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Author: Zhu Xinwei, Observer.com
In the early morning of September 26, Beijing time, US President Trump issued an executive order, announcing that the new version of TikTok’s US operation plan complies with relevant US legal requirements and will ensure that TikTok continues to operate in the United States.A joint venture will be responsible for TikTok’s data security and content security in the United States, and Vice President JD Vance said the joint venture is valued at $14 billion.
It is understood that the joint venture refers to the “TikTok USDS Joint Venture” rather than the overall business of TikTok USDS.Previously, TikTok’s overall US business was valued at nearly US$40 billion.
The new operation plan has been repeatedly reported by the US media before, but it is all partial details and has not shown the overall situation.Observer.com combines President Trump’s order, Chinese and foreign media reports, and information obtained from authoritative sources by Shen Yi, a professor at Fudan University’s Department of International Politics, and uses pictures to exclusively present a complete new TikTok US operation plan.
The algorithm is controlled by bytes + joint ventures and is responsible for data security
The next operation plan that TikTok will implement in the United States involves two entities.Among them, on the left side of the picture is “BD TikTok US”, which is the main operating company in the new plan. Its business scope includes commercial and related operational activities (e-commerce, brand advertising, etc.), global connectivity, product and engineering technical support, etc.This entity is 100% wholly owned by ByteDance.
On the right side of the picture is another of the two subjects: “TikTok USDS Joint Venture”, which is injected with US data security, content guarantee, software guarantee (such as the approval of APP listing) and related local businesses to comply with US legal requirements.This entity is the joint venture with a valuation of $14 billion when Trump issued the executive order.
According to the plan, the joint venture will hold 19.9% of the shares of ByteDance in order to comply with US law; ByteDance’s existing global shareholders hold a total of 30.1% of the shares; and new investors hold a total of 50% of the shares.ByteDance remains the company’s largest single shareholder.The board of directors has a total of 7 seats, including 1 seat for ByteDance, 2 seats for global shareholders, 3 seats for new investors, and 1 independent director appointed by the board of directors.
In terms of algorithms, ByteDance continues to own the intellectual property rights of TikTok algorithm and will authorize the “TikTok US Data Security Joint Venture” to use the relevant intellectual property rights and charge the latter the authorization fee.
ByteDance TikTok US companies and new joint ventures establish revenue sharing mechanism
How the new operating model distributes revenue in the future has also attracted widespread attention.We can refer to the operational situation of other technology companies to deduce the interests distribution pattern of all parties under TikTok’s new plan.
According to a previous disclosure by Shen Yi, a professor at Fudan University, ByteDance continues to engage in commercial and other related operational activities (such as e-commerce, brand advertising, cross-border commercial activities, etc.) through TikTok’s American subsidiary “ByteTok American Company”.These businesses are the main source of revenue for TikTok and TikTok.
Data security and content security under US joint ventures are both cost-effective businesses.Data security means a large amount of expenditures including self-built computer rooms and cloud service. Among Internet companies with hundreds of millions of users, this part of the operational costs are very high.
At the same time, content security requires hiring a large number of auditors.According to a 2019 report by The Information, a considerable proportion of ByteDance employees are engaged in content review.A new joint venture will be an important expense whether it is self-built or outsourcing.
Observer.com learned that since data security and content guarantees these businesses are non-profit, in order to ensure the operation of the joint venture, there will be a commercially reasonable income sharing arrangement between the two entities.
From “Guizhou on the Cloud” to “Texas on the Cloud”
This latest solution is exactly the same as Apple’s “Guizhou on the Cloud” operation method in China.Since TikTok’s data security service provider Oracle is headquartered in Texas, USA, it is also nicknamed “Texas on the Cloud”.
At the press conference of the Madrid talks, a relevant person in charge of the China National Cyberspace Affairs Office said: China and the United States “reached a basic consensus on solving the TikTok issue through the entrusted operation of TikTok’s US user data and content security business, the authorization of the use rights of algorithms and other intellectual property rights.” It clearly stated that the TikTok’s US user data and content security business undertaken by the joint venture is promoted based on the entrusted operation model.
Wang Xiaohong, a researcher at the China International Economic Exchange Center, said that such a business model is more common in global technology, entertainment and other industries.For example, in order to meet China’s legal and compliance requirements, Apple has commissioned “Guizhou on Cloud” to operate iCloud services in the Chinese market since 2018; Microsoft has commissioned Century Internet to operate and sell Microsoft cloud services including Azure in China since 2012; Blizzard Studio has successively commissioned Jiucheng and NetEase to operate the game “World of Warcraft” in China; Disney has commissioned Shanghai International Theme Park and Resort Management Co., Ltd. to perform its management and operation responsibilities for Shanghai Disney Resort.
Among them, Apple does not even have a stake in “Yunshang Guizhou” business entity “Yunshang Aiper (Guizhou) Technology Co., Ltd.”, which is a 100% Chinese state-owned enterprise.In contrast, TikTok still holds a significant seat in the new joint venture.
The essence of the “commissioned operation” model is a limited restriction on the local development of foreign multinational companies for safety and compliance considerations.In the past, more foreign companies needed to adopt the “entrusted operation” model when entering the Chinese market.
Take the automobile industry as an example.Thirty years ago, when facing powerful foreign automakers, China adopted a protective policy, requiring foreign automakers to enter the Chinese market and must have a joint venture with Chinese companies.But as China’s local auto companies gradually become stronger, this policy restriction was finally lifted, and other countries even began to take protectionist measures against China’s automobile industry.For example, when BYD entered India, it established a joint venture Olectra Greentech locally and adopted a “commissioned operation” model.
Now, with the growth of Chinese economy and Chinese technology companies, it is now other countries’ turn to impose restrictions on Chinese companies and require Chinese companies to adopt the “entrusted operation” model.
