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Summary

TikTok is the latest Chinese service to catch the attention of US President Donald Trump. On July 31, he announced that he would ban the app in the US. Trump’s decision to ban TikTok comes at an awkward time for Microsoft, which confirmed on August 2 that it was in talks to buy the Chinese-owned social video player. Then on August 3, President Trump gave Microsoft until September 15 to finalize a deal.

Microsoft and ByteDance are on limited time to agree a deal

The first hint of a ban came from Secretary of State Mike Pompeo in early July, before President Trump announced on July 31 his plan to ban the app, citing concerns that TikTok sends user data to Chinese authorities. TikTok’s owner ByteDance responded by saying that data from US TikTok users is stored in the US and denying that it shares data with Chinese authorities. The US Federal Communications Commission has already designated Huawei and ZTE as threats to national security over similar concerns.

After speaking to Microsoft CEO Satya Nadella, President Trump gave the two companies until September 15 to work out a satisfactory deal or the app will be banned. Microsoft is looking to purchase ByteDance’s TikTok operations in the US, Canada, Australia, and New Zealand. The UK is the only member of the Five Eyes intelligence network whose TikTok operations are missing from the proposed deal. While it is unclear now exactly what this deal would mean for TikTok, it could mean that users in the Microsoft-owned TikTok wouldn’t be able to see content from users in the rest of the world and vice versa. This could make the app much less appealing to its users.

TikTok has already been banned in India over similar privacy concerns. Australia is also considering a ban on the app, but should Microsoft purchase TikTok’s Australian operations, this concern could be mitigated if similar provisions for security and privacy are put in place for the Australian market.

Purchasing TikTok will boost Microsoft’s social revenue but expose it to politics

Microsoft first got into the social space in 2012 with the purchase of enterprise social networking tool Yammer for $1.2 billion. In 2016, it acquired LinkedIn, the social network for professionals, for $26.2 billion.

At first glance, purchasing TikTok seems like a step outside Microsoft’s comfort zone, but it already has some oversight of younger demographics through its video games brands such as Xbox. TikTok would allow Microsoft to compete with Instagram—owned by fellow tech giant Facebook—which has a similar demographic, and no doubt there is a large user base crossover between the two apps. But Instagram has a worldwide presence, and a Microsoft-owned TikTok would not, even if it did give Microsoft a springboard to launch into new markets. Building a worldwide presence will be difficult, even if a noncompete clause is introduced, since TikTok already has a solid user base.

While TikTok’s US revenue, and indeed total revenue since ByteDance is not a listed company, is not known, it is estimated to be in the region of $5 billion and growing. This is obviously an attractive prospect, especially if pressure from President Trump results in a favorable purchase price for Microsoft.

One thing Microsoft might not have considered but that longtime social firms by now know well is that social media users don’t shy away from posting controversial political content even if you ban political advertising. Facebook, Twitter, and YouTube have all been criticized for both censoring content and letting it stand. LinkedIn hasn’t suffered with this issue since professionals are wary of affecting their prospects, but if it buys TikTok, Microsoft will have to learn how to navigate the choppy waters of political content.

Appendix

Further reading

Social Media Forecast: 2019-2024, CES001-000070 (December 2019)

Social Media Tracker: 2H19, CES001-000072 (February 2020)

Social Media Tracker: 2H19 Report, CES001-000075 (March 2020)

Author

Charlotte Palfrey, Senior Analyst, Advanced Messaging and Communications

[email protected]

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