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TikTokToe: Trump & The China Ban

TikTokToe: Trump & The China Ban

In the past couple of weeks, the business world has been occupied with TikTok. Donald Trump announced that the US government might potentially ban TikTok if it’s not sold to an American company by September 15th. This action is primarily inspired by the amount of data that TikTok collects and the firm’s potential tie with the Chinese government. Not long after, Trump announced another executive order banning transactions with the Chinese owners/parent company of WeChat (and TikTok) starting September 20th.

The first reaction to this announcement can only be described as “confusion”, with multiple companies seeking clarification from the white house about the specificity of the executive order. The elephant in the room here is WeChat’s parent company, Tencent Holdings.

Tencent owns a lot of businesses.

One important emerging industry that it firmly holds is gaming. From the likes of Riot Games (League of Legends) and Epic Games (Fortnite) to even Discord; it holds a lot of stakes in companies that people consider as powerhouses in the gaming and eSports industry. The white house eventually clarified that these gaming companies under Tencent will not be affected.

For now, it might look like TikTok is trying to cater to Trump in order to save its presence in the US market, but all of these actions set a negative precedent moving forward, causing potential blowback from China towards American companies.

Looking forward to the upcoming US presidential election, some people might think that the current tension with China will be alleviated if Joe Biden wins. Personally, I do not think that’s going to be the case. In certain areas such as immigration policies, this might be true; however, the macro stance against China won’t significantly change, although the tones and strategies of a Biden’s administration will be different. It will be less impulsive and brash, but the overall stance of “needing to take action against China” will not change.

After all, we tend to require a common enemy in order to unite. For the extremely polarized US politics, that common enemy is China.

TikTok Observations

Success Story & Trend

TikTok is the first successful technology export from China. If we compare other large Chinese tech companies such as Alibaba and Baidu, their success generally came from executing what has been done in the West; optimizing, improving, and adapting it for the Chinese market. Despite its appearance which might be mistaken as just “another social media app”, TikTok format and algorithm are not something that they simply just copy from the West.

Behind this success, however, is an algorithm that is so good, it raises concern amongst users and government, especially as people are becoming more aware of their data and privacy. One guy reverse engineered TikTok and found out that it collects significantly way more data than Twitter or even Facebook (full source).

Despite all that, data from the Google trend shows that interest in TikTok is not slowing down.

And as usual, Zuckerburg used the same playbook by launching Instagram Reels, which is basically TikTok within Instagram. It will require some time before an objective assessment on its quality can be made, but it does have a really good headstart because content creators have historically shown that they enjoy having everything under one place (Snapchat vs Instagram story).

Source:    Google Trend

Source: Google Trend

Numbers & Engagement

For those of you who haven’t tried the app, I will recommend doing so just to get a better understanding of its ad model. It is currently on another level. TikTok’s ads are not as intrusive as Facebook’s or Instagram’s while at the same time it utilizes a meme-like format, relating better to its audience by creating videos that feel so organic to the point that you might miss that you’re seeing an ad. Its engagement rate is also currently higher than Instagram, with the top 10 accounts comparison presented below.

Source:    Launchpadappds
Source: Socialblade — Exclude accounts that belong to businesses/corporate entity.

Source: Socialblade — Exclude accounts that belong to businesses/corporate entity.

A massive amount of interest combined with a good product and engaging ads speak for itself. As of 2020, TikTok is the third-largest social media platform excluding instant messaging and video-streaming platforms (Youtube, Twitch), towering over Snapchat/Twitter, and catching up quickly to Instagram. The majority of this growth is caused by GenZ's interest in the app, which then trickles up to Millennial and other older generations. Looking ahead, TikTok is poised to capture a large share of young adults’ time and attention in the coming decade.

Data Source: Statista, Oberlo

Data Source: Statista, Oberlo

Much More Complex

Too often, business leaders and public figures take a binary stance in this “feud” against China. What most people don’t understand is how truly complex the situation actually is and it is not justified to fully put the blame on one side or the other. We need to understand the context and reasoning behind both sides and make decisions accordingly. An individual who I think has made a great observation on the US vs China situation while being completely objective despite his non-international, all-American background, is Ray Dalio. The underlying issue is much more than just a business problem, it is also ideological and psychological. If you want to hear his full thoughts, click here.

Long story short, there’s a common cycle of feuds between an existing power with a rising power. In the past 500 years, we have seen 16 examples — from Athens vs Spart, Spain vs Portugal, the US vs the UK, and many more. Alas, it is not surprising to see that a similar scenario might play out between the US and China.

As policymakers, understanding these differences and finding solutions that work for the people should be the priority. They should have the capability to sort things out without accelerating the tension into horrible wars. This takes some form of tolerance, understanding, and strategic compromise between the two powers, with the goal of maintaining stability and improving the livelihoods of both countries’ population

What Should be Done?

The outright ban against TikTok, Tencent, and potentially other Chinese owned companies is not the right solution. This is a short-term fix that will only increase the tension over time. Imagine if China decides to take a stance against Apple or Tesla.

Any prolonged tension will only hurt the common people, either in the form of rising costs or less choice of good (or even better) products. The right move is to implement a nuanced framework on how to address data collection within technology companies, affecting not only TikTok but also Facebook and other tech giants.

As for TikTok, an interesting course of action will be to sell their US operation or merge with another company that’s huge, but not extremely large to completely absorb TikTok. These examples include Spotify, Snapchat, and Twitter. By doing so, they’ll maintain a stronger form of control, enabling them to continue doing great executions while also catering towards the concern of the US government. Remember, there are great people behind every successful product. If TikTok is acquired by giants such as Microsoft, Apple, or Oracle; there’s no guarantee that it will be able to maintain the same amount of creativity that resulted in its massive success.

Ciao,

Marco