TikTok’s sale is likely to run into tech hurdles as Chinese rules that restrict its companies from transferring technology to firms outside the country with first getting approval from Beijing.
Technology transfer constraints, coupled with the rise of rival platforms is likely to get in the way of any acquisition of TikTok India, two industry experts suggest. SoftBank, which is a minority stakeholder in ByteDance (TikTok’s parent company) has initiated talks with potential partners to jointly bid for the India unit, which was banned in June.
Regrettably, Technology transfer restrictions that prevent companies from delivering technology to non-Chinese firms without Beijing’s approval could come in the way. “The sale of a company or product minus its core proposition greatly diminishes the value. The brand and customers still add up to a lot of value, but minus the core algorithm, it would attenuate the value and could be a dealbreaker for acquisition talks,” tech writer and public policy consultant Prasanto K. Roy said.
One of the reasons behind TikTok’s worldwide success is its the algorithm it adopts to recommend content on its ‘For You’ page, which produces personalized content to every user. It is not irrelevant where the algorithm resides, founder and managing partner, Siana Capital Management Siddharth Pai said.
“It is also about where the data generated using the algorithm is sitting,” Pai explained. Even if the algorithm is completely black-boxed, it can be re-engineered externally by studying the output pattern, he added.
The question here, Pai added, is whether this is a move by China to withhold the data or the algorithm. Black boxing alludes to inbuilt algorithmic engines, which become unreadable and complex without input and output data, Livemint reported.
TikTok was estimated to be valued $3 billion at the time of the ban, and if the ban is not lifted, valuation and interest in its assets are likely to drop. With over 200 million users in India, TikTok faces competition from rivals such as Chingari, which is doling out attractive deals to lure users.
“At the end of the day, it is all about data and how many captive users they have. But if the user base is eroding, then the value that one is paying for the user base will also fall,” Pai said.
Roy agrees that any sort of valuation is perishable. The window is short, meaning, TikTok would want to close a deal as soon as possible.
Having said that, simply creating copycat products won’t dent the real value of the TikTok ecosystem—the network, users, influencers, those rural folks making thousands from the platform. At least not within months, ” Roy explained.