Perplexity AI on Sunday revised the merger proposal it had submitted to TikTok parent ByteDance. The proposal, which would create a new entity combining Perplexity and TikTok U.S., would now also allow for the U.S. government to own up to 50% of the new company upon a future IPO, CNBC has learned.

A proposal document viewed by CNBC, which was shared with ByteDance and prospective new investors, detailed the creation of a new U.S. holding company, “NewCo.”

The document proposes ByteDance contribute TikTok U.S., minus its core recommendation algorithm, in exchange for the company’s existing investors receiving equity in the new company. Perplexity AI would offer itself up in exchange for its own investors receiving a distribution of the NewCo equity.

Money for the merger would come from “new third-party capital provider(s) (to be mutually agreed upon),” per the proposal document, which would provide capital for a “one-time dividend payment to ByteDance investors in exchange for simplified governance” and to help the new entity grow.

Perplexity AI, the artificial intelligence search engine startup competing with OpenAI and Google, started 2024 with a roughly $500 million valuation and ended the year with a valuation of about $9 billion, after attracting increasing investor interest amid the generative AI boom — as well as controversy over plagiarism accusations. Investors have viewed AI-assisted search as one of Google’s key risks, as it potentially changes the way consumers access information online.

Last year, OpenAI, which started the generative AI craze in late 2022 with ChatGPT, introduced a search engine called SearchGPT. Google later launched “AI Overviews” in search, allowing users to see a quick summary of answers at the top of results.

The proposed new structure would allow for most of ByteDance’s existing investors to retain their equity stakes and would bring more video to Perplexity, a source familiar with the situation told CNBC earlier this month. And although ByteDance has publicly implied it will not sell TikTok U.S., that’s part of why Perplexity AI believes it has a shot with its bid — since the deal would be a merger rather than a sale, the source added.

Under the revised proposal, the U.S. government could own up to half of the new structure once it IPOs at least $300 billion, according to the source.

A fair price is “well north of $50 billion” but the final number attached to the proposal will be decided, in part, by which of ByteDance’s existing shareholders want to remain part of the new entity and which want to cash out, according to the source.

Though any potential transaction between Perplexity AI and ByteDance would likely take months to complete, President Donald Trump has so far temporarily restored TikTok in the U.S. and suggested plans that would involve an American stakeholder purchasing the company and then selling a 50% stake to the U.S. government. In a video posted to TikTok earlier this month, CEO Shou Zi Chew said, “I want to thank President Trump for his commitment to work with us to find a solution that keeps TikTok available in the United States.”

Perplexity is one of multiple companies and individuals vying to be the one to purchase or merge with TikTok, which reportedly include Microsoft, Oracle and potentially Elon Musk. On Saturday, President Trump said he would likely have a decision on the app’s future in the U.S. in the next 30 days.

While the TikTok ban has lawmakers scurrying and chatter about Chinese influence over U.S. tech at a fever pitch, another danger is lurking. One of Amazon’s top-selling router brands, TP-Link, has been under scrutiny by regulators as posing a threat to American infrastructure. Experts worry that China could exploit the routers to launch attacks on critical infrastructure or steal sensitive information.

Rep. Raja Krishnamoorthi (D-IL) and Rep. John Moolenaar (R-MI) sent a letter to the U.S. Department of Commerce last summer, touching off a flurry of investigations and calls for a ban. The letter, which the Wall Street Journal first reported, flagged “unusual vulnerabilities” and required compliance with PRC law as disconcerting. “When combined with the PRC government’s everyday use of SOHO [small office/home office] routers like TP-Link to perpetrate extensive cyberattacks in the United States, it becomes significantly alarming,” the letter stated.

But so far, no action has been taken, and Krishnamoorthi is concerned.

“I am not aware of any plans to get them out,” Krishnamoorthi said. He pointed to the government’s “rip and replace” plan with Huawei network equipment as a precedent that could be followed. The government mandated in 2020 that companies rid themselves of Huawei equipment, which was deemed to pose a national security threat. Efforts to remove the equipment are still ongoing.  

According to data he cited, TP-Link has a 65% share of the U.S. router market, and its success has followed a similar playbook used by China with other technology: make a lot more than they need, export the surplus to undercut the competition, and use the technology to backdoor access or to disrupt.

“I am wondering whether something similar needs to be done, at least in regards to national security agencies, Department of Defense, and Intelligence,” Krishnamoorthi said. “It just doesn’t make sense for the U.S government to be buying the routers.”

