TikTok — When Geopolitics Trumps Tech Innovation

In the past two months, I’ve received dozens of inquiries about TikTok. While the case is still unsettled, I wanted to summarize some of my comments into this blog post.

Is banning TikTok in the US “tik for tac”?

Not really. People often compare the US government’s handling of TikTok with the Facebook and Google situation in China. But these are two very different situations: Facebook and Google made their own decisions not to comply with Chinese government’s data censorship regulation that is the prerequisite to operate in China. While TikTok is willing to and so far proved to comply with relevant regulations in the US, but the US government still doesn’t allow it to operate in the country, unless it’s no longer a Chinese company.

What happened to TikTok in Hong Kong and India?

TikTok has officially pulled out of Hong Kong, but consumers can use its Chinese version Douyin. TikTok and Douyin are two separate apps and subsidiaries owned by Bytedance, to serve international and domestic markets respectively. This positioning has always been clear to its domestic and overseas users. Like any business, TikTok has to comply with data security and privacy regulations in each market it operates in. TikTok’s Hong Kong decision makes sense since Douyin would be more applicable to Hong Kong than TikTok.

India has banned 59 Chinese mobile apps including TikTok. This is also a geopolitical move and TikTok couldn’t do much about it. Losing the Indian market is tough for TikTok, but the damage is not as hard as if losing the US market. The US is TikTok’s second largest market after India in terms of downloads. But in terms of monetization, the US market is significantly more important than India. According to Forrester Analytics: Social Media Advertising Forecast, 2019 To 2023 (Global), the social media advertising spending in 2020 will reach $37.374 billion in the US, while only $1.673 billion USD in India.

What can TikTok and other Chinese tech firms do to react to the geopolitical impact?

TikTok can do is to reinforce its compliance of data regulations and respect and protect consumer data privacy in each and every market it operates in.

It would be hard to predict if the geopolitical impact would be short- or long-term. But two trends are clear:

  1. Consumers all over the world are becoming more privacy-aware. They are raising their expectations of these companies to respect consumer data privacy, and will “break up” with companies who fail to meet their expectations and will only engage with companies that they can trust. It doesn’t just apply to TikTok or other Chinese apps, but Western ones like Facebook too.
  2. It will change the global expansion mindset and strategy of Chinese companies. When the geopolitical environment is less friendly, Chinese companies that aim for global expansion should increase the variety of their investment, in terms of both market selection and investment methods, such as mixing indirect investment in local businesses with direct operations.

How will it change Chinese and other foreign companies’ strategies in the US?

It will discourage Chinese and possibly other foreign companies to invest in the US, because it has lost its charm as a fair business environment. On the other hand, countries like Singapore have been enforcing a position as neutral and independent markets that provide fair business and investment environments, which could become more attractive to Chinese and other foreign companies and investors.

Why does TikTok matter to marketers? What does it mean for them?

The allure of the TikTok platform to marketers relies on its popularity among young consumers, especially teenagers, as well as higher engagement rates compared to other platforms (see figure).

(Source: Influencer Marketing Hub)

Marketers should carefully review social platforms’ data privacy policies and evaluate previous cases of any misusage of consumer data, rather than make a call by who owns the company. Most consumers and marketers would understand it’s a geopolitical issue rather than a real data privacy scandal like Facebook–Cambridge Analytica incidence. As we know, TikTok users are supporting this platform and consumer sentiment to the TikTok brand is still positive. As long as consumers stay, marketers will follow.

Why are Microsoft, Twitter, and Oracle interested in acquiring TikTok? What are the potential benefits and risks?

TikTok is one of the most popular and fast-growing social platform and short-video sharing app in the world, especially among teenagers. From pure business perspective, its parent company ByteDance doesn’t have any reason to sell it. It would make more sense to aim for an IPO. However, geopolitics has created this rare opportunity for Microsoft, Twitter, Oracle or any other companies that want to acquire TikTok. It would help them either expand users from working professionals to young consumers especially teenagers, or from B2B businesses to general consumers, pop culture and entertainment.

There are a few risks or potential pitfalls:

  • If the new parent company is able to maintain the young, chic, pop and innovative gene of TikTok as a startup today
  • If TikTok is able to maintain brand consistency when two very different parent companies are running TikTok America and Tiktok international
  • How to balance monetization and consumer data privacy

What would a TikTok acquisition mean to Facebook and Google?

TikTok is already a strong competitor to Facebook today. If the new parent company can successfully carry on TikTok’s momentum in attracting young consumers and content creators/influencers, it’s possible to make it a third important digital ecosystem to brands beyond Facebook and Google, and will definitely take a share of marketers’ advertising dollars from the two platforms.

Which TikTok rivals in the US, such as Byte, Instagram (the new rolled-out feature Reels), and Triller, will have the best chance to compete?

Among the US competitors, Instagram has the best chance as it has a strong current use base to avoid the pain of user acquisition. It would be easier for Instagram to attract marketers too because Reels is just an added feature of Instagram. Marketers are already investing on Instagram, and it may be easier to convince them to try out a new ad format on a familiar platform than try out on a completely new platform. Marketers should take a trial and error approach to see how it goes.