Microsoft x TikTok: Time is ticking on Microsoft’s plans to buy TikTok

August 13, 2020

2 min read

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What's going on here?

Microsoft is exploring buying TikTok, the social media app, following President Trump’s announcement that he will ban the app if an American firm does not buy it.

What does this mean?

TikTok is an app which allows users to create and view video-clips. For our older readers, TikTok is like the much-missed Vine. In talks with the app’s owner, Bytedance Microsoft aims to purchase all of its services in the US, Canada, Australia and New Zealand.  This followed President Trump’s announcement that he would ban US transactions with Bytedance. This is because the President believes that, as a Chinese company, Bytedance has close affiliations with the Chinese Communist Party and could share user data with Chinese authorities. Bytedance strongly denies any links to the Chinese government, claiming to be apolitical. An acquisition of TikTok would be Microsoft’s biggest yet, with a suggested price being $50bn. So far, the prospects of a deal have increased Microsoft’s market value by $60bn.

What's the big picture effect?

Out of all the big tech companies Microsoft has certainly been the busiest in the M&A field. It has bought Skype (2011), Nokia Devices (2013), LinkedIn (2016). With TikTok, the company looks to enter a new field, that of mainstream social media. This would allow Microsoft to build an advertising business. Currently, a year’s ad revenue created by Bing and LinkedIn is ¼ of YouTube’s and is earned by Facebook in a week. However, this draws Microsoft into ethical problems that other social media giants face. How does one moderate political content? For example, videos using the #Trump2020 have been viewed more than 7bn times. This could lead to the company being grilled by Congress like its Silicon Valley rivals with as yet unknown consequences.

The acquisition also comes with other issues. The FT reported that it could take between 5-8 years to separate TikTok’s software from Bytedance’s technology in China. Furthermore, any deal requires the approval of multiple shareholders and pacifying both the US and Chinese governments. Any retaliation by China if Microsoft is perceived to carry out a “smash-and-grab” acquisition could be fatal for the company. This is because Microsoft’s largest research and development centre outside the US is in China. 

Buying TikTok seems to come with quite a few risks for Microsoft, so why bother? One doubts it’s that Microsoft CEO Satya Nadella has FOMO for a grilling by Congress. Or that he wants to shoot himself in the foot by creating unnecessary strife with China. Rather, it seems Microsoft has gotten itself caught in the middle of Trump’s trade war. Early last week, a White House trade advisor suggested Microsoft “divest its Chinese holdings.” The deal also hinges on the President’s approval with Trump already suggesting the US taxpayer should get a cut of the deal.  Another hurdle has now been added by Twitter. On Monday it emerged as a competitor,  expressing an interest in buying TikTok’s US operations.  This begs a wider question for Microsoft, is it worth getting caught up in so many fights, especially ones with added geopolitical tensions?

Report written by Michael Johnson

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