The routers were among brands in the market linked to hacks on European officials and the Typhoon Volt attacks.

An Amazon best seller inside our online histories

Krishnamoorthi’s concerns go beyond the federal government. State and local utilities that have them could be vulnerable, he said, as well as people who have the routers at home.

“The PRC has every intent to collect this data on Americans and they will, why give them another backdoor?” Krishnamoorthi said.

Browsing history, and family and employer information, are all at risk.

“I would not buy a TP-Link router, and I would not have that in my home,” he added, and noted that he never had TikTok on his phone.

There are multiple versions of TP-Link routers available on Amazon, with one labeled a “best seller” retailing for $71. Amazon did not respond to questions about whether it planned to pull the routers.

A spokesman for the majority of the Select Committee on the Chinese Communist Party, chaired by Moolenar, told CNBC the TP-Link routers pose an espionage risk to Americans because the company is beholden to the Chinese government, who are engaged in a full-scale hacking campaign against the United States and our people. “Because of this, we hope to see TP-link routers banned in the coming year, coupled with programs to replace existing Chinese routers with safe American alternatives.”

TP-Link Technologies has said in response to the accusations that it does not sell router products in the U.S. and denied its routers have any cybersecurity vulnerabilities. TP-Link Systems, which recently built a new headquarters for the U.S. market in Irvine, California, has had operations in the state since 2023, and says it is a separate company with separate ownership, and most of the routers made for the U.S. market come from Vietnam.

“TP-Link Systems is proactively seeking opportunities to engage with the federal government to demonstrate the effectiveness of our security practices and to demonstrate our ongoing commitment to the American market, American consumers and addressing U.S. national security risks,” the company told the Orange County Business Journal earlier this month.

The People’s Republic of China’s ministry in the United States did not respond to a request for comment.

The problem of unencrypted communication

A consensus on the best way to combat the problem, and enact a ban, remains elusive, given how widespread use of the routers already is within U.S consumer and business markets.

Guy Segal, vice president of corporate development at cybersecurity services company Sygnia, said in addition to TP-Link router prevalence in government institutions, including defense organizations, the company has the majority of the U.S. market in routers for homes and small businesses.

“The pervasiveness of this technology and the potential risks associated with it do present security concerns for users that should be taken seriously, whether at the consumer level or a national security consideration for government entities,” he said.

If a ban is to come, it is more likely going to be spurred by the national security concerns, and the implications the routers could have on military readiness and national security, than the risk to home internet consumers. Segal said if momentum for a ban picks up inside the government, the action would have to be implemented in phases, given the ubiquity of the TP-Link router. The most practical approach would be to start by banning use in the federal and defense sectors.

The letter from the Congressional group to Commerce last summer cited a PRC government that has demonstrated a willingness to sponsor hacking campaigns using PRC-affiliated SOHO routers, “particularly those offered by the world’s largest manufacturer, TP-Link — and consider using its ICTS authorities to properly mitigate this glaring national security issue.” 

Matt Radolec, vice president of incident response and cloud operations at security company Varonis, says that the government is on the right track, and consumers should not ignore the issue even if the threat of a ban on home devices may not be imminent. “Banning routers from certain manufacturers is a sound security decision,” Radolec said. “Consumers, in general, should be aware of the implications to their personal privacy.”

The underlying problem with the TP-Link routers, he said, is unencrypted communication, and it is an issue where the public is underinformed.

“All unencrypted communications on these routers could be compromised, which is worrisome because intra-network communication is often unencrypted for performance’s sake. You’ll get faster internet speeds, but you could be risking your personal data,” Radolec said. 

Even if banking information, for instance, is encrypted, that wouldn’t protect all the unprotected personal data that passes through an unprotected, vulnerable home router.

“It’s time for the general public to be aware of the differences between encrypted and unencrypted communications, and browser and device manufacturers must do a better job informing the public about the privacy risks when you send your data over unencrypted links,” Radolec said. “I think we need to ask ourselves, as consumers, is that something we want to be potentially exposed to?”  

Meta is offering deals to creators to promote Instagram on other short-form video apps, including TikTok, Snapchat and YouTube, CNBC has learned. 

With the TikTok app not currently available for download from Apple and Google’s app stores in the U.S., Meta is seizing the opportunity to promote Instagram, the crown jewel of its social media empire, to more users. 

