The Tiktok agreement will not cut the Chinese algorithm, but it could allow many people to obtain a big payment

1. The algorithm built by China at the heart of American national security problems will continue to serve as content for Americans, but with a kind of surveillance and “recycling”.
2. The agreement creates an opportunity for many people involved to earn money.

Whether it has a good deal or a bad deal probably depends on your opinions on everything, from geopolitics to the financial practices of Wall Street, but if nothing else, it is an unusual matter which is very different from what many expected.

Made in the United States?

Let’s start with the American version of the Tiktok application which will be generated as a result of the agreement.

According to the White House, the part of the Tiktok service which currently serves American residents will be deactivated from the Chinese parent company bytedance. A new separate “American Tiktok” will be created and placed under the control of a joint venture “belonging to the majority and controlled by American people”.

All user data for this application will be stored in American data centers operated by Oracle (a practice that really started in 2022 in response to American concerns), thus ensuring the confidentiality and security of American data.

The joint venture will also be responsible for supervising the algorithm that chooses video clips appear in user flows. But it seems that the real The algorithm supplying the American Tiktok will continue to be that developed by Bytedance – the very algorithm which, according to the legislators, could not trust because of the bonds of Bytedance with China, a “foreign adversary”.

In its official “information sheet” on the decree, the White House declared that “the transfer implements the operation of the algorithm, the code and the decisions of moderation of content under the control of the new joint venture”. The command provides “all recommendation models, including algorithms, which use American user data to recycle and monitoring by American security partners”.

What he does not say explicitly is that the American Tiktok will create his own new algorithm from zero.

The idea seems to be that any danger posed by an algorithm made in China can be eliminated by putting an American filter on it. It remains to be seen how it would work in practice. Will the United States have full access and visibility in the algorithm, or will it mainly try to thwart a black box? And could the American filter be so strong that he kills magic, which leads to an American and falsified American tiktok that no self-respecting teenagers will really want to use?

A license agreement and a lot of rise

According to a Bloomberg report citing anonymous sources, the JV will authorize the algorithm of Bytedance, paying the company 20% of income and up to 50% of profits. In a way, it is an elegant solution to a delicate problem: Bytedance continues to own the algorithm and a 20% participation in an asset which carries its brand in the United States, and it obtains a continuous financial incentive in the company – which gives the effort a friendly air of collaboration rather than credibility.

The current license fees also mean that American investors can acquire the assets with a very low payment. Vice -president JD Vance said Thursday that the agreement was estimated at $ 14 billion – leagues below many analysts’ estimates, which set the value between 35 billion and $ 50 billion. The only way in which the price would make sense to Bytedance is with license fees that send future and high margin income.

Axios said Silver Lake, Oracle and MGX (a fund based in Abu Dhabi) will hold a combined 45% participation in the new joint venture, while a 5% tranche is reserved for a new group of investors “still in mass”. This 5% group could include Rupert Murdoch and Michael Dell, names that Trump cited during Thursday’s signature ceremony. And we can imagine many other friends of the Trump administration wishing to be admitted to this 5%club, given the low entry prices.

Now imagine that at one point once the agreement is completed, the new owners of the American Tiktok decide to float sharing to the public in an IPO. Unless an unexpected disaster, the offer would almost certainly appreciate the American Tiktok at a level above $ 14 billion (as a comparison, SNAP has a market capitalization of $ 14 billion even if the American Snap user base is considerably smaller. That investors sell in the IPO, or after the shares are negotiating, potential.

The agreement could even open a path in Bytedance to fulfill its dreams of so expected IPO. The company planned to list Hong Kong’s actions in 2021 in the midst of problems with Chinese data security regulators, and uncertainty about Tiktok’s fate in the United States has put a shock absorber on any public market list since then. Without American headaches, Bytedance will have a much more attractive case to do for public procurement, including this good license income.

There are many potential winners in this agreement. It remains to be seen if the American public is one of them.

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