The Not-So-Odd Couple: Microsoft Pursues TikTok

TikTok keeps generating interesting news. In the past week, it is about Microsoft’s pursuit of it — fueled by the U.S. government’s not-too-subtle nudging. Each time I write about TikTok I thought it’d be the last, but how could I resist that?

I first wrote about the potential implications of it being China’s first AI-based Internet success outside of China. My second piece discussed the security concerns that raised with many observers. My latest article discussed how TikTok users were using it to power social protest.

Those security concerns never went away, and they (or perhaps anger at TikTok possibly helping undercut President Trump’s Tulsa rally) spurred the President to threaten a ban (as India had just done). It is not at all clear that the U.S. could actually implement such a ban, but users went nuts anyway. “Everyone is running around like a chicken with their head cut off,” one user told The Wall Street Journal.

Then things got really interesting. ByteDance, TikTok’s owner, said it would consider selling TikTok’s U.S. operations. Fox News, which first reported the talks a month ago, when President Trump had first brought up the potential ban. Numerous outlets confirmed late last week that talks were now at an “advanced stage.” The deal is expected to also include Australia, Canada, and New Zealand.

The President almost scuttled the deal before it got any further, but relented after a weekend call from Microsoft CEO Satya Nadella. Microsoft has committed that it would bring TikTok’s code to the U.S. — believed to be some 15 million lines of A.I. code — within a year, and protect the consumer data. It set September 15 as the deadline for a deal.

Experts suggest the deal could be for as much as $30b.

Many wondered at Microsoft being the lead suitor. Mr. Nadella is doing his best to change Microsoft’s sometimes stodgy image, but it still has been viewed as more corporate-oriented. Former Microsoft executive S. Somasegar told The Wall Street Journal: “If you look at the major acquisitions over the last five years or so, the common theme is to acquire a vibrant community of customers that is both critical and net new add to the Microsoft community.” TikTok users certainly count as “vibrant.”

Microsoft is already extremely strong in both cloud computing and artificial intelligence, both of are key to the deal. Oren Etzioni, chief executive of the Allen Institute for Artificial Intelligence, told The Washington Post: “If AI is the new electricity, the fuel that powers these plants is data.” All that content are data.

Keep in mind that content going viral on TikTok isn’t a function of who you know or how many followers you have, but if/how TikTok’s A.I. promotes it. ByteDance is an A.I. company and that drives TikTok’s success. For anyone interested in A.I. — and what tech company isn’t? — that makes TikTok extremely attractive, not to mention for its legions of rabid users.

Microsoft has had success among younger people with its Xbox platform, and hopes for more from its Minecraft acquisition and Hololens platform, but TikTok could be a breakthrough. As one user explained to The Washington Post: “People might think it’s just an app where people do 15-second dances, but it’s so much more. The app speaks to my generation — yes, we share music and dances, but we also share ideas and views on the world.”

Dan Ives, an analyst at Wedbush Securities, told The New York Times: “Microsoft is viewed as your grandpa’s company, and it is trying to change that. Microsoft goes from an uncool company to many under 25 to potentially as hip as TikTok if they get this done.”

Take that, Factbook.

Facebook, of course, is not sitting idly. Today it launched Instagram Reels, “a new way to create and discover short, entertaining videos on Instagram.” It is now available in 50 countries, including the U.S., and obviously has been under development for some time. TechCrunch’s analysis is that “Instagram’s goal is not just to capture the now potentially up-for-grabs TikTok audience in the U.S. — it’s to steal them away even if TikTok remains.”

Although Instagram may be TikTok’s most formidable competition, others are also trying to take advantage of the current uncertainty to steal some of its audience, such as byte, Clash, or Triller.

There are many potential bumps in the road. For example, what does it even mean to split the four impacted countries apart from the rest of the world? As The Verge commented:

No one has ever acquired a regional section of a social network before, and peeling away the Microsoft-owned portion of TikTok will be harder than it looks. As TikTok officials keep reminding us, the app is based in California, but the majority of its users are still in Asia or Europe.

Negotiating the code and the content in such a split scenario complicates things greatly. Systems engineer Karl Higby told The New York Times: “In order to personalize the app for existing users, they’re going to need historical data for U.S. folks unless they want to wipe the slate clean, which would be a terrible user experience.” Historical data from non-U.S.users helps drive current algorithms, so the user experience may be altered in any event.

Plus, of course, the regulatory scrutiny will continue, and Microsoft would face the same kinds of concern over its content and privacy practices that Facebook and other social media platforms have. Gigi Sohn, Georgetown Law Institute fellow and former FCC advisor, warned in The New York Times: “Microsoft is buying itself real aggravation.”

Still, though, the opportunity to obtain an asset like TikTok may be a once-in-a-generation opportunity for Microsoft. Mr. Ives thinks the deal could add $200b to Microsoft’s market cap within three years, adding:

An aggressive acquisition (or strategic investment) of TikTok would be Microsoft throwing its hat in the ring and trying to compete with other tech giants such as Facebook in a new avenue of growth for the next decade for its consumer business.

Or, as Hank Green, CEO of Complexly, told The New York Times, “If I had the opportunity to buy TikTok, I’d buy TikTok. There’s so much value on that platform right now that is completely untapped.”

Frankly, I don’t know if the deal will happen or what TikTok might end up being worth to Microsoft, but I sure am interested to see what happens next.

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