Microsoft Agrees To Transfer TikTok Code, Algorithms From China

Microsoft and TikTok reportedly plan to finish acquisition talks within the next few weeks, ahead of the September 15 deadline, putting the Redmond, Washington, company in direct competition with Facebook’s Instagram, which today launched its own version--Reels Expansion.

If the deal goes through, Microsoft said on Wednesday it agreed to transfer all of TikTok’s code from China to the U.S. within one year. The company confirmed in a blog post on Sunday the two companies are in discussions.

TikTok had approximately 37.2 million users in the United States and was estimated to increase by 21.9% year-over-year, reaching 45.4 million users in 2020. It is one of the fastest-growing social media apps in the United States, especially with younger digital audiences, according to Statista.

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How much is TikTok worth? TikTok’s global revenue in 2019 reached $17 billion, with a net profit of about $3 billion, according to Trip Chowdhry, managing director of Global Equities Research.

In a research note published Wednesday, he wrote that in Q1 2020 TikTok generated revenue of about $5.6 billion.

When discussing the idea of why TikTok should become a U.S.-owned company, most advertising executives point to data security. VidMob CEO Alex Collmer points to TikTok's sophisticated algorithms.

Algorithms run on inherent bias based on what people search, click and watch. “It gives TikTok the ability to move, change, guide culture and belief systems,” Collmer said. “When the algorithms are owned by a Chinese company, it means the Chinese government will likely have some involvement. If we’ve learned anything from other companies that have algorithmic feeds, it’s that they can play a major role in shaping culture.”

When the company is based in a country at odds with the idea of liberal democracy, the question becomes: Should that country and company control the way people under the age of 25 think, he said.

During the protests in Hong Kong, for example, no mention of the unrest appeared on TikTok. The Washington Post called it “politically convenient.” TikTok’s owner ByteDance reportedly created the app on behalf of the Chinese government. The scenario provides a terrifying example of manipulating information in social media.

“ByteDance’s magic is their ability to build incredibly powerful algorithms that learn based on your scrolling patterns, and videos you watch, hover over or go through quickly,” Collmer said. “It’s a compelling experience that it learns based on your preferences and experiences.”

There’s not much separation between Chinese companies and its government. U.S. companies that do business in China must have a sponsor company, which means U.S. companies must rely on a Chinese company to sponsor them while operating in the country.

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