It’s unclear whether or not TikTok will be banned in the US. What’s more clear is that any ban would likely be temporary.
By now you know that TikTok is a social media app owned and developed by the Chinese company Bytedance. The app is best known for 15 seconds long, music-themed, often funny, curated videos, posted by teenagers and influencers — frequently described by its users as “addictive.” TikTok’s leading competitor in the US is YouTube, which is the most used app in terms of time spent.
Bytedance is the highest valued private tech company at around $100 billion with over 65 million monthly active users in the US and over 800 million worldwide. This compares to Facebook with 260 million monthly active users the US and Canada and 2.6 billion worldwide. The US represents the company’s largest growth opportunity. After India recently banned the app, President Trump has indicated that his administration is “looking at” banning TikTok based on the view that TikTok poses a risk to national security, including the threat of espionage and the unknown related to the platform’s power to influence the global political conversation.
Two cases for banning TikTok in the US
First, while TikTok has been clear that its servers are based outside of China and the company does not share data with Chinese authorities, validating that claim is difficult. If the Trump administration can show evidence that there is in fact data sharing, the case for banning TikTok would likely gain bipartisan support. Second, over the past two years, the US-China relationship has been contentious around trade discussions, Huawei 5G infrastructure, and the handling of the pandemic. Now, TikTok’s success in gaining users in the US lands the company in the middle of the conversation. Given the recent history between the two countries, banning TikTok could be seen as a sign of US strength to energize a voting base.
Two cases for allowing TikTok in the US
First, a ban would frustrate US users. There are about 65 million monthly active TikTok users in the US, of which we estimate about half are not old enough to vote. As a point of reference, there are about 42 million adolescents in the US. We estimate the next largest user demographic is 18-30 year olds, which account for about 35% of the US user base. Second, a ban would increase the risk of retaliation from China to US companies operating in the region. This would likely take the form of changes to Chinese policies that would make it more difficult for US-based companies to operate in China.
Long-term is more clear: TikTok will likely be around
Putting our four cases together, we’re undecided whether or not TikTok will be banned in the US within the next six months. That said, we believe that if it is banned, any ban would be temporary. Over time, elections will pass and tensions will likely fade just as they did with the US and Huawei. Separately, the company’s potential to create wealth for its current shareholders could lead to the company making structural changes to satisfy US national security concerns.
TikTok 101
- Experience. TikTok is best known for its 15-second viral video challenges, collaborations, memes, and remixes.
- Usage statistics. As a private company, Bytedance doesn’t report user statics for TikTok but there is evidence the app is already one of the top media consumption platforms in the world. In March of 2020, SilmilarWeb noted that the average TikTok user spends 62 minutes per day on the platform compared to 55 minutes for Instagram and 75 minutes for YouTube. In 2019, TikTok was the second most downloaded app worldwide on Apple’s App Store and the Google Play store and in March 2020, TikTok was the most downloaded media/social network app in the US according to Sensor Tower. In June 2020, Wallaroomedia, a digital marketing firm, estimates that TikTok has over 65 million monthly active users in the US and over 800 million monthly active users worldwide.
- The mechanics of the platform. TikTok users create short-form video that emphasizes user engagement. The speed of user swipes, along with the video playtime, likes, and shares, give signals to the platform to identify viral content. To monetize the content, these short videos integrate relatively well with advertising interruptions. Ultimately, TikTok’s format seems to allow for more ad insertions than other social platforms. The company is still building its ad platform in the US, as evidenced by multiple openings for advertising positions in Los Angeles. The current TikTok cost per engagement is rumored to be less expensive than pricing on the Facebook Ads Network, although with a more limited targeting toolset. The company has agreements with all major music labels to license music used in videos on the platform.
- Employees and revenue. TikTok’s parent company, Bytedance, had an estimated $17B in revenue and $3B in profit in 2019 and is expected to go public sometime in the next few years. The company has over 50,000 employees, mostly based in China, but also operates out of Mountain View, Los Angeles, London, and Singapore. Bytedance recently announced plans to grow its employee base to 100,000 within two years. By contrast, Facebook has 48,000 employees. Twitter, Snapchat, and Pinterest have less than 10,000 employees combined.