ByteDance | Dancing on a tightrope

The Chinese tech giant has been caught in the cross-hairs of the U.S.-China tech cold war after American lawmakers passed a Bill in the House asking the company to divest its stake in TikTok in the U.S. within six months or risk a ban

Updated - March 17, 2024 12:33 pm IST

Published - March 17, 2024 01:12 am IST

Illustration: Soumyadip Sinha

Illustration: Soumyadip Sinha

Today, almost everything is tattooed with two letters — AI. But that was not the case a decade ago.

In the early 2010s, when discussions on artificial intelligence were limited to academic circles and scientific communities, Zhang Yiming, a computer engineer by training, began building an AI-based recommendation engine that would change the way people connect with information online.

Mr. Zhang came up with his moonshot idea after successfully setting up a real estate search company, called 99Fang. On a Metro ride in Beijing, he observed people reading less of newspapers than using their smartphones. That observation led him to build one of the most valuable start-ups in China that catapulted him to the 26th spot on Forbes’ richest persons list.

In 2012, Mr. Zhang, along with his former room-mate Liang Rubo and a group of developers, started ByteDance, which would grow into a global behemoth in the following decade that would get caught in the cross-hairs of the U.S.-China tech cold war, with American lawmakers asking the company to divest its stake in the U.S. in its most popular platform, TikTok.

The founding team’s goal was to capitalise on the fledgling smartphone market and app ecosystem by creating a mobile-based interface for news dissemination. The team started to work on a personalised recommendation engine. To build it, they developed an algorithm that would sift and analyse vast amounts of data to connect people with information relevant to their interests.

The flagship app

While most people in English-speaking countries are familiar with TikTok, they are unaware of the Beijing-based company’s real game-changing mobile application. The company’s first app was Jinri Toutiao — meaning ‘today’s headlines’ in Chinese. More commonly known in China as Toutiao, the mobile-based news aggregator, used machine learning and deep learning models to understand individual user’s preferences and interests, and then match them with sources from the web, screened using natural language processing tools.

Some have called Toutiao’s AI-powered engine the company’s “secret sauce”. And the app could not have been launched at a better time. Between 2010 and 2014, China’s smartphone penetration was rocketing to almost 65% from nearly nothing at the start of the decade.

Within four months of its launch, the app had a million daily active users (DAUs). And nearly a decade later, in 2021, the app had over 300 million DAUs, according to data from Statista. The app was so sticky that on average, people stayed on it for nearly 74 minutes daily compared to 58 minutes for Facebook, according to a 2022 USwitch report.

Toutiao blended three distinct sets of information to serve content to its users. The blend created a super profile for the user based on using demographic information, article preference, and location-specific data. The AI engine also analysed how the user interacted with the app. To get this input, it tracked how many times a user tapped while reading, swipes, time spent reading an article, and the place from where the content was consumed.

Subsequently, in 2016, ByteDance launched Douyin, a social app exclusively for users in China. Developed in 200 days, the app allowed users to share short videos, and within two years of its launch, it had over 150 million DAUs making and sharing content on the platform.

A year later, inspired by the success of its short-video sharing app, ByteDance launched TikTok, for international users. In the first year of its launch, the app became the most downloaded app on Apple’s App Store, totalling 45 million installs, surpassing YouTube, Facebook and Instagram. By the end of the decade, TikTok was topping the charts in both Apple’s and Android’s app marketplaces.

The successes of Douyin and TikTok can be directly attributed to the AI-engine ByteDance developed for its news aggregator app. Plus, the power of network played a crucial role in the young company’s success. Network effect is a result of how engaged users create a virtuous cycle of content dissemination. Simply put, the more information users share with the app, the smarter the app gets. In return, it recommends content based on individual user’s interests.

Subsequent integration of Musical.ly, a feature that lets users add sound or music to their videos, with Douyin and TikTok widened the popularity of the two apps, making each touch over a billion downloads. Globally, TikTok became a sensation, making it the destination for most viral videos that were created and shared by social media influencers.

Censorship and geopolitics

The rise of ByteDance, particularly TikTok, underpinned by its advanced AI-based recommendation engine, has prompted lawmakers in several countries take a hawkish line towards the app. They fear users’ data and other sensitive information could be channelled to China. India was among the first countries that banned the app.

In May, the Committee on Foreign Investment in the U.S. (CFIUS) recommended banning or divesting TikTok from its parent ByteDance. They claimed such a move will protect national security by stopping TikTok from sharing sensitive data with the Chinese government. While indiscriminate collection and use of data poses national security concerns, banning or divesting may not be an effective solution as most U.S.-based platforms face no legal requirements to protect their users’ personal information.

Also, these concerns would persist even if ByteDance sold TikTok to an American entity. Several American mobile apps collect vast amounts of sensitive personal information from users and transfer them to entities at home and abroad. And more important, if the app is placed on sale, who will buy it and for what price given that it will be a hostile takeover?

On March 13, based on the CFIUS’s recommendation, the U.S. House of Representatives, controlled by the Republicans, passed a Bill that gives ByteDance an option to sell the app within six months or risk losing access to app stores and web-hosting services in the country. The Bill will now move to the Democrats-controlled Senate, where it will face an uncertain future as Majority Leader Chuck Schumer was non-committal about bringing it for vote. While TikTok’s future in the U.S. hangs in the balance, China’s Foreign Ministry said the Bill ran contrary to the principles of fair competition. TikTok’s CEO Shou Zi Chew said the legislation would impact creators and small businesses that rely on the social video sharing app.

It takes two to tango, but in the case of platforms that are caught between conflicting international governments, it takes three — the algorithm, users, and a conducive political environment. For ByteDance, it is time to learn some new moves from lawmakers on all sides.

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