TikTok has established a US data security unit as part of a deal brokered by Donald Trump to keep the popular app online in America, ending a years-long geopolitical saga over its fate.
The company said the new joint venture would provide data and algorithm security, as well as content moderation and software assurance. The deal leaves Beijing-based ByteDance with direct control of the app’s main moneymaking business lines in the US, including ecommerce, advertising and marketing.
TikTok said it had appointed a seven-person board of directors for the joint venture, which included Egon Durban, the co-chief executive of private equity firm Silver Lake; Susquehanna International Group managing director Mark Dooley; and top Oracle executive Kenneth Glueck. Their companies are all part of a consortium of US investors who will own 80 per cent of the joint venture.
“I am so happy to have helped in saving TikTok! It will now be owned by a group of Great American Patriots and Investors,” Trump posted on Truth Social on Thursday night. The US president thanked his Chinese counterpart Xi Jinping “for working with us and, ultimately, approving the Deal”.
While some of TikTok’s American staff will shift to the joint venture, many will remain employed by ByteDance, according to two people familiar with the matter. “[The deal] saves the US market for TikTok and leaves ByteDance with most of the economic benefits,” said an early investor in the Chinese company.
ByteDance’s valuation in private market transactions had risen to about $500bn in recent weeks, up from a low of under $300bn when it appeared TikTok would be banned in the US, said two people familiar with the matter. Just over a year ago, TikTok briefly went dark for its 170mn US users after a ban-or-divest law came into effect.
TikTok briefly went dark for its 170mn US users after a ban-or-divest law came into effect last year © Craig Hudson for The Washington Post/Getty Images
Critics argue that Trump’s deal, while delivering easy returns for American investors and introducing some new data protection for US users, fails to fully address national security concerns.
“There are larger issues at play. We have an administration that wants to have a ‘grand bargain’ with the PRC [People’s Republic of China] and that colours to some extent what they might have agreed to,” said Brett Freedman, who served as chief of staff of the national security division at the Department of Justice during the Biden administration.
The final compromise is a joint venture majority owned by US investors including Oracle, Silver Lake and the Emirati investment vehicle MGX, which each own 15 per cent.
Other investors in the consortium include Dell chief executive Michael Dell and the family office of French entrepreneur Xavier Niel — as well as affiliates of General Atlantic and Jeff Yass’s Susquehanna, which were both previous investors.
ByteDance would take 19.9 per cent of the new company, the most allowed under US law, TikTok confirmed on Thursday.
Vice-president JD Vance has said that the deal valued TikTok’s joint venture at $14bn. The value of the new US group could be the result of ByteDance’s continued control over ecommerce, advertising and marketing, TikTok’s main business lines.
TikTok content creators outside the Capitol in Washington in 2023 voicing their opposition to a potential ban of the app © Nathan Posner/Anadolu Agency/Getty Images
A crucial point of contention has been whether Beijing will be able to retain control of TikTok’s sophisticated recommendation algorithm.
The joint venture would licence the algorithm from ByteDance, but then “retrain, test and update the content recommendation algorithm on US user data”, TikTok said on Thursday. “The content recommendation algorithm will be secured in Oracle’s US cloud environment,” it added.
Oracle, which is led by Trump ally Larry Ellison, will also guarantee the security of US user data. TikTok’s US staff in teams such as data security and content moderation will move to the new unit.
Recommended
TikTok’s head of operations Adam Presser would be chief executive of the joint venture, TikTok said. Presser, who is fluent in Mandarin, has been a longtime lieutenant to TikTok CEO Shou Zi Chew. Chew will also be on the board.
TikTok said that the safeguards provided by the joint venture would also cover its other US apps, including editing tool CapCut and social media app Lemon8.
The ban or divest legislation required a full operational split between TikTok and its Chinese parent but also gave the US president authority to decide whether a proposed transaction complied with its provisions.
Trump has approved the new structure and helped win over Xi, who also needs to sign off on the transaction. While Beijing has yet to publicly endorse the final structure, China has given the green light to the outline of the deal.
“The China hawks have been losing steadily as people would rather do business with China rather than cut it off,” said James Lewis, distinguished fellow at the Center for European Policy Analysis.
Adam Conner, vice-president for Technology Policy at American Progress, a non-partisan policy group, said the TikTok deal could come under future scrutiny.
“There’s a lot of questions about who got selected [to participate in the deal in the US]. We know there were other bids willing to pay more money,” said Conner. “This is ripe for oversight if a new Congress were to have an interest in investigating.”
Additional reporting by George Hammond in San Francisco and Eleanor Olcott in Beijing