I like Bytedance.
I think they make great apps. Super engaging. With fantastic user interfaces. They are one of the most innovative mobile app companies on the planet.
But they suck at internationalization.
Their attempt to become China’s first international digital company has been a slow moving train wreck. Lots of us have been predicting the current situation for like two years. It was so obviously going to happen.
But the proposed deal with Oracle may finally get Bytedance to abandon its failed international strategy. The deal, described below, is probably not going to work in its current form. But they are finally hunting in the right area for a solution.
But first…consider joining my online course Jeff’s Asia Tech Class for deeper insights into China’s tech leaders and digital strategy.
“Serving as a technology provider to TikTok might mean Oracle will offer its cloud infrastructure for the app to use. That would give Oracle another popular property for its executives to boast about as a cloud client, and it could attract additional cloud business. Last week on Oracle’s earnings conference call with analysts, Chairman Larry Ellison made several references to video-calling service Zoom’s use of the Oracle public cloud. Oracle was not among the top five cloud infrastructure providers by revenue in 2019, according to technology research company Gartner.”
“ByteDance said it would adhere to the Chinese government’s updated restrictions on exports, which now touch on “recommendation of personalized information services based on data analysis,” among other things. TikTok relies on recommendation systems to determine which videos it should show to users.”
So Microsoft is out. A complete sale is off the table, which was expected as China has updated its export controls and is forbidding a sale of TikTok’s algorithms.
What we are seeing is an attempt at a deal where TikTok keeps ownership of its technology but Oracle controls the US operations, data and customers. And that is the right type of solution. The discussion about a sale really pushed this conversation down a rabbit hole unnecessarily. The issue is control. And there are lots of ways to give a US company control without ownership.
And this is what Bytedance should have been doing years ago. They were pursuing a bad international strategy that was doomed for failure. Why?
Because they attempted to go into country after country without recognizing they would become a cultural and political force in those countries.
Media companies are not selling sneakers or shoes. They occupy a special place within a country. They can influence elections. They can impact society and cultural norms. They routinely outrage and offend parts of the population. Try publishing naked photos in Brunei. Or violence in New Zealand.
Major media companies all know this. It is why newspaper editors and tech CEOs are public figures.
- It is why the New York Times has an editor in chief and an ombudsman.
- It is why Mark Zuckerberg is constantly being grilled about content being posted and / or removed from Facebook.
- It is why Netflix CEO Reed Hastings is currently being criticized for streaming the movie Cuties, which is basically lots of crotch-shots of 10 year old girls.
Media companies and their leaders must achieve the trust of the local population, including the political class.
And yet, Bytedance CEO Zhang Yiming tried to avoid this role entirely and remain hidden. As TikTok went into country after country and became more and more important, nobody had any idea who the effective editor in chief was. And when asked, they routinely gave legalese answers about the data being stored in the US. Or US CEO Kevin Mayer being in charge. They even said TikTok was a Cayman Islands company.
It was painful to watch.
And it was doomed to fail. If Bytedance was to become a successful media company in the US or any other country, the key decision maker was going to have to be known and trusted (to some extent).
This trust problem is actually even more acute for technology companies like Facebook, YouTube and TikTok. Because they do user generated content at a massive scale. They are not newspaper editors who hire writers and approve the content article by article. They publish user generated content (articles, videos) at great scale. And they are struggling with how to curate for quality at scale. I have called this “mismatched and / or crippled scale” (a learning goal from Level 6).
Cultural and political scandals are inherent to publishing user generated content at this scale. Dealing with these issues is a core responsibility of the editor. So the US, India, Australia, and lots of other governments were inevitably going to engage with TikTok, just like they do with YouTube, Twitter and Facebook.
Bytedance really had two options if their goal was to be an international media company.
- They could have put Zhang Yiming out front and see if he could become known and trusted enough to play such an influential role in each country.
- They could have put their operations in each country under the control of a trusted local person or media / tech company.
They did neither.
But the deal with Oracle is starting to look like this second option. They can become the back-end technology partner. And Oracle can be the local partner with undisputed control of content, data and user information.
Option 2 never required a sale. It can be done by joint venture. It can be done via a technology agreement. It can be done with a minority or majority sale. It can be done with dual class shares (a Silicon Valley favorite) that keep ownership with Bytedance but control with Oracle.
Bytedance may be close to getting the trusted local partner they have long needed to become a major media company in the USA. We’ll see what happens.
Thanks for reading -jeff
I write and speak about digital China and Asia’s latest tech trends.
I also teach Jeff’s Asia Tech Class, an online course and daily commentary for busy executives on Asia tech and China’s digital leaders.
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