Analysis: With U.S. Deal Done, TikTok Merchants and ByteDance Face New Challenges

A new joint venture between ByteDance, TikTok's Chinese parent company, and several high-profile investors has significantly reduced the likelihood that TikTok will be forced to shut down its U.S. operations due to longstanding security concerns from Washington. Nonetheless, unresolved issues surrounding algorithm control and stricter regulatory compliance still pose risks for ByteDance and the merchants using the platform. This initiative reflects years of regulatory pressure that TikTok has faced from U.S. authorities concerned about data privacy and content manipulation by the app's algorithms. [para. 1]

Last week, TikTok CEO Shou Zi Chew revealed that ByteDance and TikTok had struck agreements with three major investors to create a U.S.-based joint venture. This marks a possible turning point for the company, which has operated under intense scrutiny in the U.S. market. [para. 2]

The ownership structure of the new venture is complex and designed to address these pressures: upon closure, expected by January 22, a consortium comprising Oracle Corp., private equity firm Silver Lake, and Abu Dhabi-backed MGX will hold 50% (15% each), while existing ByteDance shareholders will retain 30.1%, and ByteDance itself will have 19.9% [para. 3]. This setup is crafted to satisfy U.S. regulators' demands for reduced Chinese influence over the platform. [para. 3]

Operationally, the new joint venture will oversee areas of critical regulatory concern, including data protection, algorithm security, content moderation, and software assurance within TikTok’s U.S. sphere. ByteDance will license its proprietary algorithm, but sensitive U.S. user data will remain domestically stored in Oracle-managed cloud infrastructure, in an added layer of data protection. [para. 4] However, core business operations such as e-commerce, advertising, and marketing will still be managed by other U.S.-based TikTok entities wholly owned by ByteDance. The future management of TikTok’s lucrative livestreaming business remains undecided. [para. 5][para. 6]

Legal experts state this model serves as a template for Chinese companies aiming to stay in the U.S. without maintaining equity control, offering a better route than outright withdrawal. However, ultimate operational control and the fate of its algorithm could remain under scrutiny if U.S. authorities push for further concessions. In previous investigations, U.S. regulators alleged TikTok's algorithms could be used to manipulate user content, a claim that may resurface. [para. 7][para. 8]

To improve compliance, TikTok launched “Project Texas” in 2022, investing over $2 billion in a plan to store sensitive data on U.S. soil under Oracle’s oversight, along with continuous review by third-party monitors and content-moderation audits. Despite these technical efforts, U.S. regulators continue to focus on ownership and governance issues, scrutinizing board make-up and shareholder identities. [para. 9][para. 10]

Commercially, TikTok continues to thrive. In the recent Black Friday to Cyber Monday period, TikTok Shop surpassed $500 million in U.S. sales, a record-breaking figure with a nearly 50% year-over-year increase in shoppers. Some merchants expect to double or even triple their sales this holiday season if regulatory clarity is achieved. [para. 11][para. 12]

Nonetheless, other sellers remain cautious, anticipating even stricter compliance requirements on the horizon, including tighter controls on content and increased regulatory oversight. [para. 13][para. 14] The shift of algorithm and data control to the joint venture raises further questions about the future of TikTok’s e-commerce operations, especially regarding targeted advertising. [para. 15]

Recent policy changes on TikTok have already impacted cross-border sellers, including a ban on direct shipping from China and new rules penalizing repeated low-engagement content or fake shipments. Some merchants expect this environment to encourage brand-building and more substantial product categories going forward, but with greater operational complexity. [para. 16][para. 17]