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TikTok U.S. sale is not about the algorithm, it's about user base: Professor

The sale of the U.S. branch of TikTok has hit a road block over its algorithm. IMD Business School LEGO Professor of Management and Innovation Howard Yu joins the On the Move panel to discuss.

Video Transcript

ADAM SHAPIRO: We are going to head toward something else we need to talk about, which is TikTok and what's going on, not only with TikTok and a potential sale, but also the impact on everything with these tech stock splits that we've been watching this week. We invite into the stream Howard Yu. He is IMD's Business School LEGO Professor of Management and Innovation.

He is joining us from Switzerland, Howard, always good to see you. Let's start with TikTok, though. And you point out that when governments, for whatever reasons, interfere with business, it may seem one thing to be socially responsible, but as you said, it's a dangerous line to cross to bend the will of business executives to politicians. So what does that mean for TikTok?

HOWARD YU: I know. I mean, the real uncertainty here is all these changes and regulation is basically done on an ad hoc basis. There's no public hearing, there's no consultation with the industry group, and is really declared by executive orders. And as a result, what I'm seeing here, with senior executive in Switzerland, is people postponing investment in building product, changing strategy.

They adopt pretty much a wait and see approach. For TikTok per se, unfortunately, they are getting squeezed between the two giants, US and China. It's like everyone is trying to rip them apart. Whether the sales can go through even, that put a big question mark now.

AKIKO FUJITA: Howard, we had the executive chairman of Triller on yesterday, who has reportedly bid for TikTok, although, TikTok hasn't necessarily acknowledged it, who basically said, look, we don't need the algorithm. We don't need the technology. We want the user base, and we want the platform. And so our case makes more sense.

And I'm wondering, now that we've got this expanded export [? control list ?] from China, can TikTok still command a $20 to $30 billion valuation as we've heard? And are there-- is there room, maybe, for other bidders to jump in and say, the tech in the data isn't the reason we want this?

HOWARD YU: Right, from day one, it's really not about the algo because the executive order from the Trump administration is not letting TikTok, if it's spin off independently in the US, to continue to use the Chinese technology anyway. So that part will be gone nonetheless. I mean, the remaining value of the TikTok is all these influencer between the 16 to 24-year-old group.

So whoever is getting it, whether it's Walmart or Oracle, is really galvanizing this new audience. Now, for Walmart, it could be a huge boost in terms of e-commerce on a new segment, which they really don't have in the past. But you're right. I don't think it's about the algo, it's really around a user base that TikTok has been generating right now.

AKIKO FUJITA: But hasn't that been the argument from the beginning, why TikTok was so attractive was the algorithm, was the technology? So where does that leave Microsoft and Oracle?

HOWARD YU: So what's really interesting right now, if you're looking at the major bidder right here is, well, you know, Oracle could potentially squeeze some of the remaining algo to use it. But Microsoft don't need that. I mean, Microsoft build the best AI in the world as well. But together with Walmart, that makes a lot of sense.

Because if you're looking at TikTok equivalent in China, the big deal is this live streamer doing-- live streaming for e-commerce when China is under lockdown. All these sales associated turned their home into department store and generate huge sales. You don't need to look at Chinese brand to see the impact.

You look at Nike in China, Walmart in China, they're all big on live streaming. I think that's the big goldmine that potentially a partner with Walmart, for instance, would allow Walmart to leapfrog even Amazon in e-commerce to really bring some type of new form of e-commerce to the United States.

ADAM SHAPIRO: I want to talk about something that we're following directly. And whether you're an active investor or a passive investor, the stock splits that we've witnessed, Tesla, 5-for-1, we got Apple 4-for-1. If you're a passive investor, chances are, if you're in an index fund, you gained part of the split from Apple.

So with these stock splits, what is good, what is bad in your view going forward? I mean, it makes it more accessible for the individual active investor, but don't people in index funds potentially gain too?

HOWARD YU: Right, in our finance class with senior executive, we always remind, you know, stock split doesn't change the business fundamental. It increase liquidity for retail investor who really want to buy an individual stock, that's it. But what's really interesting, you see the rally in the market, whether it's Apple or Tesla. It really is a reflection right now.

It's too much liquidity pumped by the [INAUDIBLE] So any good news, or any news, as a matter of fact, becomes good news. And so with all this excess of liquidity, they have to go to somewhere. And I think this is the reflection of the rally. It's, again, it's another sign how much the stock market is running away from our real economy.

JULIA LA ROCHE: Howard, it's Julia La Roche. I just want to broaden out the conversation and talk about some of the changes we've seen so far in 2020 just from a corporate strategy inside the, I guess, virtual boardroom these days. How do you think politics has really kind of shaped how companies are being run now?

HOWARD YU: I mean, if you look back to just as recent as three, four years ago, you know, politics is sort of a discarded word in corporate boardroom. I mean, we assume technology is going to converge. We assume the world is going to continue to be globalized. You'd be one single great product you sell around the world.

What is happening right now, to my huge concern, is that government, whether it's China or the United States, are basically having all these ad hoc intervention. It's almost like, well, if you're in trouble, the government is going to buy security in the open market to keep you alive. But you have to listen to the government.

And so it's simply discouraged innovation among entrepreneur, it's simply discouraged company from making big investment in technology. It even forestalled company from pushing for new product from a marketing and sales perspective. So the real danger is the long-lasting impact on the business community. We take away the self-initiative, and they kind of look up to the government for handout.

ADAM SHAPIRO: All right, Howard Yu, it's always good to see you as well, IMD's Business School LEGO Professor of Management and Innovation. Be well, and we look forward to the next discretionary review.

HOWARD YU: Thank you.