RIL is engaged in an early-stage exercise to evaluate the possibility of investing in TikTok’s India operations, according to at least six people aware of the matter. The development comes even as the clock is ticking on Microsoft’s fast-tracked negotiations to buy large swathes of the Chinese short-video platform’s global operations ahead of the September 15 deadline set by the Donald Trump administration.Kevin A Mayer, CEO of TikTok and COO of its privately held parent ByteDance, is believed to have reached out to top RIL officials recently.Following this, RIL and its telecom unit Jio’s corporate development, strategy and M&A teams are evaluating if any investment or a buyout makes sense at this point. A few external specialists have also been sounded out for providing key inputs, said some of the sources mentioned earlier.“Both sides are in touch directly,” said an official.RIL refused to comment on what it termed “speculation and rumours”. “Our company evaluates various opportunities on an ongoing basis,” the RIL spokesperson said. “We have made and will continue to make necessary disclosures in compliance with our obligations under Sebi rules and our agreements with the stock exchanges,” the spokesperson added.TikTok did not respond to queries. Microsoft declined to comment. Mayers did not respond to a separate ET query sent through LinkedIn in-mail.77515590Talks are at a preliminary stage and may not lead to a transaction, said the sources, as there are multiple hurdles.ByteDance is facing mounting political pressure globally over security concerns and data-sharing practices. India banned TikTok in late June, along with 58 other Chinese apps, citing a threat to national security. The ban has affected the app’s 200 million registered users in India.According to one of the sources, the India business of TikTok, though loss-making, is likely to be valued at $2.5-5 billion — or about 10% of the reported $50 billion valuation for the entire company.An official close to RIL told ET that the group might wait and let TikTok’s valuation fall further, and then move in “strategically”, rather than “rescuing a Chinese brand” at this point in time.The Financial Times had reported on August 6 that Microsoft was evaluating the possibility of buying all of TikTok’s global operations, including the Indian and European units. It also quoted a person close to “ByteDance in India” as saying that if Microsoft did not buy the Indian unit, the Chinese company could sell TikTok’s operations in the country to other foreign or Indian buyers.BACK-UP PLAN?Industry sources said that RIL could be part of a possible ‘back-up plan’ for ByteDance’s founder and CEO Yiming Zhang, as far as the Indian operations are concerned.Others believe RIL can leverage its existing partnership with Microsoft (for cloud and enterprise solutions) and do a separate back-to-back transaction with the US giant for the India operations after the global carve-out is complete.Microsoft and Facebook have had a longstanding loose alliance, while Facebook has invested in Jio along with Google.“This would make sense even for a global buyer, since handling the regulatory environment in India is crucial. Jio would have to satisfy the Indian government that the app is not owned by the Chinese,” said a person close to the development. “Then, there is the matter of Indian data: How are they going to slice and dice it? This kind of deal requires work, but is not impossible. It was done when Flipkart bought eBay India,” quipped another lawyer.GLOBAL PHENOMENONUser-generated short videos with special effects set to music, the platform’s staple fare, have been a runaway success globally.Despite continued criticism of allegedly harmful and lascivious content, security concerns expressed by politicians, and even a temporary ban imposed on new downloads by the Madras High Court, the app became the most downloaded social networking app — ahead of Facebook and WhatsApp — in early 2019 in India.When the app started monetising, top advertisers such as Pepsi, Myntra, Snapdeal and Meesho lined up.TikTok has been downloaded 659.5 million times in India over the past few years, accounting for about a third of its global downloads, according to estimates by Sensor Tower.And that is exactly what Jio might want to capitalise on, feel industry watchers. Jio’s entry into the short-video space would act as a “foreclosure notice to competitors”, said a lawyer who works with global technology firms, requesting anonymity.Starting with tier II and III cities, villages and towns, TikTok’s popularity has reached bigger cities and metros as well, and this compliments Jio’s catchment area for its user base.Moreover, TikTok has expanded into genres such as educational content, fitness and cooking videos, similar to China, where it even does lending and social commerce.“Once you have the captive user base, you can monetise that,” said an old-time RIL watcher. “On the back of an asset like TikTok, Jio can potentially command a premium in its upcoming IPO. But it would also then compete directly with Facebook.”“If Jio acquires TikTok India, it gives it an entry into social media space,” said Rahul Rai, an anti-trust lawyer. “If Jio takes TikTok data to cross-pollinate other businesses, is it anti-competitive? No.”CHALLENGES GALORECarving out a tech-intensive app is extremely challenging with arguably no global precedent. Most believe it would be easier to simply carve out the non-China operations, house them in one entity and sell in one go to tech giants such as Microsoft (which is reportedly in the fray) or to rivals such Twitter (which has also reportedly been approached for a possible combination) or even bulge-bracket PE investors such as General Atlantic and Sequoia (that are believed to be queuing up with proposals of transferring majority ownership of TikTok to them).ByteDance-owned Douyin, which is available only in China — TikTok’s local counterpart — has been kept out of these negotiations.TikTok’s secret sauce has always been the recommendation engine that keeps users glued to their screens. This engine, or algorithm, powers TikTok’s ‘For You’ page, which recommends the next video to watch based on an analysis of user behaviour.These recommendation algorithms are independent from Douyin, but the server code is still partially shared across other ByteDance products, sources add. The server code provides basic functionality of the apps such as data storage, algorithms for moderating and recommending content and the management of user profiles.“Splitting TikTok can dilute its IP — source code, AI machine learning tools, brands. The algorithms are worthless if not overlaid with customer data. And segmenting the data into country-specific parcels would be a herculean task with serious legal complications,” said an official.ByteDance’s roughly 2,000-strong India team does not include the product team or the coders, who sit in Beijing, Shanghai, Singapore and Los Angeles. Most of the Indian data, said company officials, is stored on cloud service providers of players such as Google, AWS in Singapore or the US. Locally, the operations teams focus on managing content creators, moderation, ad sales, strategic partnerships and marketing.
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