Microsoft president Brad Smith once described the delicate “balance that we try to strike” when working with the Trump administration. He was referring to the tightrope act of partnering with the federal government one day, and suing it the next, during a Town Hall event in Seattle that I moderated last year.
“Politics is often about pragmatism and not principle alone,” Smith said during the Seattle event.
And now that pragmatism is on full display as Microsoft — a company best known for enterprise software and cloud computing — weighs the politically-charged purchase of social media giant TikTok.
Perhaps no tech company has navigated the bizarre political landscape of the past four years as deftly as Microsoft. Consider:
- It won the lucrative $10 billion Joint Enterprise Defense Infrastructure project from the Pentagon, outfoxing rival Amazon in D.C.
- It has largely avoided the latest antitrust drama, even though Microsoft’s market value has swelled to more than $1.5 trillion.
- And most recently it emerged as the surprise bidder for TikTok’s business in the U.S. and other key markets, a wild twist that’s resulted in direct negotiation between Microsoft CEO Satya Nadella and President Donald Trump. (Breaking form with his predecessors, the sitting president is actively intervening in the acquisition deal. He said Monday that the negotiations must be finalized by Sept. 15 and provide “a very substantial portion” of the sale price to the U.S. Treasury).
What’s driving this unusual path for Microsoft? And where will it head next?
Microsoft’s government work stretches back decades, providing the software tools and cloud computing capacity to power everything from law enforcement to transportation infrastructure to court systems. Even while providing those services, Microsoft — largely under the direction of Smith — established a reputation as the tech industry’s moral compass. It was the wise elder among younger upstarts like Facebook or Twitter or even Amazon.
But Microsoft’s amicable relationship with the Trump administration is now raising eyebrows.
Tech journalists and other followers of the industry criticized Microsoft for holding closed-door negotiations with the Trump administration and allowing the federal government to reach so deeply into the TikTok deal.
M.G. Siegler, a former tech reporter and general partner at Google’s VC arm GV, said Microsoft “should be ashamed for playing along with this farce in any way.” He said Microsoft’s blog post on Sunday parroted Trump talking points, calling it a “huge black eye.”
Trump “demanded propaganda in order to win a deal,” Siegler tweeted. “Kiss the ring. Bend the knee.”
Others also sounded off:
The view from Microsoft is that a bad process that will lead to the good outcome re TikTok. But I keep thinking about Trump saying Microsoft should pay the Tresasury because he’s forcing a sale, and this “bad process” seems like a legit danger to democracy https://t.co/DMNHiWaWd1
— nilay patel (@reckless) August 3, 2020
— Charles M. Blow (@CharlesMBlow) August 3, 2020
The deal is far from a sure thing. Microsoft is negotiating the purchase of TikTok’s service in the U.S., Canada, Australia, and New Zealand, planning to own and operate the service in those markets if it can reach an agreement with ByteDance.
It will be a busy August for Microsoft as it works to close the TikTok deal and awaits the Pentagon’s latest decision in a legal dispute over the Joint Enterprise Defense Infrastructure project. Microsoft beat out rival Amazon and won the $10 billion cloud computing contract, surprising many who saw Amazon as a shoo-in for the project. Amazon sued the federal government, claiming that Trump’s personal animus toward the company improperly impacted the outcome of the contest.
The lawsuit is on hold while the Pentagon reviews aspects of Microsoft and Amazon’s bid. The department plans to “do a re-announcement of our intentions to award,” by the end of August, according to Pentagon CIO Dana Deasy.
Some speculate that by helping the federal government avoid the messy, complicated process of banning a global social media brand, Microsoft could improve its chances for JEDI and other federal contracts.
“Bailing the government out like this probably helps their government contracts on some level,” said former Zillow CEO Spencer Rascoff, speaking with CNBC Tuesday about the potential deal.
If both the JEDI and TikTok deals work out in Microsoft’s favor, the company will gain a major foothold in the federal government’s transition to the cloud and gain the fastest-growing social media platform.
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