First, it was high schoolers who gave TikTok attention, then brands followed, and now the U.S. government is taking notice of the app over concerns about its Chinese ownership.
On Friday, Reuters reported that U.S. national security officials are acting on calls from prominent senators to investigate TikTok’s owner ByteDance. The U.S. is retroactively taking up a review of TikTok’s $1 billion purchase of Musical.ly in 2017, according to the report.
"While we cannot comment on ongoing regulatory processes,” a TikTok spokeswoman said in a prepared statement provided to Ad Age, “TikTok has made clear that we have no higher priority than earning the trust of users and regulators in the U.S. Part of that effort includes working with Congress and we are committed to doing so.”
TikTok has more than 30 million monthly users in the U.S., according to TikTok’s pitch deck given to advertisers. Brands have been dipping their toes into the app, where they can sponsor "hashtag challenges," which are trendy video promotions, and they can buy full-screen video takeovers. Now, advertisers may have to consider the ongoing implications of a U.S. security review, and some agencies are even telling brands to take care on TikTok given the climate. “We’ve already been cautioning advertisers over brand safety concerns and offering viable alternatives," says an ad agency executive, who spoke on condition of anonymity, but works with brands on social media campaigns. "We’re continuing this cautious posture.”
Here's how TikTok and advertisers could be affected as the company faces growing scrutiny:
Why the fuss?
“Any platform owned by a company in #China which collects massive amounts of data on Americans is a potential serious threat to our country,” Senator Marco Rubio tweeted on Friday, following the report of the investigation.
Last month, Rubio recommended the review to the U.S. Treasury Department, which has the authority to investigate foreign acquisitions, like the deal that TikTok pursued with Musical.ly.
Last week, Senator Chuck Schumer and Senator Tom Cotton sent a letter to the country's acting director of national intelligence asking for "an assessment of the national security risks posed by TikTok and other China-owned content platforms in the U.S.”
Will this affect advertisers?
So far, advertisers have not been overly concerned about TikTok’s ownership structure or its relationship to China. In fact, advertisers and major entertainment companies have been rushing to join TikTok.
Brands like Kind, Walmart, Nike, Chipotle, Ralph Lauren, the National Football League and the National Basketball Association have all worked with TikTok.
“From the brand side, it hasn’t been raised as an issue,” says Ryan Detert, CEO of Influential, a social media marketing and technology firm. “In fact, interest has increased in the last couple of months from Fortune 1,000 brands.”
“We haven’t heard anything recently from our clients about any issues they have encountered due to security concerns around TikTok,” according to Lili Meng, a senior specialist at Gartner, the digital advisory firm. “That said, I’d imagine this may make some brands approach the Chinese platform more cautiously and pull back, or pause some of their efforts.”
In August, TikTok hired Omnicom’s PHD as its global media agency. “They have huge growth ambitions and they are looking for an agency that's focused on growing through doing really smart things, not through cheap, procurement-led media pitching," PHD U.S. CEO Nathan Brown told Ad Age at the time.
What do TikTok’s rivals say?
With the rise of TikTok as a social media destination in the U.S., it’s no wonder that Facebook, Snapchat and other platforms have taken notice of the company, too.
Facebook CEO Mark Zuckerberg has even raised the specter of TikTok while defending his own company. U.S. regulators are investigating Facebook, Google, Amazon and Apple over concerns about their dominance in tech. There have even been calls to “break up” Facebook, which owns WhatsApp and Instagram.
Zuckerberg has argued that if U.S. tech is over-regulated, then China or other foreign powers would gain an advantage. Last month, Zuckerberg went on a public relations offensive with a speech at Georgetown University, where he seized on reports that TikTok could be censoring videos of Hong Kong protesters against China. "Until recently, the internet in almost every country outside China has been defined by American platforms with strong free expression values,” Zuckerberg said in his speech. “There's no guarantee these values will win out," Zuckerberg said.
Last week, Snapchat CEO Evan Spiegel addressed TikTok in an earnings call with Wall Street analysts, who asked how his company views the emerging rival. “We definitely consider them a friend,” Spiegel said.
TikTok is a major advertiser on Facebook, Snapchat and YouTube. Also, Spiegel noted that TikTok is a developer partner that builds services that integrate with Snapchat.
Can this hurt TikTok?
The U.S. already disrupted another Chinese tech acquisition this year. Kunlun, the Chinese-based firm that bought Grindr, divested its ownership of the gay dating app after it was subject to a rigorous review in the U.S.
It’s clear that TikTok is taking the oversight seriously. Last month, TikTok even retained the services of K&L Gates, a legal consulting firm led by two former congressmen.
TikTok is owned by ByteDance, which is based in China, but the company claims that data it collects about users is stored in the U.S. ByteDance operates a different app called Douyin, a TikTok clone, for audiences in China, according to the company.
“TikTok’s company line is that all U.S. data is housed in the U.S. and headquartered in L.A.,” Detert says. “As long as that’s the narrative they seem to be in good standing with brands and agencies.”