ByteDance – Chinese whispers.

Little suffering from the current ban.

• The notion that the current ban in India is going to cost ByteDance $6bn in revenues sounds to me like a piece of 3^rd hand gossip that has become distorted as it has been passed from one person to another.
• China’s Caixinglobal.com is running with a story that the ban of Chinese apps in India will cost ByteDance $6bn which it got from sources close to ByteDance senior management.
• In 2019, ByteDance had revenues of $17bn and around 800m daily active users of which half are in China, a quarter in India and another quarter elsewhere.
• Assuming for a minute that all users generate the same level of revenues, this would imply that Indian users generated around $4.3bn in revenues in 2019 making a $6bn revenue rate viable in 2020.
• However, RFM research has found that users are not equal and when it comes to digital advertising, higher-income users generate far more advertising revenues than low-income users.
• This makes logical sense because there is no point spending money advertising to users who are unable to afford to buy one’s products.
• RFM has found that the distribution of digital advertising revenues is very skewed towards the high-end of the user pool.
• For example, both Google and Facebook have only a relatively small percentage of their users in North America, but that region generates a disproportionately large slice of their advertising revenues.
• The large disparity in GDP per capita between China ($9,771 (2018) and India ($2,010 (2018) would indicate that India actually generates a tiny fraction of ByteDance’s revenues overall.
• This means that the hit to actual revenues could be relatively small but I think that what ByteDance is really talking about is the long-term potential.
• Given the size of the Indian population and the almost perfect fit between the TikTok app and Indian music culture, it has great potential for further growth.
• However, the ban in its current form is unlikely to have much effect at all.
• This is because the openness of Android (dominant in India) means that the app can easily be installed from other app stores or sideloaded.
• This is why the ban is unlikely to have much effect unless the Indian government orders the telecom operators to block traffic to and from the app itself.
• China’s own Great Firewall has shown how effective this kind of block can be and it needs to be a move of this nature before ByteDance takes any real damage from this skirmish.
• I doubt whether a block is really India’s aim and instead I think it is using the exposure of China’s technology sector to India as a bargaining chip.
• The net result is likely to be some give and take on both sides, a tacit agreement on the where the borders lie in the Himalayas and a rescinding of the ban.
• I do not see this blowing up into another trade war like the ongoing trade war between the USA and China, although if it did, India would become a useful ally in exerting greater pressure on China.
• The main show is likely to remain the struggle between the USA and China which looks like it has plenty of distance yet to run.