Microsoft is to spin off TikTok from its Chinese parent, ByteDance, in a technologically complex effort that could test the Patience of the Trump administration, people familiar with the matter told Reuters on Monday.
Mr Trump has given Microsoft until September 15 to make an acquisition plan to protect the personal data of Americans stored on the short video app. He also ordered Microsoft to be barred from making an acquisition if no agreement had been reached by then.
After reaching an agreement, Microsoft is negotiating a transition period to allow time to technically separate TikTok from Bytedance.
Some sources said the complete separation of TikTok from its parent, as envisioned by Mr. Trump and lawmakers, could take a year or more.
TikTok is similar in functionality and technology to Bytedance’s Douyin, which is only available in China and shares technology resources with TikTok and other bytedance assets, people familiar with the matter said.
A source familiar with the process told Reuters that Bytedance began working on the technology separation under U.S. government review a few months ago. According to Reuters, the company has begun planning a spin-off as part of its strategy to shift power away from China.
While the code for the application that determines the look and feel of TikTok has been separated from Douyin, the server code is still partially Shared in other bytedance products, the source said. The server code provides basic functions of the application, such as data storage, algorithms for tuning and recommending content, and management of user profiles.
Ryan Speers, a network Security expert with River Loop Security, said that in order to ensure non-interrupted TikTok services, Microsoft may need to rely on bytedance code when reviewing and modifying code and migrate to a new back-end infrastructure to serve users.
Aimen Mir, a former deputy assistant secretary of the Treasury at CFIUS and a partner at Freshfields Bruckhaus Deringer, said any continued technical or operational reliance on Chinese companies would be accepted by the Committee on Foreign Investment in the United States.
In the past, He said, CFIUS has demanded more safeguards before a sale, including keeping U.S. operations as separate as possible from foreign sellers.
Another challenge for Microsoft is how it will move away from TikTok’s recommendation engine, which is seen as TikTok’s secret weapon and allows users to focus on the screen. The engine, or algorithm, provides functionality For TikTok’s “For You” page, which recommends the next video based on an analysis of user behavior.
TikTok USES a recommendation algorithm independent of Douyin, according to two people familiar with the matter. But what makes it work is the content of the input algorithm and user information.
“Without data, algorithms are worthless,” said Jim DuBois, a former chief information officer at Microsoft. Dubois is a risk consultant for Ignition Partners. “The segmentation of data from these countries is an important task.”
Microsoft’s talks to buy the US TikTok’s operations in the US, Canada, New Zealand and Australia complicate the separation. TikTok must be separated not only from bytedance, but also from other regions of TikTok. This adds to the technical challenges due to the large amount of data involved.
“The most important part is the separation of user data — both content and user data,” Mr. Dubois said, noting that hard drive data might need to be transferred between Bytedance and Microsoft.
TikTok has said its user data is stored in the United States. The company has a backup in Singapore, separate from the rest of the company.
Karen C. Hermann, a transaction lawyer at Venable LLP, said the proposed timeline makes closing a deal challenging: “It can sometimes take months or even months to determine the business needs of the divestiture business, its proprietary USE of IP and other assets, and assets and IPs Shared with other businesses in the corporate group.”