TikTok, one of the most popular social media platforms, may soon disappear in the U.S. The House of Representatives voted in March to either ban the app or force its Chinese parent company, ByteDance, to sell it.
Now, the social network's fate is in the Senate's hands. In an interview with Investor's Business Daily's Industry Insights show, Caitlin Chin-Rothmann, technology policy analyst with the Brookings Institution and a fellow at the Center for Strategic and International Studies, discussed TikTok's future. She also talked about the market implications of government regulation of social media companies.
This interview has been edited for clarity and brevity.
The TikTok Ban
IBD: What's the current state of a potential TikTok ban?
Chin-Rothmann: The House recently passed a bill that would require TikTok to either divest to a U.S. company or leave the United States. Now, the Senate has not yet taken up this bill, but it is widely expected to. President Biden has said that if the Senate also passes this bill, he would sign it into law. So a lot does rest in the hands of the Senate right now.
IBD: What are lawmakers' accusations against TikTok and its parent company ByteDance?
Chin-Rothmann: There are several concerns. The first is TikTok collects very sensitive personal information from its users. This could include information on a person's geolocation, information about a person's browsing history on the TikTok app, as well as other information about a person's device or other identifiers.
The concern is if TikTok shares this information with its parent company, ByteDance, which is based in China, ByteDance could in turn share this information with the Chinese government. And then there is a second concern, (that) the Chinese government could potentially control TikTok's algorithm to target propaganda to American users.
We haven't seen specific examples or specific public evidence of the Chinese government controlling TikTok like this in the past. But lawmakers are raising concerns there are risks this could happen in the future. Especially due to Chinese national security laws that require companies based in China to assess the government with security matters.
Project Texas
IBD: How is TikTok responding to these allegations and concerns?
Chin-Rothmann: TikTok has responded by saying it has not shared U.S. personal information with the Chinese government and would not do so in the future if asked.
TikTok has also structured something that it's calling Project Texas, which is a plan to store all U.S. personal information in the United States with data centers hosted by Oracle. Project Texas is still being rolled out.
TikTok has been negotiating with the U.S. government for a little while on what Project Texas might look like. But in general, there's been very little public transparency into the specific nuances of this plan. It seems as if Project Texas has not adequately addressed the concerns many lawmakers have raised about data privacy and propaganda.
Who Benefits From A TikTok Ban?
IBD: If TikTok is banned, where will its audiences go?
Chin-Rothmann: If TikTok is banned, the most immediate beneficiaries would likely be its main competitors, which are Meta, which owns Facebook and Instagram, as well as YouTube and Snapchat.
However, I would add there's no immediate substitute for TikTok, at least in the short term. Other social media platforms occupy very different niches in the internet space. They have different cultures, different audiences, and users go to those social media platforms for different reasons.
TikTok also has a very unique algorithm. Its 'For You' algorithm, which it uses to target or recommend content to users, is based on their past viewing history. This algorithm operates differently from Instagram or Meta's recommendation algorithm. So influencers have a very unique ability to reach new audiences on TikTok compared to other social media platforms. So it is possible users could try to transport their platforms over to other apps.
But in the short term at least, there's no direct substitute for what TikTok offers.
TikTok's Other Revenue Streams
IBD: What effect would a TikTok ban have on the social media company's marketing and digital advertising businesses?
Chin-Rothmann: So many marketers, influencers and organizers have used TikTok to build a platform and to reach new audiences. Those individuals or those businesses would likely be the most affected by a TikTok ban in the short term.
In the long term, it's also possible a TikTok ban could have effects on other industries as well. Especially if the United States banning TikTok also encourages other countries to ban apps that they also call security risks.
We've seen it in the past. For example, when the U.S. banned TikTok on government devices, France followed the U.S. lead. But it didn't just ban TikTok. It also banned Netflix and Twitter on government devices. So if TikTok is banned in the United States, what other companies might be affected, especially companies that want to operate in both the United States and China?
IBD: TikTok is also an e-commerce player. If TikTok goes away, how will other competitors benefit?
Chin-Rothmann: It is possible in the short term, other e-commerce competitors, that could be Instagram for example, or Amazon or Walmart, could see a short-term boost in demand.
In the long term, a TikTok ban will likely raise concerns about how other e-commerce companies also collect very sensitive amounts of data, which they use to target advertisements or which they could potentially transfer abroad. A TikTok ban might set a precedent for the government to also either ban or impose regulations on companies that operate similarly to TikTok.
