TikTok vs the U.S.A. | Reeling | 2

0:08It's summer 2020 in San Francisco, California. Venture capitalist Doug Leone opens WhatsApp and hits the phone number of ByteDance CEO and founder Zhang Yiming. Zhang picks up after two rings. He sounds tired. Leone's not surprised. President Donald Trump is threatening to ban TikTok in the United States. TikTok is Zhang's baby, and he's been working around the clock figuring out how to save it. Hey, Yiming. Good morning? Night? Not sure what time it is there. How you doing? Yeah, hi. Good morning. How I am depends on what info you were able to get me. Were you able to reach the White House? I was.

0:50I have some clarity on the situation, but I'm not sure you're going to like it. Leon is a partner at Sequoia Capital, which is a major investor in TikTok, and he's also a high-dollar donor to Trump's re-election campaign. So Leon offered to reach out to the White House to understand what they need to see in order to approve a potential sale of TikTok. Bottom line, the administration is looking for a full sale. They don't want ByteDance to have any ownership in TikTok. I know we had hoped ByteDance could stay on as a minority partner, but my source was adamant that the White House won't find that acceptable.

1:27Zhang sighs, frustrated. This is ridiculous. In China, I get accused of being an American stooge, and in America, they see me as an agent of the Chinese government. You're definitely between a rock and a hard place, but this is the reality of geopolitics at the moment. I think at this point, we pivot to trying to make the best deal possible in finding a buyer. If someone is going to buy TikTok, they're going to need to pay real money. We built a hugely valuable asset. Absolutely. There are probably only four companies that have deep enough pockets to make a serious offer, though. Right. Facebook, Google, Amazon, Microsoft.

2:03That would be them. And the U.S. government would be okay with these giant tech companies becoming even more powerful? Honestly, probably not. Three of them, Facebook, Google, and Amazon, are under antitrust investigations at the moment. It's going to be tough for them to get approval to buy another major social media platform. So Microsoft? It could be a good fit. They have over$100 billion in cash reserves, plus they have a pretty good relationship with the government. Well, I spent a year working for Microsoft when I was in my 20s, so I guess it's fitting. I'll reach out to them. Leon hangs up the phone.

2:40It's definitely not the best-case scenario, but nothing about the government's attitude towards TikTok is a best-case scenario right now.

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4:59From Wondery, I'm David Brown and this is Business Wars.

5:28In 2017, Chinese tech company ByteDance entered the U.S. market by buying an app called Musical.ly. They renamed the app TikTok and invested heavily in promoting it across rival platforms. Its user base steadily grew over the next three years. And in 2020, during the COVID-19 lockdowns, its popularity exploded. The app became a cultural force, spreading memes and launching pop stars. But it increasingly came under the scrutiny of U.S. lawmakers. Politicians on both sides of the aisle had concerns that American user data could be turned over to the Chinese government and that the app could be manipulated to spread Chinese values in the United States.

6:11In the summer of 2020, President Donald Trump announced he was going to sign an executive order that gave TikTok 45 days to sell to a U.S.-based company, or it would be banned in the country. And as TikTok scrambled to deal with that ultimatum, its business rivals saw an opportunity to pounce. This is Episode 2, Reeling.

6:40It's summer 2020 in San Francisco, California. Reuters reporter Elizabeth Culliford unmutes herself and leans in towards her laptop camera. She's attending a daily meeting where reporters pitch the stories they're working on to their section editors. Culliford pitches a story about how over the weekend, the Trump campaign started running ads on Facebook that told users TikTok was spying on them. The ads are drawing on reports from a month earlier that showed TikTok could access users' clipboards via Apple's latest iOS release. TikTok responded it was the result of an anti-spam feature, which they have disabled.

7:19The editor prods the story's hook. Culliford explains that it's another escalation in the hostilities between the Trump administration and TikTok. There's also a business angle because of the rivalry between Facebook and TikTok. The editor asks her to tell him more about that. Culliford says that Facebook is prepping to launch a new short-form video feature that will compete directly with TikTok within the next few months. So, it's striking that they're accepting money for political ads that attack their rival. Meanwhile, TikTok can claim the moral high ground, since they don't accept political ads at all.

7:55Hereditor is sold. Culliford Beams. And the way the Trump administration and TikTok have locked horns, it doesn't seem like the intriguing stories are letting up anytime soon. And Culliford really can't predict who's going to come out on top.

8:16Not much later, in July 2020, Microsoft CEO Satya Nadella holds a meeting with his top advisors to discuss acquiring TikTok. Nadella kicks off the meeting. He says he wants to evaluate the pros and cons of acquiring TikTok. An executive with purple glasses says he thinks this could be a good addition to Microsoft's portfolio. As a company, Microsoft doesn't have much of a social media presence. The closest they have is LinkedIn, which they bought in 2016. Microsoft is a major player when it comes to workplace software and games. But social media remains a big hole. Acquiring TikTok would go a long way to making up ground in that sphere.

