TikTok closes deal to split US app from global business

The central point of contention throughout this protracted dispute has been the app’s sophisticated and highly effective algorithm, the engine that drives content recommendations to its vast user base. Under the terms of the newly concluded deal, this powerful algorithm has been licensed to the app’s designated American owners. Crucially, the algorithm will now be trained exclusively on data generated by U.S. users, a significant concession designed to address Washington’s security concerns. While experts acknowledge that this separation will undoubtedly lead to changes in the app’s functionality and user experience, the precise implications for the approximately 200 million Americans who actively use TikTok remain a subject of ongoing observation and analysis.

What is the deal about?

For an extended period, the U.S. government has exerted considerable pressure on TikTok to sell its American operations, primarily due to national security worries stemming from its ownership by the Chinese firm ByteDance. Lawmakers had voiced persistent fears that the Chinese government could compel ByteDance to surrender sensitive data belonging to U.S. users. TikTok and ByteDance have consistently refuted these allegations, maintaining a firm stance against any data sharing with Beijing.

The notion of a TikTok ban, first articulated by former President Trump during his first term in 2020, gained renewed traction under President Joe Biden’s administration. In 2024, President Biden signed into law a measure that mandated ByteDance to divest TikTok’s U.S. assets or face a nationwide prohibition. This legislative action ignited a fierce legal battle between ByteDance and the U.S. government. In January of the previous year, the app experienced a temporary but significant outage for U.S. users, lasting approximately 12 to 14 hours. This disruption was eventually reversed after Donald Trump, then the president-elect and a vocal critic of the ban, pledged to overturn the legislation.

In September of last year, former President Trump announced that he had successfully negotiated an agreement with China that would permit TikTok to continue operating in the United States. Subsequently, in December, binding agreements were formalized with a consortium of American and international investors who are set to manage TikTok’s business operations within the U.S., as detailed in a memo issued by TikTok’s Chief Executive Officer, Shou Zi Chew. The specifics of this comprehensive agreement have now been further elaborated upon in TikTok’s most recent announcement.

As part of this arrangement, a newly established entity, designated as TikTok USDS Joint Venture LLC, will assume responsibility for securing the data of U.S. users, managing the associated applications, and overseeing the operation of the powerful recommendation algorithms. These responsibilities will be underpinned by robust data privacy and cybersecurity protocols. Former President Trump has publicly commented on the deal, expressing his satisfaction on social media platforms, stating he was "so happy to have helped in saving TikTok." The BBC has reached out to the White House and the Chinese embassy in Washington for official comment on the matter.

Who owns TikTok in the US now?

TikTok has asserted that the new joint venture will function as an independent corporate entity, overseen by a seven-member board of directors, with a clear majority of American representatives. Adam Presser, a former executive at WarnerMedia, has been appointed as the Chief Executive Officer of this newly formed joint venture. The ownership structure of TikTok’s U.S. operations is distributed among three primary managing investors, each holding a 15% stake in the company.

Oracle has been entrusted with the critical task of safeguarding the data of TikTok’s American users and will also supervise the retraining of the app’s influential content recommendation algorithm. ByteDance will retain a minority stake of 19.9% in the U.S. business. The remaining 35.1% of the company is owned by a diverse group of entities, including the family office of tech executive Michael Dell, a known supporter of former President Trump. Additionally, Vastmere Strategic Investments, an affiliate of Susquehanna International Group, holds a significant share.

Susquehanna was co-founded by Jeff Yass, a close ally of Donald Trump. As of last year, Yass’s personal stake in TikTok’s parent company, ByteDance, was estimated to be around 7%. Mark Dooley, a managing director at Susquehanna, is also slated to join the board of directors of the new U.S. entity. The board will further comprise TikTok’s global CEO, Shou Zi Chew, alongside key executives from technology giants Oracle and Silver Lake, as well as from MGX.

What about TikTok’s ‘secret sauce’ algorithm?

The intricate workings of TikTok’s algorithm represent the core of the contentious issue surrounding its U.S. operations. This algorithm is widely recognized as the "secret sauce" that has propelled the app to unprecedented levels of popularity and user engagement. A former executive in the social media industry previously shared with the BBC that other platforms, including Instagram’s Reels and YouTube’s Shorts, have attempted to replicate TikTok’s algorithmic success but have largely fallen short. "Generally," the executive observed, "the one who introduces the technology just knows how to do it better."

ByteDance had initially been reluctant to relinquish its highly valued algorithmic formula, a position that was reportedly supported by the Chinese government. However, in September of the previous year, China’s top cybersecurity regulator indicated that Beijing might permit ByteDance to license its algorithm to a U.S.-based owner. Under the terms of the current agreement, the algorithm will undergo a retraining process utilizing solely U.S. user data, which will be meticulously protected to comply with stringent American regulatory standards.

The algorithm itself will be "secured in Oracle’s U.S. cloud environment," as confirmed by TikTok. The ramifications of this fundamental shift are expected to become apparent to the millions of American TikTok users in the near future. Industry experts anticipate that this may result in a more streamlined, potentially less aggressive app experience that operates with discernible differences from its global counterpart. Furthermore, there is a possibility that the retrained algorithm may not be as adept at content recommendation as the current platform, potentially impacting user discovery and engagement.

Additional reporting by Koh Ewe.