The Tok of the Town: Microsoft and TikTok

P.S. — This article was originally written a few weeks ago. Acquisition rumors of other tech titans such as Oracle and Twitter have found their way into the mix. Hell, even Walmart is getting involved. But, in order to understand how we got to this point it’s imperative that you read the below.

A few weeks ago, President Trump announced that he would be banning social media app TikTok by early this week. Only a few hours later, news broke that Microsoft was looking to acquire TikTok’s U.S. operations. While this might not seem like a perfect fit, it’s not as crazy as it sounds. If all goes well, Microsoft hopes to have a deal done by September. Let’s break this down a bit further.

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For TikTok: TikTok has over 70 million active users (and growing) in the U.S. and has finally started to monetize this audience. This is a massive market that ByteDance, TikTok’s parent company, could literally lose overnight and a situation where they have essentially zero bargaining power. This isn’t a strategic move for them, it’s a business critical one. This vulnerability is what makes the deal so attractive to Microsoft and other potential investors. Get an ownership stake in a social media behemoth respectively early and at an undervalued price. No brainer.

For Microsoft: Traditionally, Microsoft has stuck to its roots in enterprise software, hardware, and cloud computing. Even with acquisitions of LinkedIn and Minecraft, Microsoft has never left a footprint in the social media space. However, Microsoft is an investor in Facebook. This has been a very fruitful partnership for both parties, with Microsoft most recently closing its gaming platform Mixer and directing all users towards Facebook Gaming. An acquisition of TikTok could ruffle some feathers as Microsoft would now become a substantial player in social media. Zuckerberg has already announced that Facebook will be developing a TikTok competitor to go along with Instagram’s Reels. It was reported last week that Instagram would be paying creators up to hundreds of thousands of dollars to make content on the platform.

What Microsoft lacks in social media know-how, it makes up for in data security and technical knowledge. In order for this deal to go through, TikTok would need to separate completely from ByteDance. Data, servers, software and all. This requires money, skill, power, and global relationships. Microsoft checks all the boxes.

Competitors: Amidst the data privacy concerns, a handful of large creators have started to migrate away from TikTok to competing apps such as Triller and Dubsmash. Upon TikTok’s ban in India, Triller became the number one photo & video app in India’s App store within 24 hours. This was done without spending a dime on marketing. Although significantly smaller (Triller has 130 million downloads to TikTok’s 2 billion), Triller is starting to position itself as a serious competitor.

Last week, Triller named TikTok creator Josh Richards as its Chief Strategy Officer. Richards and other widely followed creators Griffin Johnson and Noah Beck, announced that they would be migrating all of their content to Triller. The transition was fairly seamless, as each creator was able to successfully carry over their following to the new app.

Bottom-Line: An outright ban of TikTok without an acquisition would be bad news for Trump’s re-election campaign. No way to rile up a group of young adults getting ready for their first election like taking away the only thing keeping them entertained during a nationwide quarantine. While an acquisition by a company like Facebook would make more sense, it would be hard to sell this one to Congress in the wake of a scathing antitrust hearing. Whatever ends up happening, it’s sure to be the Tok of the town. (Sorry, I had to.)

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© Randy Ginsburg, 2020 | Want to chat? Email me at randy@randymginsburg.com