As part of the deals that Meta is offering, creators must promote Instagram twice a month on other short-form video platforms, including Snapchat, Google’s YouTube Shorts and others, according to details of a contract offered to a creator that was reviewed by CNBC.

The contract also requires three months of posting exclusivity on Instagram’s Reels short-form video product before the creator can post content elsewhere.

These deals last six months and obligate a creator to post a minimum of eight Instagram Reels per month, with at least one more post on Instagram than any other platforms. The creator is also required to share content to their Instagram Story twice a month.

To meet these requirements, the posts cannot be part of a brand deal, which is an agreement where creators are compensated to post content on their account that promotes a brand.

The contract reviewed by CNBC is an example of a mid-tier deal that Meta is offering to creators. The social media company is also offering terms varying in amount of deliverables and compensation based on the size of the audience, according to people familiar with the matter.

The Information on Monday reported that Instagram is offering creators with large TikTok followings cash bonuses ranging from $10,000 to $50,000 per month for a creator to shift their videos to Instagram Reels.

Meta said it has also announced several new features for creators, including a video creation app called Edits, the expansion of Reels to three minutes and a new bonus program for creator monetization.

TikTok shut down in the U.S. for a few hours last week after the Supreme Court upheld a law that was signed by former President Joe Biden in April. That law forced China-based ByteDance to divest its ownership of TikTok or face an effective ban of the app in the U.S. on Jan. 19. As a result of the law, Apple and Google also pulled TikTok from its app stores in the U.S.

The app, however, began working again in the U.S. after President Donald Trump said he would delay the ban. Trump followed through on Monday and signed the executive order, which delays enforcement of the ban by 75 days.

In the meantime, U.S. investors from Frank McCourt to Jimmy Donaldson, known as Mr. Beast, have offered to do deals that would bring ownership of TikTok to the U.S. Trump has also expressed interest in billionaire Elon Musk or Oracle Chairman Larry Ellison obtaining partial ownership of the app.

For Meta, paying creators to promote Instagram could be an effective strategy to regain the app’s foothold as the most popular social media platform among teens and young adults after TikTok surpassed it in popularity in recent years.

According to a 2023 Pew Research Center survey, 63% of teens aged 13 to 17 say they use TikTok compared to 59% who use Instagram.

Many TikTok creators rely on brand deals as a primary way of generating income, with payments often depending on the size of their followings. With TikTok’s future in limbo, brands are pausing or altering their agreements to include competing platforms.

“Advertising has been paused, and it’s causing a lot of anxiety and a lot of lost revenue,” said Dan Weinstein, co-CEO of Underscore Talent, an agency that manages many top internet creators.

Amid the uncertainty, advertisers and creators are in a wait-and-see mode, and brands are diversifying their social media strategies beyond TikTok by incorporating platforms like Instagram and YouTube Shorts into agreements, Weinstein said. 

Jumping from one platform to another does not guarantee success for creators. Many who were popular on TikTok can struggle to develop an audience on other apps.

“It’s hard for a lot of creators on TikTok to necessarily make the move to traditional YouTube or traditional Instagram,” says Jacob Wallach, founder & CEO of Social4TheWin, a social media consultancy. “You have YouTube Shorts, you have Instagram Reels. You can repurpose that content onto these platforms, but the algorithm is different.”

Meta isn’t the only company looking to pounce on creators who are looking for new revenue streams.

Substack on Thursday announced a $20 million Creator Accelerator Fund to help creators transfer and grow their paid subscriptions. Substack is a platform that allows writers and creators to publish newsletters and generate revenue for their content through subscriptions.

Some creators are also flocking to other foreign platforms as well. 

RedNote, known as Xiaohongshu in China, was the top free app on Apple’s app store last week and has rapidly gained traction among users looking for alternatives amid the uncertainty with TikTok. RedNote offers a platform for video sharing similar to TikTok. 

According to a study by Captiv8, 67% of TikTok creators surveyed are considering RedNote as their preferred alternative.

“The real reason why people ran to Xiaohongshu was not because it’s a better platform, by any means, but because it’s almost kind of like a screw you to the U.S. government,” Wallach said.

As other platforms actively court creators in response to TikTok’s uncertain future, the value of these digital influencers becomes ever clearer, Wallach said. 

“Creators are the ones who make these platforms. Without them, it’s like having a town square with no entertainment,” Wallach said. “Creators are the reason why all of these platforms are successful.”

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