Introduction: The fate of TikTok in the overseas edition of The Sound of Sound is a matter of great concern. Now, its survival in the U.S. depends largely on Microsoft’s acquisition efforts. However, Microsoft, a U.S. company that entered China in 1992 and has been relatively successful in the Chinese market, also faces a series of political and economic challenges that may not be “reassuring” for Mr. Trump.
Here’s a comprehensive analysis:
U.S. President Donald Trump said today that he would disable TikTok if Microsoft fails to strike a deal to buy TikTok’s U.S. business by September 15. Even if an agreement is reached, he said, most of the money from the sale of TikTok’s U.S. business should go to the U.S. Treasury.
Time does not wait for others. Forty-five days are not enough for the complicated deal, leaving little room for the two sides to pull each other. Although “pure American descent”, Microsoft also faces a double test of political and economic interests.
He has been working in China for 28 years.
Twenty-eight years ago, in 1992, Microsoft entered the Chinese market and helped design computer systems used by the government to install a special version of Windows that met government requirements.
In the early days of china, Microsoft launched a huge research and development business in China, developing a technology executive delivery system that allowed them to continue to start their own businesses or work for many of China’s largest technology companies. The huge Chinese business has also allowed Microsoft to build a good relationship with the government, allowing the company to operate in China the only major search engine, Bing, and professional social networking LinkedIn.
Microsoft is also operating cloud services in China through a joint venture with a Chinese company, and its Xbox console is the first such gaming device to be approved for sale in China, as well as a joint venture. Last September, Microsoft Ceo Brad Smith angered some Republican senators by criticizing the Trump administration’s unfair treatment of Huawei.
Microsoft is the most suitable acquirer but faces a political test.
Microsoft’s emergence as a strong competitor in acquiring TikTok’s U.S. business stems in part from the fact that Facebook, Google, Apple and Amazon are under scrutiny from U.S. regulators and members of Congress over antitrust issues. Microsoft settled an antitrust case with the U.S. government nearly 20 years ago and now enjoys relatively high levels of government trust from the tech giant. However, Slack, a US corporate office communications software start-up, has filed a complaint with the European Commission against Microsoft for unfair competition, accusing Microsoft of abusing its dominant market position by bundling its team-based communications product, Microsoft Teams, with its popular Office office software. Slack may make the same complaint in the U.S., so Microsoft’s position could change.
Although Microsoft has repeatedly sued the Trump administration on issues such as cloud data privacy and immigration, it has maintained friendly relations with the U.S. government, particularly on large government contracts. Microsoft recently won a major cloud contract with the U.S. Department of Defense in a competitive battle with Amazon. Amazon filed a lawsuit, alleging bias against Trump. Unlike Google, Microsoft has avoided bidding for military technology contracts.
Last weekend, Microsoft CEO Satya Nadella spoke with Mr. Trump, temporarily saving Microsoft’s efforts to acquire TikTok’s U.S. business.
However, Microsoft’s long-term operations in China have prompted White House adviser Navarro to say that Microsoft may not be the best company to buy TikTok’s U.S. business, and that it should divest its stake in China if it buys. Navarro, one of Washington’s hawks, opposes the sale of TikTok’s U.S. business and calls for a direct ban on TikTok.
In Navarro’s view, Microsoft is too close to China. “Microsoft’s software is widely used in China, and it’s not a good company. Microsoft is a U.S. company, undoubtedly a multinational company that makes billions of dollars in China. Currently, a few Us search engines that can run in China include Bing. It must be Microsoft’s, so there are some suspicious things. Navarro said.
But Microsoft also faces challenges in China. In 2014, Microsoft’s offices were raided by the State Administration for Industry and Commerce as part of a years-long antitrust investigation. Microsoft’s Windows system is sometimes disabled by chinese government computers, leading microsoft stoates a modified version of the system that allows the government to use autonomous encryption and removes some apps and features. Smith said in January that while China accounts for about 18 percent of the world’s population, it accounts for less than 2 percent of Microsoft’s sales.