9:00Another executive interjects. She agrees that social media is a hole for the company, but maybe that's not a bad thing. They've seen how Facebook and Twitter have been raked over the coals by Congress for how they moderate content. Maybe it's not worth the headache. But the executive in glasses shakes his head. The amount of data Microsoft would glean from TikTok is too big to ignore. It would help grow Microsoft's advertising business. The two executives turn to Nadella, who's been sitting quietly at the head of the table, his chin in his hand. He's still a moment. And then he nods. In his view, the pros outweigh the cons.

9:39He says they should move forward with the deal. But before anything can be finalized, word leaks to the press that Microsoft is pursuing an acquisition of TikTok. And shortly thereafter, Nadella receives a phone call from President Donald Trump. He tells Nadella that the deal will have to be closed within 45 days and that any deal Microsoft makes should help the U.S. government. He leaves open how that should happen. But he suggests perhaps Microsoft could create some kind of jobs program or otherwise make some kind of offering to the United States Treasury. TikTok and Microsoft executives are caught off guard by both demands.

10:2045 days is an incredibly short time to complete a deal of this scale. And they're not quite sure what to make of Trump's implication that they need to give a percentage of the deal back to the government. Microsoft releases a statement that they're still moving forward with the deal, including a vague sentence about making sure that there are proper benefits to the United States, including the government. But other companies also express interest in buying TikTok, including Oracle. Founded in 1977, Oracle sells database software and cloud computing and is now worth over$150 billion. TikTok continues to pursue deals with both Microsoft and Oracle, hoping to start a bidding war that will garner them the best offer.

11:05But they also file a lawsuit against the U.S. government, arguing that Trump's executive orders are illegal. Those orders require TikTok to stop new downloads of their app in September, sell the company in 45 days, or face a nationwide ban. But all the uncertainty from the executive orders is hurting TikTok's business as users question the future of the app. Yeah, if you want to continue seeing this sunburned face, go ahead and follow all my other socials because I post there a lot. Yeah. This might sound silly for people that don't understand, but for minorities, losing TikTok is really worrisome.

11:44If you have a favorite content creator that's part of a minority group, please go follow them on Instagram and YouTube. And rival platforms sense an opportunity.

11:57In August 2020, TikTok CEO Kevin Mayer walks into the company's American headquarters in Los Angeles, California. An executive waits for him outside his office. Mayer can tell from the executive's face that he's there to share bad news. Mayer sighs. He only became CEO of TikTok two months ago after working for Disney for 15 years. It was part of an effort to bolster TikTok's American executive ranks to distance the app from its Chinese parent company. Mayer was excited about the opportunity to lead the hottest app in the country, but it's been one problem after another since he became CEO. Mayer beckons the executive into his office and asks him, what's going on?

12:41The executive pulls out his phone and opens up Instagram. He clicks a button and tells Mayer to look at what Instagram is now offering. A way to record and share short videos. They're calling it Reels. Mayer shakes his head and wryly comments that it sure does look familiar. The executive agrees, saying that Facebook has basically created TikTok within Instagram. The only major differences are that the videos max out at 15 seconds, unlike TikTok, which allows users to create videos up to a minute. But other than that, pretty much identical. Mayer points out that they shouldn't be surprised. This is what Facebook, Instagram's parent company, does.

13:21They copy other apps' features. Facebook tried to launch an app called Lasso that was another video-sharing app a couple of years ago. And earlier this year, they launched another app called Hobby, which was basically a Pinterest knockoff. They've since shut both of them down for underperformance. But the executive brings up Instagram Stories. which Facebook launched in 2016 as a direct challenge to Snapchat. Within two years, Stories had doubled the users as Snap. Mayer acknowledges the point. The truth is, they don't know how Reels is going to play out for Instagram or TikTok. But they can put out a statement observing that it does seem like almost a direct copy of TikTok.

14:04That will highlight a vulnerability for Facebook. Just last week, Facebook founder and CEO Mark Zuckerberg was questioned by Congress. Lawmakers grilled him over Facebook's habit of creating clones of its competitors. The executive says he'll get a statement put together for Mayer to approve. As the executive leaves, Mayer shakes his head. Feels like TikTok is under attack from every direction. He's starting to wonder if leaving Disney was a mistake. He thought he was joining an app on the rise, but now it's feeling like he's aboard a sinking ship.

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17:00As the summer of 2020 continues, the turmoil surrounding TikTok builds. Near the end of August, TikTok CEO Kevin Mayer steps down after fewer than three months on the job. He cites the pressure the company is under from the Trump administration as the reason for his resignation. TikTok names its general manager, Vanessa Pappas, as the interim global head to replace him while they search for a new permanent CEO. Then, two days after Mayer announces his departure, TikTok is dealt another blow, this time by the Chinese government. Officials in Beijing update the laws around exports. Under the new guidance, TikTok's recommendation algorithm qualifies as sensitive technology.

