Technology transfer curbs and the rise of rival platforms could make any acquisition of TikTok India a tough affair, two industry experts said.
On Thursday, Mint reported that SoftBank, a minority stakeholder in TikTok’s parent company ByteDance, has begun talks with potential partners to jointly bid for the India unit that was banned in June. However, Chinese rules that prevent its companies from transferring technology to non-Chinese companies could come in the way.
“The sale of a company or product minus its core proposition greatly diminishes the value. The brand and the 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,” said Prasanto K. Roy, a technology writer and public policy consultant.
One of the key reasons for TikTok’s worldwide success is its content recommendation algorithm behind the ‘For You’ page which fetches personalized content using a proprietory AI interface, text analysis, voice recognition and speech modelling, among others.
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“The question is not necessarily about where the algorithm resides. It is also about where the data generated using the algorithm is sitting. The algorithm, even if it is completely blackboxed, can be re-engineered from the outside by studying the pattern of output. The question here is whether it is a move by China to hold on to the algorithm or to hold on to data,” said Siddharth Pai, founder and managing partner, Siana Capital Management.
{{/usCountry}}“The question is not necessarily about where the algorithm resides. It is also about where the data generated using the algorithm is sitting. The algorithm, even if it is completely blackboxed, can be re-engineered from the outside by studying the pattern of output. The question here is whether it is a move by China to hold on to the algorithm or to hold on to data,” said Siddharth Pai, founder and managing partner, Siana Capital Management.
{{/usCountry}}At the time of the ban, TikTok was estimated to be valued at $3 billion. However, if the ban remains for longer, valuation and interest in its assets may diminish. TikTok has over 200 million users in India and competing short-form video platforms such as Chingari, Trell, Firework and Instagram Reels are aggressively trying to sign them up with attractive deals and features.
“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 because of the prolonged ban and people are shifting to other platforms, then the value that one is paying for the user base will also fall,” said Pai. Roy agrees that any valuation is perishable, and especially in a market where the product is banned. So, the window is short, which is why TikTok would want to close decisions and deals fast. “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, ” added Roy.
Following a deadly border clash in Ladakh, India on 29 June banned 59 Chinese apps, including TikTok, on the grounds of national security, for sharing sensitive user data with the Chinese government. Mukesh Ambani-led Reliance Jio was initially seen as a logical suitor for TikTok as it does not have any social media platform yet. Also, Jio Platforms had raised ₹1.52 trillion by selling a total of 33% stake to 13 strategic investors, giving it ample firepower to make large acquisitions such as TikTok’s India unit, which is estimated to be valued at $3 billion.
With little progress in its talks with the government, ByteDance has been reportedly considering selling its India unit. TikTok is facing the threat of a ban in the US unless ByteDance sells the American operations to a non-Chinese firm.