With the Tok Tikking, Twitter Talk Makes Some Sense...
How many layers can an onion have? If that's not an ancient Chinese proverb, it should be. This report from Bloomberg News late yesterday is all kinds of wild for all kinds of reasons. First and foremost, no authors – none – are listed, just "Bloomberg News". Is this some sort of attempt to protect the journalists who got the information? Was the information obtained through other means? Really, this all comes down to just how good – or bad – this source is...
Chinese officials are evaluating a potential option that involves Elon Musk acquiring the US operations of TikTok if the company fails to fend off a controversial ban on the short-video app, according to people familiar with the matter.
And "people" implies not just one source otherwise it would read "a person familiar with". Or it could imply that the source is not a person but a "body", such as a political body perhaps?
Senior Chinese officials had already begun to debate contingency plans for TikTok as part of an expansive discussion on how to work with Donald Trump’s administration, one of which involves Musk, said the people, asking not to be identified revealing confidential discussions.
Again, that has to be a pretty incredible source to know what "senior" officials inside a country are debating, a country which is in a fairly hostile relationship with the country where the news organization is based, no less. Unless it's a source that is trying to manipulate the situation, of course. I'm not saying that's the case, but without Bloomberg naming the source, it's just impossible to know. Obviously you have to believe they wouldn't run something that they think is being used to manipulate a situation, but there are myriad ways this game of chess can be played – what if the source doesn't know they're being manipulated, for example?
This isn't the chaos inside of OpenAI, this is the Chinese government.
Under one scenario that’s been discussed by the Chinese government, Musk’s X — the former Twitter — would take control of TikTok US and run the businesses together, the people said. With more than 170 million users in the US, TikTok could bolster X’s efforts to attract advertisers. Musk also founded a separate artificial intelligence company, xAI, that could benefit from the huge amounts of data generated from TikTok.
Chinese officials have yet to reach any firm consensus about how to proceed and their deliberations are still preliminary, the people said. It’s not clear how much ByteDance knows about the Chinese government discussions or whether TikTok and Musk have been involved. It’s also unclear whether Musk, TikTok and ByteDance have held any talks about the terms of any possible deal.
That last bit is also key here, of course, as it gets out ahead of any TikTok denial – which, naturally, came shortly after this report. As a company spokesperson told Variety (sort of a funny publication to issue such a rebuttal to, but kudos to Todd Spangler for clearly asking the right question, fast):
“We can’t be expected to comment on pure fiction,” a TikTok rep said in reply to Variety‘s request for comment.
Which is, itself, a comment, but I digress... Again, Bloomberg is already saying TikTok may not know about such discussions. And it's possible that ByteDance doesn't either. That would be embarrassing for both entities, but it also gives them both plausible deniability to make such a statement. Is it a stretch to think that the report can be true and the statement can be given in earnest? Certainly not.
But again, there are other possibilities here! What if China is signaling that they would be willing to talk? What if ByteDance and/or TikTok is okay with China signaling they'd be willing to talk but wants to keep that level of deniability so as to maximize deal optionality? What if someone with ties to Musk is trying to sway this all in some way (again, I'm not saying Bloomberg shouldn't trust their sources, or that we shouldn't trust them, this just feels like a complex situation!). The possibilities here are nearly endless.
But just to Occam's razor it:
The talks in Beijing suggest that TikTok’s fate may no longer be in ByteDance’s sole control, said the people. Chinese officials recognize they will face tough negotiations with the Trump administration over tariffs, export controls and other issues, and they see the TikTok negotiations as a potential area for reconciliation, they said.
The Chinese government holds a so-called golden share in a ByteDance affiliate that gives it influence over the company’s strategy and operations. TikTok maintains that the control only applies to the China-based subsidiary Douyin Information Service Co., and has no bearing on ByteDance operations outside China. Still, Beijing’s export rules prevent Chinese companies from selling their software algorithms, like the one integral to TikTok. Because the Chinese government would have to approve of a sale that includes TikTok’s valuable recommendation engine, it has a significant voice in any possible deal.
Donald Trump has been explicit in his desire for a deal here, and that handed China some leverage as long as they could grab the wheel, which they can, thanks to that "golden share". TikTok can say that only applies in China, but come on, without the Chinese element, this goes nowhere, so it's effectively control over the whole thing. A TikTok-for-Tariffs trade is sort of silly, but hey, it's a deal! The incoming president loves deals! And tariffs!
And he loves Musk! At least for now. Without question, merging TikTok with Xitter would be a massive win for the administration's PaidPal. It would turn what on paper looked like a disastrous $44B takeover into... something a lot more interesting. While the election itself already did that to some extent, this could make the actual network/company a true player, not just a write-off.
Musk has seemingly already been using xAI to sort of back into a better situation for Xitter itself (and the shareholders), but this would make Xitter immediately relevant in not just the zeitgeist, but in business. While TikTok is also losing a massive amount of money, it gives Xitter several minerals they crave. And it gives TikTok a credible way to break away from ByteDance as presumably xAI could cook up an algorithm to replace the one that they won't be allowed to take with them (nor would the US want them to).
It won't be easy, but it all sort of works. You don't really even have to squint to see it.
The main hold-up – beyond China itself, but those Musk/Tesla dealings and relationship work over the years give this more credibility than other such deals – would probably be price. Bloomberg throws out a $40B - $50B range, which still feels a bit low. I mean, again, Xitter itself was $44B. Yes, that deal made no sense, but there are other rationales for price beyond just the metrics and numbers – just ask $DJT. TikTok + Xitter + xAI would become a $100B+ juggernaut overnight, one immediately on the path to go public (should Musk so choose).
Also, doesn't this just feel like the type of pantsing move Musk would love to pull on Mark Zuckerberg? "Oh, you think you have sway now with the government? How cute..." How pissed would Zuck be with a Xitter/TikTok deal? Hell, he might shut down the metaverse to put all resources into going after an Elon-owned TikTok.
Anyway, it all comes down to that Bloomberg source. And who is playing whom here, if anyone. There are near infinite ways this can still play out, but the straightforward read of the situation is compelling for all sides – including, by the way, TikTok, which is undoubtedly on the verge of a ban without a deal.1 You-know-who would love to announce something like this on day one in office.2 You know, something for the kids.3
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 It may obviously get a stay-of-execution to hammer something like this out, but it does not feel like the "free speech" argument is going to carry the day here. And even without a deal, there are other long-term issues now...
2 The above would seemingly also work nearly as neatly for, say, Microsoft. Not quite as neatly on the consumer side, as they're lacking the Xitter element and would need a clearer consumer AI story, but from a cloud and business perspective... Oracle is in the same boat (but may want to get in Elon's or Microsoft's boat?)... Less neat? The Frank McCourt/Mr. Wonderful deal.
3 Vine! Another fun layer of this: Xitter owning TikTok would restore some amount of order to the universe in which Twitter should have owned (and did, for a time), but instead got owned by...