Stock Market Ramifications
IBD: TikTok isn't publicly traded. If there is a ban, what would the ramifications be for social media stocks?
Chin-Rothmann: In the short term, I would expect to see other social media stocks rise. After all, a TikTok ban would likely benefit its main competitors, at least in the short term.
However, in the long term, I would ask if I were an investor, what would a TikTok ban mean for the future of social media regulation? Does a ban on TikTok mean the U.S. government is becoming tougher on social media companies?
(Would) we expect to see more laws and more regulations targeting other companies that collect very similar types of personal information to TikTok and also have very strong influences over the content that people see? I do think a TikTok ban would set a precedent for heavier regulation or more government intervention in the social media market in the future.
A TikTok Sale?
IBD: There's also chatter that a group of private investors could buy TikTok. What's the likelihood of that happening?
Chin-Rothmann: Right now about 60% of TikTok is controlled by private investors.
There have been talks about a wealthy individual, for example, or a corporation potentially buying ByteDance's ownership of the company. Any investor that does purchase ByteDance's remaining stake will have to have a lot of resources. TikTok is one of the most valuable companies in the United States and significantly larger now than it was back in 2020 when President Trump first attempted to ban the app.
Second, any investor is going to have a significant amount of risk tolerance because there is a good chance the deal won't go through, whether for legal reasons in the United States or legal reasons in China.
It is possible TikTok will attract a lot of interest from investors just because of the value of the company, its user base and its database. However, the road to divestiture is not going to be a short or easy one, right?
New Owners For TikTok?
IBD: If TikTok does go under new ownership, what could this mean for some of its competitors like Meta and Snap?
Chin-Rothmann: We've seen recently another social media company purchased by a private investor, a single individual. I think one of the lessons learned from that is that if a company is sold to another person or another company, it doesn't always retain its original character.
Running a social media company is very, very difficult. It's a very tricky regulatory space. If TikTok were to be sold, I would expect to see the nature of the app change a lot, whether for better or for worse.
If TikTok were to be sold, at least in the short term, it would probably benefit Meta and Snapchat because there's so much uncertainty and there's so much unpredictability in how that transfer would shake out. But it's very, very difficult to tell at this point in time.
IBD: What are the implications of a TikTok divestiture or ban on the stock market?
Chin-Rothmann: I think that would depend on what other regulations accompany this TikTok ban. Is this TikTok ban going to be a one-off. Or does it signal a broader shift in U.S. policy, where the United States is creating more of a fracture, or more of a division in cross-border data transfers in business between the United States and China?
If it turns out this TikTok ban is a larger signal that U.S.-China relations are worsening, or if it's a larger signal the United States is taking more actions to cut off cross-border data flows around the world, I think we would see a larger impact. But right now, it's just not clear whether this TikTok ban is a one-time initiative, or if it's a signal of something larger.
'The Most Under-Regulated In The World'
IBD: How has the government been handling regulating social media and online safety?
Chin-Rothmann: Social media companies in the United States are among the most under-regulated in the world. The U.S. has not significantly updated its privacy laws since the internet became popular, at least at a federal level.
As a result, we've seen many social media companies and many mobile apps, in general, actually build their business models around collecting and sharing personal information and then using that to target advertisements online.
If we do see the U.S. government imposing stronger boundaries on how technology companies collect and share personal information and how they use that to target advertisements, I would expect to see broad implications across the entire advertising industry. This is something so many companies and so many mobile apps have built their business models around.
Data is really the lifeblood of the internet. Depending on which way the U.S. Congress goes, this interest in TikTok's concern about data privacy and content moderation could actually have very, very wide-reaching ripple effects on the rest of the online industry.
Would A Ban Be Effective?
IBD: Would a ban be the most effective option for handling these TikTok issues?
Chin-Rothmann: That would depend on what the goal is. If the goal is to increase Americans' privacy, I don't think a ban … is the most effective option.
Even though TikTok collects a lot of personal information, so do many, many other mobile apps across the industry. Even if TikTok no longer collects personal information, there are so many other ways in which foreign governments or nonstate actors could substantially access U.S. personal information.
If it's the goal is to prevent propaganda from spreading, that wouldn't really stop if TikTok no longer operated in the United States. So I think if we were to evaluate the effectiveness of a TikTok ban, we first need to figure out what are the problems that we're aiming to solve.
This Is How A TikTok Ban Could Impact The Stock Market
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