The wild popularity of TikTok is re-igniting the debate among US officials over how the US should define and defend its national security interests against Chinese companies. The United States is not alone – India banned TikTok last month, citing similar issues, in the aftermath of a bloody skirmish with China on the border.
Having said that, there remains a subtle line between its right to share user data with Beijing and the alleged threat to US national security.In fact, the justification behind TikTok ban is vague but is rooted in anti-China sentiment that has been intensified by the recent political actions of the Chinese government, as well as China’s approach to privacy and data. So far, like with Russian anti-virus firm Kaspersky a few years before, US officials have provided little or no evidence for their claims about TikTok aside from pointing to its country of origin. That said, China’s National Intelligence Law from 2017 requires organizations and citizens to “support, assist and cooperate with the state intelligence work”, in line with which the said requests are not to be disclosed to the public. This compliance towards central government further raises tension regarding TikTok’s data management. A white paper by the cybersecurity firm Penetrum found that over one-third of the IP addresses the TikTok APK connects to are based in China and are hosted by Alibaba, another Chinese tech giant with a historically close relationship with the CPP on its policy grounds. According to the Penetrum report, “TikTok does an excessive amount of tracing on its users and that the data collected is partially if not fully stored on Chinese servers with the ISP Alibaba.”, pointing directly towards Beijing’s evident access to such tech companies’ user data.
One frequent argument is that the US should “ban” TikTok. Though a coercive ban is not a valid option under the US law, there remains is a huge toolbox the government can deploy against the app. In fact, blocking TikTok is a drastic measure. Outlawing TikTok would mean the US would be participating in the same authoritarian internet sovereignty tactics it has long criticized, and it is not clear where the line might be drawn.
As the Tech Cold War between the United States and China deteriorates, TikTok becomes a gargantuan force in the hands of Chinese CEO Zhang Yiming, and an even bigger target for the U.S President Donald Trump. In light of this, U.S tech giants also look to get a share of this action. Looking forward and seeing the real profitability prospective for TikTok over its competitors, a successful acquisition of the company could send waves through the social media space and invigorate a U.S owned influential social media network.
Worldwide, TikTok sits just behind the likes of Facebook and its related platforms, and WeChat, none which offer the unique short-burst interactive video streaming popularity. On the side of its competitors, Facebook is looking to launch its new ‘Reels’ on its Instagram platform given the large success of TikTok and is looking to sway these influencers alongside leveraging the U.S proposed ban. While the threats to the social media takeover place TikTok in a vulnerable position, it must be noted that Facebook’s ‘Reels’ have already been previously conducted, and seemingly replaced with reason, and Snapchat, another large competitor within this same market only has 382 million active users, in comparison to TikTok’s 800 million further compounded by its fractional lifetime on the social media space.
In the United States alone, there are over 45 million TikTok users, and of the internet population, this accounts for close to 50% of teenage users. Despite having a smaller followership currently in the U.S, TikTok’s acquisition in late 2016 for $1 billion has skyrocketed to its current projected 2020 revenue of $1 Billion and new bid valuation of $50 Billion by its investors. While the current valuation sits at a 50x multiplier of their current forecasted revenues, these are too expected to rise to $6 Billion for the year 2021. Under the same valuation model, TikTok sits at a valuation of $300 Billion under the identical revenue model. Comparatively, Snap projects a revenue of $2.2 Billion in 2020, however stacks a valuation of only $33 Billion.
A sound question to ask at this point is one surrounding the monetization strategy of TikTok. While still young, and grasping for an increased, strengthened popularity base, its valuation strikingly exceeds that of its near competitor. Currently, TikTok’s wealth generation stream flows from its in-app coin purchases which are recirculated between users and streamers and converted into digital gifts. Within the month of October 2018, this surmounted to over $3.5 million for just in- app purchases. Likewise, to its competitors such as YouTube, TikTok provides advertisements opportunities as well as paid subscription plans for exclusive content, adding depth to TikTok’s profitability.
Undoubtedly, there exists large potential for a takeover of TikTok, one by a U.S tech giant seemingly favourable given its potential cultivation of decreased trade tensions between United States and China. In spite of this, while it may be largely profitable for Zhang Yiming as well as its buyers, TikTok CEO stands strong aside his social media megalodon not to be short sold.
While TikTok’s presence in the United States becomes obscure and the ambiguity around data security and privacy continue to be explored, the form of short video sharing media will not be abandoned. The viral boom of Tiktok in 2020 has grown by 800% of monthly active users since 2018, this data is a major indication to the potential beneficials of the social media market. The social media app, Instagram has taken this opportunity to launch ‘Reels’ as an additional feature, where Instagram users can also record 15 seconds long videos and add popular background music. Making Instagram an even stronger competitor. Although Instagram views TikTok’s situation as an opportunity, Facebook on the contrary points out the concern of TikTok’s case acting as a landmark for the future of the social network industry. Mark Zuckerberg depicts the ban on Tiktok as “A really bad long-term precedent,” alluding to the potential idea of any social network being the target of another country.
In light of Trumps threat to banning Tiktok, the infrastructure of social network companies is instantly painted with a shade of fragile stability. However, there are more imminent concerns for companies in a similar position as TikTok. This category can be as broad as all Chinese owned companies that currently hold data about American users and operate in America. Another specifically targeted app is WeChat, the ‘go to’ social networking app for Chinese speaking people. Similarly, a group of WeChat users are forming together to sue Trump over this ‘unconstitutional’ ban. From the reignition of the debate surrounding potential security risks within Chinese tech companies, it reciprocates a sense of fear for using Chinese owned apps, hence possibly harming the image of all Chinese owned apps.
With countries like United States and India taking the lead in banning Tiktok, the question ‘will other countries follow?’ arises. It is safe to say, Australia remains against banning TikTok as Morrison identifies that there is “nothing at this point that would suggest to us that security interests have been compromised.” In essence, it is still too early to conclude whether TikTok is here to stay as varying company’s express interest in acquiring TikTok and TikTok’s fight to proving their data security levels persists. Ultimately, for the owner of TikTok, ByteDance will be profiting through either continuing as sole owner or selling the American operations portions off to an American tech company. Finally, Trump’s call to ban Tiktok proposes a question to ponder about, how fragile is a social network company in the eyes of a country?
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Nuoya is a second-year BCom student majoring in Economics and Finance. Absolutely love reading and always thrilled by new ideas!
Andrew is a final year Actuarial Science & Finance undergraduate at the University of Melbourne. Andrew has extensive financial sector experience, predominantly in corporate finance and fund management in Malaysia and Singapore. He has previously completed internships in Khazanah Nasional Berhad, PwC Singapore and Maybank Kim Eng Investment Bank. His responsibilities ranging from creating deal marketing materials, potential investors screening to Investor Memorandum, financial models and valuation.
Annie is a second-year student studying a Bachelor of Commerce majoring in Finance and Economics/ Diploma of Computing. Who is highly interested in growth of the technology economy, financial / housing markets and tennis.
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