17:48That means that the Chinese government would have to approve of the sale of the algorithm to an American company. And it's unclear if they would. Much of TikTok's success comes from its powerful algorithm that feeds users a steady stream of videos based on their preferences. TikTok without that algorithm will be much less appealing to any buyer, including Microsoft and Oracle, TikTok's two biggest suitors. That would jeopardize a sale. And despite TikTok's accusations that Instagram committed plagiarism when it invented reels, Content creators and brands don't seem to care. Within two months of launch, Reels is reportedly seeing higher engagement than other forms of content on Instagram.

18:34With TikTok under attack from all sides, their best chance at survival comes down to the courts. First up, a hearing over the legality of a Trump order that would ban any new downloads of the app. The ban is set to go into effect in September. To help TikTok win its argument against the download ban, Pappas reaches out to some unlikely allies.

19:02In summer 2020, Pappas sits in her office reading through email. The sun beats in through the windows. The way the light reflects on her desk reminds her of Australia, where she's from. Her intercom dings and her assistant says that a representative from NetChoice is on the line. Papas sits up. NetChoice is a trade group that represents the biggest tech companies, including Amazon, Facebook, and Google. She makes her pitch. So, as you know, we've brought a suit against the government, objecting to this ban against TikTok. And while I know that many of your members might think that banning TikTok will help their bottom line, I'd like to argue that they should join us in fighting this ban.

19:45You're looking for our support? Yes. If a government is allowed to target one company, they can target another. Today it might be TikTok, another day it might be one of your members. Maybe Facebook, maybe Snap. With all due respect, the case against TikTok is unique. The companies we represent are American-owned. The government has no evidence that the Chinese government has ever acquired any data on American-based users. So they're talking about a hypothetical concern.

20:22I suppose.

20:33And look, other countries could use this as a precedent to ban American companies from accessing their markets.

20:46I appreciate you trying. I really do. Pappas hangs up and gets back to work. She really hopes that the tech industry can unite on this. On behalf of its members, NetChoice does file a brief in support of TikTok with the court. And on Sunday, September 27th, the day before Trump's ban is set to go into effect, a judge hears arguments. TikTok's lawyers argue that the ban is punitive and overly broad. that there are other ways aside from an outright ban to ensure that American data is not accessible by the Chinese government. The government's lawyers state that the step is necessary to protect national security.

21:25They file evidence that shows a high level of interaction between American data and IP addresses located in China, which the government argues is highly concerning. At the end of the arguments, the judge sides with TikTok. He blocks the Trump administration's ban on downloads of the app. It's the first in a string of victories for TikTok. In November, Joe Biden beats Donald Trump in the presidential election. And in December, another judge rules against Trump's executive order to ban TikTok. He says that Trump overstepped his power and that the ban was arbitrary and capricious. When Biden assumes power in January 2021, he rescinds Trump's order and asks for a new investigation into the national security threats posed by Chinese-owned apps.

22:15With a reprieve from the new administration, ByteDance decides it's not going to sell TikTok after all. Not to Microsoft and not to Oracle. But they are going to be proactive to prevent the Biden administration from implementing its own ban. So TikTok continues to expand their lobbying team. And TikTok's general counsel, Eric Anderson, starts conversations with the Committee on Foreign Investment about how TikTok can manage American user data in a way that will be acceptable to the U.S. government. To that end, TikTok begins working on a data strategy plan that they codename Project Texas. TikTok's idea is that they will partner with Oracle and have that company store all of American users' sensitive data, including phone numbers and birthdays, at one of their centers in Texas.

23:05This data would only be accessible to TikTok employees based in the United States. This protection, TikTok argues, will keep American data inaccessible to the Chinese government. They want to have a comprehensive plan they can present to the committee, one they are confident the committee will approve. ByteDance takes other steps to try to play nice with the U.S. government. In May 2021, ByteDance names Shozi Chu as the new permanent CEO of TikTok. Interim Global Chief Vanessa Pappas is named COO of the company. A Singaporean national, Chu went to the University of London for his undergraduate education and earned an MBA from Harvard Business School.

23:48The hope is that Chu can bridge the cultural divide between China and the United States. And while TikTok makes moves to secure its ability to operate in the United States, it continues to grow. In 2021, teens are spending two to three times as many minutes on TikTok as on Instagram. And Facebook is rapidly losing popularity with younger users. So in fall of 2021, Facebook executives decide that their detente with TikTok is over. They may have been willing to collaborate to stop a worrying legal precedent when Trump tried to ban it. But now it's time to aggressively beat back the threat from TikTok, and they look for outside help.

24:35It's 2021 in Arlington, Virginia. A partner with a lobbying firm Targeted Victory stands in front of a whiteboard in a conference room at the company headquarters. He uncaps a marker and writes, The real threat on the board, and underlines it. He turns to the eager young staff members seated around the conference table. He says that Facebook, recently renamed Meta, has asked them to put together a pitch campaign that paints TikTok as the real threat to teenagers' well-being, to try to turn users away from TikTok and back to Meta products. They're not sure yet which threat will gain the most traction, so they're brainstorming.