TikTok Core Algorithm Reportedly Stalling Sale Of U.S. Operations

Negotiations for the sale of TikTok's U.S. business have been blocked and the application's core algorithm seems to be the challenge.

The algorithms determine the videos that are pushed to users of the platform. They are considered the jewels of the app.

The Wall Street Journal reported Wednesday that these “algorithms have been considered part of deal negotiations until the Chinese government introduced new restrictions on the export of artificial intelligence technology last Friday."

Both parties are attempting to determine what the new rules mean and how to get the Chinese government to agree to the sale.

On Friday, the Ministry of Commerce and the Ministry of Science and Technology of China announced new technology export-restrictions that expands from computing and data processing technologies such as text analysis and content recommendation to voice modeling and voice recognition.

TikTok's parent company ByteDance plans to comply with Chinese government regulations. Company executives in Beijing are trying to determine how the transaction will proceed if the new restrictions apply to its algorithm, according to people familiar with the matter.

Microsoft and Wal-Mart -- and separately, Oracle -- have expressed interest in TikTok's U.S. operations.

Walmart confirmed to CNBC its interest in teaming up with Microsoft to buy TikTok's U.S. business.

With the confirmation, it joined several other bidders such as Oracle. 

In early August, Microsoft said that if the deal goes through it would transfer all of TikTok's code from China to the U.S. within one year.

At least one analyst made a case for why Oracle should buy TikTok and not Microsoft. The thought process centers on the company’s algorithms, intellectual property, and data security issues.

Investors also have created partnerships, including Sequoia Capital, General Atlantic, and Coatue Management.

Algorithms are a vital part of ByteDance's business. The company's engineers have been called "genius" when it comes to its algorithms. Engineers for the company built the search engine Toutiao, which sparked a feud with the Chinese search engine Baidu.

Baidu claimed in December that Toutiao manipulated search ranking for its own products above Baidu's -- even if users specifically search for a Baidu product, according to a notice published in Chinese on the Haidian court website.

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