, it is thus very hard to confirm or disconfirm such linkages.
TikTok has also been under heavy criticism for being subject to censorship from the Chinese government, which discourages TikTok from mentioning ‘sensitive topics’ such as Tibet or the student demonstrations at Tiananmen Square. Furthermore, the apps algorithm has been criticised for discriminating against things such as race and obesity, and has also been found to promote sexualised content. With a user base mainly consisting of young kids, tweens and teenagers, being exposed to such content is problematic.
Bytedance goes international
Bytedance is probably Google’s and Facebook’s fastest rising competitor in recent time. Its user base covers the world’s two largest economies, at a scale much larger than any other digital advertising company. According to the founder Zhang Yiming, the primary strategy of Bytedance is to eliminate the need for searching, but rather be able to serve users exactly what they want, when they want it. This stands in clear contrast to how companies such as Google and Amazon work, where the search engine is at the core of the business.
The products from Google and Amazon, are built for computer use, whereas Bytedance’s DNA is originally built for mobiles. In China, users spend far more time on their mobiles, than they do on their computers, and therefore creating for mobile is crucial. This means that the whole design and layout is better suited for mobile users.
From turner.substack.com
The clock is Tik-Toking
On August 6th, Trump signed an executive order that gave Bytedance, the owner of TikTok, 45 days to sell or spin off its TikTok operations in the US or face a ban, citing national security reasons. Microsoft said it was prepared to explore a purchase of TikTok in the US, Canada, Australia and New Zealand and has been negotiating a deal together with Walmart. But instead, TikTok is making the corporate technology company Oracle its business partner in the United States. Oracle will act as a trusted tech partner and handle the data of American TikTok users.
According to CNN Donald Trump has already indicated that he would support a deal between Oracle and TikTok. There is no doubt that partnering with Oracle is a strategically smart move for TikTok as the cofounder Larry Ellison is one of the few Silicon Valley tech leaders who supports Trump’s administration.
China gets involved
The Chinese government is well-known for interfering in transactions, if things do not go in accordance with their wishes. And this time is no different. The Chinese government has established export rules that will complicate the deal with TikTok. By updating its export controls list to include some artificial-intelligence technology, TikTok’s personalized recommendation algorithm is probably included on the list, according to the Wall Street Journal. In this way, the Chinese government has put themselves in a central position to control the technological war.
As James Lewis, of the Center for Strategic and International Studies in Washington D.C states, puts it, TikTok’s most valuable part is its algorithm:
“You could buy the brand [TikTok] and the user data without the algorithm, but the algorithm is the most valuable part of TikTok and the secret of its success,”
Both offers from Microsoft/Walmart and Oracle respectively, have factored in the value of the algorithm in their bids. But according to Chinese state media CGTN the partnership does not appear to involve TikTok’s algorithm and ByteDance is not selling TikTok’s US operations.