Why there is no shame in TikTok selling up in the US

Trump’s suggestion that the US government deserves some of the proceeds from a TikTok sale is outrageous but now would seem like a good time for TikTok to cash in, before it loses out to the next social media fad

Richard Harris

Published: 1:30am, 7 Aug 2020

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US President Donald Trump is enthusiastic about telling us that he is the “best president” or the “best businessman” ever; “everybody says so”. However, for a Republican businessman president, Trump seems to have quite a lot to learn about capitalism.

It is his job, of course, to point out any security concerns about the operations of foreign-connected technology companies in the US. The battle went into hardware a couple of years ago when Huawei’s deputy chair and chief financial officer, Meng Wanzhou, was arrested on allegations of fraud. This was unnecessarily escalated into the possibility that Huawei equipment could be a Trojan horse for China to control the machines that increasingly run our lives.

The current row revolves around TikTok, the Chinese video-sharing social networking service owned by Beijing-based ByteDance. It is not my cup of tea, but that view is not shared by the 800 million users around the world who create short dance, lip-synch, comedy and “talent” videos.

It is especially popular with the teen and twenty-something audience. Some users with big followings become “influencers” and make a lot of money talking about what they believe to be their exciting lives and what products pay them most.

It entered the US in 2018, merging with musical.ly to become one of the most downloaded apps in the world, available in at least 150 markets and 75 languages. Such success has also bred reported concerns about its influence over young people, not necessarily political, but also about the social, cultural, moral and safety issues for minors.

01:14

Trump gives Microsoft 45 days to buy TikTok from China’s Bytedance

First of all, Trump said he would not allow TikTok to operate in the US. However, Microsoft came up with the inspirational offer to buy the US operation, especially as Microsoft has relatively little presence in retail social media. Trump said he would ban that move, possibly as it sidelined his ban. Then he said he would allow a TikTok sale but some of the proceeds must go to the government.

The suggestion that the government would dip its snout into the trough of a private transaction flies completely in the face of the “live free or die” ethos of American capitalism, whereby shareholders have an inalienable right to a full share of their property. More recently, there has been silence from the White House because legally, Microsoft, as a trusted US company, has every right to go ahead with the purchase.

US Senate bans TikTok on government devices

It should come as no surprise that foreign companies would become a target for domestic politics with free and fair elections for the US presidency in just over three months. However, those who say that America is afraid of Chinese technology do not understand that the US is genuinely concerned that its open society will be exploited.

01:42

K-pop fans and TikTok teens troll Trump with fake registrations for first campaign rally in months

More important than that is the American sense of “fair play” enshrined in its antitrust laws that have broken up the largest of their own companies over the past 100 years.

The Americans feel that the largest US companies have been neutered in China’s domestic market so their attitude is, “if our companies can't play in your backyard, then your companies can’t play in our backyard”. The battle in hardware with Huawei is important but any lead in hardware is a wasting asset.

The power lies in collecting, managing and using content that captures hearts and minds. TikTok is not the only Chinese content provider with global ambitions under threat. India has banned WeChat and 58 other China-linked apps, including Baidu, Weibo, QQ Mail and various popular video games.

01:41

India’s TikTok ban closes lucrative window to the world for many rural women

The world is rapidly separating into US, China, and one or two other country-owned technology companies. If you have a big-content business in someone else’s country, the chances are that you will be restricted, banned or forced to sell up.

But selling may not be such a bad idea. Tech shares are currently priced for perfection. The future lies in technology and content is priceless, but it is not the only way to gather intelligence on a foreign power.

Today’s technology companies may not be as valuable in the future. For every well-entrenched top-flight tech company such as Amazon, Baidu, Google, Microsoft and WeChat, there are multitudes in the second division that are exposed to the cycle of disruptive competition.

06:22

Three trends shaping China's internet from SCMP's China Internet Report 2020

A retail-oriented company such as TikTok, which – let’s face it – is not a killer app, could easily lose out to the next social media fad. There is no shame at all in taking the money while it is on the table, when prices are sky high. Move on, and reinvest that money in the next disruptive idea.

Indeed, last year, I suggested that Huawei’s best strategy would be to license its 5G technology cheaply to US companies – which would have popularised it around the world to the benefit of all – and given Huawei an installed base that would have been impossible to remove.

Success breeds competition and competition means that someone will fail. Sometimes, it is better to be ahead of the game, rather than get caught in yesterday’s product. Good investors know when to show them and when to throw them.

Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster, and financial expert witness

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