In what is being interpreted by many as a deliberate move to stymie the sale of TikTok to an American firm, the Chinese government has enacted restrictions on the sale of artificial intelligence technology. One of TikTok's key features is an AI-driven video discovery feature that provides new videos to users based on their preferences.
On Friday, China introduced restrictions on how Chinese based artificial intelligence technology could be exported. The restrictions require ByteDance, the current owner of TikTok, to obtain a license to sell the app's video discovery AI. The timing of the restrictions, when American firms are competing for control of the massive social media platform, hardly seems coincidental.
"This is clearly directed at slowing down ByteDance's deal negotiations in this game of high stakes poker," says Wedbush analyst Dan Ives. "With TikTok's key algorithm at play, ByteDance/TikTok will likely now need to go through a licensing procedure around the need to transfer software code from China to the U.S."
The problem with restricting the sale of TikTok's AI, which will either force ByteDance to sell the app without the AI feature or will derail the deal in its entirety, is that the discovery feature is paramount to the app's success. The AI studies a user's habits and develops specialized recommendations based on their activities, whether it be watching videos, liking them, or commenting. These targeted recommendations can keep users in the app for hours at a time.
In early August, Microsoft (NASDAQ: MSFT) confirmed that it was in talks with ByteDance to buy the embattled social media app. Microsoft quickly came out as the top contender for the purchase of the app, an interesting prospect given Microsoft's very limited experience with social media. In an interesting turn of events, Walmart (NYSE: WMT) joined Microsoft in a team up to buy the app. Having even less experience in social media than Microsoft, the alliance raised eyebrows in the press. Still, it was quickly pointed out that TikTok's advertising model, as CNN Business put it, "[is] like a modern version of shopping via QVC or the Home Shopping Network."
It was also rumored that Oracle (NYSE: ORCL) was also in the running to snatch up TikTok's American assets. The Wrap reported a potential $20 billion deal to buy TikTok, which reportedly also had the support of the White House.
It is unknown if the new regulation will derail the sale of TikTok, and if any of the contenders are expressing reservations about the sale. It is likely that should the Chinese government prevent the sale of TikTok's AI components, the sale may very well fall apart. Even if the app is obtained, but without the AI, TikTok may not be as lucrative as a platform for whichever American firm obtains it.