TikTok’s sale in India may run into tech transfer hurdles

The logo of TikTok application is seen on a screen in this picture illustration taken February 21, 2019. REUTERS/Danish Siddiqui/Illustration

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 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,” said Prasanto K. Roy, a tech 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 to every user.

“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 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.

Blackboxing refers to inbuilt algorithmic engines that become complex and unreadable without input and output data.

At the time of the ban, TikTok was estimated to be valued at $3 billion. However, if the ban stays on, valuation and interest in its assets may diminish. TikTok has over 200 million users in India and rivals such as Chingari are 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, then the value that one is paying for the user base will also fall,” said Pai.

Roy agrees that any valuation is perishable. 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.

The article was first published on livemint.com

 

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.