TikTok and Microsoft have been in news recently as US President Donald Trump on Monday said Microsoft can buy the Chinese-owned video app TikTok. 15 September has been set as the ultimatum date for TikTok to close the deal, or to get banned in the United States.
Microsoft in a blog post on Sunday confirmed talks to buy TikTok’s operations in the United States, as well as in Canada, Australia and New Zealand. The Chinese Video app has come under scrutiny in Washington for its Chinese ownership.
Trump administration officials and lawmakers have argued that the app, which is known for dance videos and other fun viral clips, could pose a national security threat by potentially giving the Chinese government access to vast quantities of American user data. This is also a similar reason why the Indian Government recently banned TikTok in the country.
Microsoft outlined in their blog about how it would transfer and protect user data. The company said that it “would ensure that all private data of TikTok’s American users are transferred to and remains in the United States”. The blog added that “Any such data currently stored outside the U.S. would be deleted from servers overseas“.
First, let us understand the origin and the financials of the TikTok’s parent company ByteDance.
ByteDance is the world’s 2nd most valued startup, valued at $100 Billion above the likes of SpaceX ($33.3 Billion) and Airbnb ($18 Billion). Its investors include KKR, SoftBank, and Sequoia Capital China.
The Parent Company itself had revenue of $17 billion last year with profits of $3 billion. But that’s the entire company, with a stable of at least 20 apps including Douyin (the Chinese version of TikTok) and news feed Toutiao. According to The Information, TikTok’s revenue last year was around $300 million globally — that’s less than 2% of an entire company. This year, TikTok was aiming for $500 million in sales in the U.S.
“China will not accept United States’ attempts of acquiring TikTok and considers Microsoft’s pursuit of purchasing the company a “theft” of its technology, state-run China Daily said in an editorial on Tuesday. It said that China had “plenty of ways to respond if the administration carries out its planned smash and grab”.
China Daily, which is a mouthpiece of China’s ruling Communist Party, said that “such shilly-shallying” is a tactic the US administration employed during the trade deal negotiations with China.
What’s in it for Microsoft?
A deal like that would vault Microsoft into the social media and advertising markets dominated by Facebook Inc. and Google. Microsoft once paid $6.3 billion for Internet ad company aQuantive, the largest deal ever for the company at the time. The effort failed and the company ended up writing down almost the whole value of the deal.
Buying TikTok would give Microsoft “a crown jewel” in consumer social media at a time when Facebook and Google are under massive regulatory scrutiny over antitrust concerns.
With no consumer social media app, Xbox and Minecraft are pretty much its sole attention-getter among younger users. TikTok would help bolster that business, though it would also push Microsoft to confront controversial areas it has mostly avoided, such as censorship and disinformation.
Microsoft has added $77 billion in market value after confirming talks to buy TikTok in the US. Many legal hurdles remain in front of Microsoft ahead of the September 15 deadline. The exact the terms of the buyout and how the Chinese Administration will react to it are also yet to be seen.