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Walmart-Microsoft alliance against 'Chinese magic': why TikTok may not survive its sale to Americans

28 August 2020, 19:17

Can the new owner recreate the phenomenon of the Chinese app, and what paths of development does TikTok have after the sale?

U.S. President Donald Trump issued an order on a ban on TikTok operating in the U.S. from late October 2020, unless the app is bought by an American company beforehand. Officially, this is explained by concerns that the company is transferring user data to the Chinese government. Unofficially, it is suspected that Trump is simply taking revenge for trolling by TikTok.

But even a sale may fail to save the popular app, believes The Verge columnist Casey Newton. Here is a translation of his column for the publication dated August 28.

TikTok has problems. In less than a day, the company lost its CEO and gained a new candidate to buy it. In essence, it will take only a few days after the deal for an updated app to appear on the market, but the commotion around the ban and the sale may inflict irreparable damage on the company.

First, the CEO. In May 2020, Disney executive Kevin Mayer left the company to become chief operating officer of the Chinese company ByteDance and CEO of TikTok, its popular subsidiary in the U.S. He was expected to take ByteDance's product portfolio to a new level.

Mayer had successfully launched the Disney Plus service, which gained more than 50 million subscribers in less than six months. But his tenure at TikTok was "short and silent" — and ran into Trump's order requiring the company to be sold.

After a sale deal is concluded, Mayer could have kept his post as chief operating officer of the Chinese ByteDance and also become CEO of the new independent American company, but such a "combination" seems impossible.

Even if Mayer wanted to become CEO of the updated TikTok, it remains unclear what the company will look like after the sale: will it be one global organization based in the U.S., several independent companies, or a subsidiary of a large retail chain?

Either way, Mayer addressed TikTok employees in a letter, in which he said:

"In recent weeks, as the political environment has changed dramatically, I have seriously considered that corporate structural changes will be required and what they mean for the global role I signed up for. Against this background, and since we hope the situation will be resolved soon, I have with a heavy heart decided to tell you that I have decided to leave the company."

It is hard to imagine that Mayer did not expect such changes earlier. For a year, the Committee on Foreign Investment has been investigating ByteDance in the U.S., and experts were already talking in January 2020 about the growing likelihood of a forced sale of TikTok. Pressure on ByteDance to sell will only intensify while Trump is president, and it is hard to believe that Mayer did not take this into account when he agreed to the post of chief operating officer.

However, even people who are mostly used to Trump's "chaotic rule" and his whims may still be surprised by yet another order. Of course, if the president had not thought of opposing ByteDance before the elections, Mayer could have worked in his post longer and more productively. But now he will become a strange "footnote" in the history of TikTok and of everything that happens to the company.

Mayer's post as CEO will be taken over by General Manager for North America — Vanessa Pappas, former head of YouTube.

Second, it is still unclear who will own TikTok. And today a new strange "contender" for the purchase has emerged. Two popular American brands, Microsoft and Walmart, have joined forces to bid together.

The Walmart retail chain said that with the help of TikTok it expects to expand its advertising business and third-party areas. How exactly the company will use the app has not been disclosed. And since nothing specific or promising about such a partnership is known, the situation looks like a losing one for TikTok.

Nevertheless, the Microsoft-Walmart pair still seems more preferable than another major contender for the purchase — Oracle of Larry Ellison, whose efforts are entirely aimed at flattering the presidential ego.

What are the possible paths of development for TikTok?

According to participants in the negotiations, the deal with Microsoft and Walmart could build on the retail chain's experience in digital sales and turn TikTok into a kind of e-commerce app for both creators and users. This could make TikTok more similar to Douyin, the Chinese video app from ByteDance that resembles TikTok and already has e-commerce integrated.

A deal with Oracle, a company that develops enterprise software, would rather be a game with data. According to sources, Oracle could use TikTok's data on social interactions for the benefit of its cloud, information and advertising business.

Thus, the most dynamic consumer app at the moment seems destined to fall into the hands of one or another company that produces corporate software.

Microsoft has shown that it can acquire large consumer properties and keep them stable. Some people may not even know that Microsoft owns Minecraft or LinkedIn. But TikTok's task promises to be much harder — the company will somehow have to recreate ByteDance's powerful algorithmic feed, develop a steady stream of new features and capabilities to keep influencers engaged, and withstand fierce competition from Facebook, Snapchat and many other apps.

In the past, TikTok managed to cope with many problems by relying on the experienced and purposeful ByteDance team, which was born in an environment of hypercompetition. Nothing in the history of Microsoft, Walmart or Oracle inspires особой confidence that any of them is capable of reproducing that culture.

TikTok has always known how to surprise. But when the Trump administration finishes the "plunder" of ByteDance, it is unclear how many of the elements that made the company and the app so successful will survive. Perhaps one of the contenders for the purchase will be able to reproduce them. But it seems just as likely that they will fail to understand what made TikTok work at all.