AI: Judgment Day for TikTok/Bytedance in the US. RTZ #598

...against the wishes and long-term interests of most US mainstream users

The Bigger Picture, January 12, 2025

Regular readers are familiar with my long-held view that some of the best global tech innovation over the last decade has come out of China. Not just Temu and Shein in ecommerce making big mainstream inroads into the US and points beyond outside of China, but also of course TikTok, a key subsidiary of China giant Bytedance. And it may be banned in the US in a few days, joining India as the other big nation has taken a similar path. That is the Bigger Picture I’d like to unpack this Sunday.

In my view, despite the geopolitical headwinds, TikTok also has been a key leader in AI technologies driving its very capable ‘FYP’ (For Your Page) algorithms serving billions of users outside of China. It’s approach has of course been emulated by Meta, Google and others for their short video Reels and Shorts products respectively, with aggressive monetization by each to the tune of billions of dollars annually.

It all makes TikTok a leadership global company in this AI Tech Wave. And it’s on a bipartisan pathway to be banned this January 19th, a day before the inauguration of Donald Trump as President, who has expressed a desire to potentially figure out solutions to not ban a mainstream favorite for US consumers. And the Supreme Court is deliberating its actions on the upcoming ban ahead of that deadline.

And Bytedance and its founder Zhang Yiming are likely strategizing on their next moves.

As the WSJ outlines it all in “TikTok’s Founder Has a Formula for Everything. Can It Crack the Supreme Court?”:

“As the court weighs a ban on the video-sharing app in the U.S., no one has more to lose than Zhang Yiming”.

“But 41-year-old Zhang has no formula to guide him through TikTok’s biggest challenge yet.”

“The Supreme Court heard arguments on Friday over the constitutionality of a national-security law that would effectively ban the app in the U.S. Most justices voiced doubts about TikTok’s arguments, viewing the law not as a restriction on free speech but instead as targeting its Chinese ownership.”

“The showdown threatens to unravel Zhang’s biggest accomplishment to date, as well as his greatest desire. Zhang has long said his dream is to run a business that is successful even beyond his native land of 1.4 billion people.”

“China’s internet users account for only one-fifth of worldwide users,” he said at a 2016 conference. He concluded there was only one way for his company to compete with the best: “Going global is a must.”

“Last year, Zhang became China’s richest person, with a net worth of about $49 billion, according to the Hurun Research Institute, which studies Chinese wealth. Much of his fortune comes from his stake in TikTok’s Beijing-based parent company, ByteDance, which also operates hit Chinese apps. He is ByteDance’s single largest shareholder, with a 21% equity stake, and has majority control over the company through shares with extra voting rights.”

The whole piece is worth reading for Zhang’s journey to found and scale some amazing businesses within Bytedance that include TikTok, through many ups and downs. As well as related stories of how he got there over the years, despite China government actions against their top tech companies and founders.

The laser focus and execution is on par with anything we’ve been by iconic US tech founders over the years.

For now it’s a game of chicken with the US government, as the Information explains:

“TikTok warns that the new law will force it to “go dark” on Jan. 19, according to TikTok lawyer Noel Francisco. Its only hope is that the court strikes down the law or issues a temporary freeze on it, something he asked for multiple times on Friday.”

“Neither seem likely after Friday’s hearing. The justices seemed skeptical of TikTok’s arguments that the law would jeopardize free speech, especially given the national security risks Congress aimed to address. And they pressed Francisco on why TikTok couldn’t separate from ByteDance, as the law required.”

A short or long-term ban would of course benefit US tech companies like Meta, Google and others. But as I’ve outlined before, this would be short-sighted mover for the US where the world’s best founders and entrepreneurs can’t compete in the global marketplace.

We’ll see if the US and China can ‘thread the needle’ on TikTok/Bytedance as well over the coming days in this AI Tech Wave. The odds for now seem to be a toss of a coin. That is the Bigger Picture going into the next couple of weeks. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)