Following his inauguration on Jan 20 (Monday), US President Donald Trump signed a series of executive orders, including an order for the US Attorney General (AG) not to enforce the law (Protecting Americans from Foreign Adversary Controlled Applications Act or PAFACA) banning TikTok, for a period of 75 days, effective immediately. TikTok had gone dark starting late Saturday in advance of the ban going into effect on Jan 19 2025 (Sunday). With Trump’s assurances on Sunday the day before the inauguration, TikTok began restoring its service that afternoon, which meant it was dark for about 12-14 hours. TikTok remains off the Apple and Google app stores, however, which means it cannot be downloaded by new users.

The TikTok saga has played out largely as we expected. The national-security grounds for the government’s case held sway with the US Supreme Court, which unanimously upheld the law. Trump confirmed his change of heart regarding TikTok and has intervened. He has undertaken the primary option available to him at this point in directing his Justice Dept (DOJ) – likely soon headed by incoming AG Pam Bondi – not to enforce the ban. He can later exercise his prerogative to extend the deadline one time for 90 days (from the day the ban went into effect) if there is “significant progress” towards a divestiture, although this would only extend the deadline by another two weeks. (The law requires that binding legal agreements be in place to execute a divestiture during this 90-day period.)

As we had previously described, the ban is being facilitated by app-store owners Apple and Google, who are necessarily complying with the law given that violations incur fines of $5,000 multiplied by the number of applicable users. (Internet hosting providers such as Oracle, Amazon Web Services, and Akamai are also liable, but Larry Ellison-controlled Oracle and Akamai have reportedly chosen to rely on Trump’s assurances.) Assuming 170M TikTok users in the US, violations have the potential to incur a liability of up to $850B. Legal watchers have noted that the president may not have the power to eliminate liability from those who violate the law while it’s not being enforced.

Now that the app stores have complied with the law, TikTok users who have already downloaded the app can still use it but it will eventually become unusable without app-store updates/fixes. New users are no longer able to download it, and existing users cannot redownload TikTok to new devices. In-app purchases and new subscriptions are also disabled. All of this holds true for even foreign visitors to the US.

It’s not just TikTok either – all of ByteDance’s apps fall under both the original ban and Trump’s non-enforcement order. These include popular video-editing app CapCut, Instagram-like social platform Lemon8, enterprise collaboration app Lark, AI photo-editing app Hypic, TikTok-affiliated apps, and others.

While there are alternative pathways available (e.g. a change to the law), the best outcome for Trump would be a sale to US entities, especially since he and many of his appointees have positioned themselves as China hawks. The law states that any new owner of TikTok must not be “controlled by a foreign adversary” – meaning that persons/entities from China, Russia, North Korea, or Iran may not collectively hold a 20% or larger stake.

Because non-Chinese institutional investors own about 60% of ByteDance, there may be options available to effect a change of control without a sale to another party. For instance, TikTok could be spun off into a company partly owned by existing investors, with ByteDance and other Chinese equity holders retaining a just-under-20% stake.

ByteDance owns the key recommendation algorithms that power TikTok’s feed. Under the law, a “qualified divestiture” precludes “the establishment or maintenance of any operational relationship between the United States operations of the relevant foreign adversary controlled application and any formerly affiliated entities [ByteDance] that are controlled by a foreign adversary, including any cooperation with respect to the operation of a content recommendation algorithm or an agreement with respect to data sharing.” This seems to narrow the options to either a fully divested TikTok without the algorithms or a US-China joint venture with unfettered access to the algorithms.

While China has strongly opposed a change of control in the past, it is now signaling it is open to a deal for at least part of TikTok. It said recently that private companies can make their own M&A decisions, despite content-recommendation algorithms still being on China’s export-control list.

There seems to be room for negotiation, perhaps trading some relief on Trump’s expected tariffs for approval of a TikTok sale to a US company or investors. Trump has said he wants control to be split 50:50 between the US and China, and that he could provide an acquirer with a permit to operate in the US in exchange for the US government being granted 50% of the joint venture. (A 50:50 split would violate the current law, which requires that foreign adversaries hold 20% or less.)

Buying TikTok will take deep pockets, given its estimated US revenue of $16B–$20B. (It’s not clear whether TikTok is profitable – it reports paying $2B in US taxes but investors say it sees sizable losses.) Trump has floated the idea that TikTok could be acquired by one of his allies, Elon Musk (who spent $250M+ helping Trump get elected) or Larry Ellison. Musk, in particular, has relationships in China and the government is reportedly more open to an acquisition by him or another American they trust. On the other hand, Larry Ellison controls Oracle, which already houses most of TikTok’s servers (ever since TikTok’s Project Texas to store US data on US soil), resulting in a less complex transaction.

The Project Liberty consortium (led by billionaire Frank McCourt, with involvement from Shark Tank investor Kevin O’Leary) has made a formal offer to buy TikTok without its algorithm for $20B. (Other estimates have ranged from $30B-$50B, and Trump himself has speculated that TikTok could be worth $1T.) AI search engine Perplexity has submitted a bid for a merger in which TikTok would bring more video content into Perplexity and most of the existing ByteDance investors would retain their equity stakes. Creator MrBeast has also joined a consortium putting together a bid. Other rumored buyers include Microsoft, Amazon, Walmart, video-sharing platform Rumble, ex-Activision CEO Bobby Kotick, and ex-Treasury Secretary Steve Mnuchin.

In addition to the Trump administration and Chinese government, a prime mover on a deal will likely be ByteDance co-founder Zhang Yiming. He stepped down as chair of the board in 2021, relinquishing the role to his co-founder Liang Rubo. However, Zhang still holds a 21% equity stake in ByteDance as well as majority control through his supervoting shares, and remains active in strategic decision-making and initiatives.

Opportunists are already scrambling to capitalize on the situation. There have been reports of hundreds of online listings selling used phones with TikTok already downloaded, for up to $50K each. Meta, YouTube, X, Snap, Substack, and Triller have all been working to lure TikTok’s creators to their platforms. X, Bluesky, and Meta-owned Instagram have introduced or tested TikTok-like vertical layouts. Investor Mark Cuban has put out a call for founders building TikTok alternatives on Bluesky’s open protocol.

Meta, in particular, has been preparing for an influx of users, promoting its apps in the run-up to the ban. It has introduced ranking systems that make it easier for new creators to break through, an array of new TikTok-like features, and a TikTok Shop-like shoppable-video feature. Meta even announced a new video-editing app called Edits – which bears striking similarities to ByteDance’s CapCut (the most popular video-editing tool for creators) – on the day the ban took effect.

Meta’s popular short-form video feature Reels on Instagram and Facebook is expected to see the most growth among users and advertisers on the back of TikTok’s ban. (Reels largely replaced TikTok in India after TikTok was banned.) Google’s YouTube Shorts is also expected to benefit from the ban.

The race is on now to transition control before the 90-day window is up (assuming Trump extends the deadline to the full 90 days). If the negotiations and maneuvers take too long and time runs out, the Trump administration could extend its non-enforcement order or push for a legislative solution. That could weaken Trump’s negotiating position, however. In the meantime, the value of TikTok US will deteriorate as its app experience and user base begin to erode (and can’t be replaced with new users).

Dec 13 2024 (3 Shifts): Will TikTok actually get banned?

Apr 26 2024 (3 Shifts): TikTok must cut ties with its Chinese owner or face a US ban