What looked like a crazy rumor on Friday is seeming more like a real possibility that Microsoft could end up acquiring some part of the U.S. operations of TikTok, a video social-media platform currently owned by Chinese-based ByteDance. One of the factors hampering the potential deal, according to reports, is the willingness of President Donald Trump to refrain from banning outright TikTok from operating in the United States.
The Wall Street Journal reported Saturday that discussions involving the White House over making sure TikTok was “American-owned” had been going on for weeks before President Donald Trump said Friday that he was planning to issue an order for TikTok to be banned in the United States. Trump and other U.S. officials have claimed TikTok’s parent company ByteDance is mismanaging users’ data, posing security risks to U.S. citizens.
ByteDance originally is said to have sought to keep a minority stake in TikTok’s U.S. business. About 70 percent of ByteDance investors are based in the U.S. and may get a chance to take minority stakes, Reuters said, citing sources. But over the weekend, it seemed from various reports that ByteDance was willing to forego its stake to make the deal happen.
Reports of exactly what Microsoft’s role would be in ByteDance’s divestiture of TikTok have varied. Some reported that Microsoft s interested in buying the entire U.S. operations. Axios, for its part, reported that Microsoft would lead an acquisition of the U.S. operations of TikTok. A Reuters report from Saturday said that Microsoft would be “in charge of protecting all of TikTok’s U.S. user data,” according to unnamed sources. The plan allows for a U.S. company other than Microsoft to take over TikTok in the United States, the sources added — which made it sound as if Microsoft could be the company running the cloud where TikTok’s user data was stored.
Further convoluting how any kind of TikTok deal might be structured, Trump told reporters on Friday night on Air Force One: “Microsoft’s move is ‘not the deal that you have been hearing about, that they are going to buy and sell, and this and that. And Microsoft and another one. We’re not an M&A company,'” as noted by Bloomberg. (Yeah, I have no idea either what that means.)
Microsoft isn’t commenting at all on the TikTok acquisition rumors.
Even if Microsoft “only” ends up hosting some of TikTok’s data in its Azure cloud, the job of separating out and moving that data would be formidable.
ByteDance currently operates its own hyperscale datacenters in the U.S., and stores all U.S. user data in the U.S., with backup redundnacy in Singapore, according to DataCenterFrontier.com. TikTok claims its datacenters are located entirely outside China and that none of its data is subject to Chinese law. (ByteDance operates a separate service called Douyin to serve the Chinese market, DataCenterFrontier said, quoting company officials.)
As of early this year, it looked like ByteDance was continuing to grow its U.S.-based datacenter footprint. From a January 2020 DataFrontier.com report:
“Chinese company ByteDance leased 9 megawatts of data center space in Ashburn, Virginia during 2019, according to a new report from North American Data Centers. The deal was the year’s largest new lease in Northern Virginia and establishes ByteDance as an emerging player in the market for hyperscale data centers.
It’s tough to see how Microsoft will try to shoehorn TikTok into its current structure and strategy. Microsoft has been retreating further from the consumer market, with the exception of its gaming and education businesses since Satya Nadella took over as CEO six years ago. In the cases where its Windows, Office and other products are targeted at consumers, they are aimed at “prosumers,” or productivity-minded consumers.
Even though Microsoft has been refocusing around its business/enterprise core, officials have continued to seek ways to attract younger users and customers. TikTok has an estimated 800 million active users worldwid, with 41% aged between 16 and 24. Of those 800 million users, about 100 million are believed to be in the U.S.
Possibly, one could argue there are potential synergies between the Microsoft’s gaming business, which garnered $10 billion in fiscal 2020, according to Microsoft officials, and TikTok. There also could be potential integration points between Minecraft, which Microsoft purchased when it bought Mojang in in 2014 and TikTok, especially given TikTok’s “EduTok” efforts. In addition, Microsoft owns FlipGrid, a mobile-video platform for education, which possibly could dovetail with TikTok.
Another area of overlap could be advertising. Microsoft has been trying to build up its advertising business around its Bing search engine for the past several years. And TikTok, as of late, has been trying to establish itself as a potential ad player, with the slogan, “Don’t Make Ads; Make TikToks.”
If Microsoft ends up spending multiple billions on TikTok, it could do what it has been doing lately with its large acquistiions like LinkedIn and GitHub: Largely leave them alone and let them continue to run mostly like separate companies. Microsoft spent $26.2 billion for LinkedIn, its largest acquisition to date. Estimates of the value of TikTok are ranging between $30 billion and $50 billion, depending on the report.
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