For a company that wants to buy TikTok successfully in the U.S., it must pass both National Security and Antitrust reviews in China and the U.S. Microsoft’s careful operation in china and the United States makes it one of the few companies that can overcome this difficulty.
The valuation gap between TikTok’s U.S. business.
Microsoft and Byte Dance, the parent company of TikTok, have yet to agree on a valuation of TikTok’s U.S. operations, according to people familiar with the matter. TikTok’s U.S. business also covers Canada, Australia and New Zealand.
Assessing the value of TikTok’s U.S. business is a thorny issue. TikTok has invested heavily in promotionand and content to boost its popularity in the U.S. and has yet to make a profit in the U.S. And TikTok is facing increasing competition, including Facebook, the social giant that launched Instagram Reels, a service that competes with TikTok, as soon as this week.
Enders Analysis, a consultancy, estimates that TikTok has about 50million daily active users in the U.S., surpassing Twitter and about the size of Snapchat, the post-burning app. Jamie MacEwan, an analyst at Enders, says the size of the user makes TikTok a “hot seller” for Microsoft. He expects TikTok’s advertising business to be in the early stages of growth, with US revenues of $500m this year.
People familiar with the matter said the value of The TikTok’s U.S. operations, which are under discussion, was between $15bn and $30bn, but the valuation gap reflected the uncertain future facing TikTok and the nature of the forced sale.
Microsoft has said it may also invite some of Byte Dance’s existing investors to join the deal and let them take a small stake in TikTok. People familiar with the matter said the White House was reluctant to be seen as confiscating one company from a group of U.S. investors and handing it over to another.
How does TikTok’s U.S. business separate from the global business?
It is unclear exactly what Microsoft wants to buy from TikTok’s U.S. business, or how TikTok’s U.S. business will be separated from its global operations.
According to TikTok employees, TikTok now shares a lot of code with its Chinese sister app, Sound, and engineers who work on the two platforms, including algorithms that command apps to show users what kind of video. Byte Dance has spent some time separating The Back End operations of TikTok, according to a project manager in Beijing.
How will TikTok develop in the future? Will Microsoft write code for TikTok’s U.S. applications, and Byte Dance continues to write code for other regions?
Under the terms of Microsoft’s offer to the White House, Microsoft will continue to operate its U.S. business as it did in 2016, as it did with LinkedIn, according to people familiar with the matter. U.S. users can still access TikTok’s global content, which is published by users from Europe and Asia, through a sharing agreement between Microsoft and ByteDance. This arrangement may make users repugnant, causing them to switch to other apps. “Breaking up TikTok would seriously hamper its overall growth.” Debra Aho Williamson, an analyst at eMarketer, a market research firm, said.
Microsoft has had little success in advertising.
Microsoft’s strategy has long been to expand the primary application on its computing platforms, although in the consumer world, Microsoft seems more suited to be a provider of back-end computing services than to a consumer-only provider.
For Microsoft, the strategic investment in Facebook in 2007 failed to make it a more important provider of online activity, a shortfall that may be offset by TikTok and a younger generation of users.
Microsoft has said that owning Skype has taught it how to run large online consumer services, and that the acquisition of TikTok could bring another important customer to its Azure cloud platform, gaining key leverage against amazon, its main cloud service rival. Moreover, TikTok is able to provide Microsoft with one of the most abundant online video libraries that can be used to train AI algorithms.
However, Microsoft has failed many times in its pure consumer product operations, and its acquisition history has been mixed. The game is an exception, with Xbox consoles and Nadella’s first acquisition of Minecraft, which allowed the gaming business to thrive as a standalone service.
At the same time, the foray into social media will not only make Microsoft a political focus, but also highlight one of its weaknesses: apart from Bing’s search engine, Microsoft has almost never succeeded in commercializing its online services with advertising. In 2007, Microsoft bought a $6 billion advertising marketing company, aquantive, but eventually wrote down $6 billion in assets because of poor results.
“Microsoft has the resources, balance sheet, and experience to build a digital advertising system that provides other synergies such as usable cloud computing, search services, and so on.” “Even so, we would like to remind you that Microsoft has not had a history of being too successful in buying deals focused on consumer or advertising,” said Youssef Squali, an analyst at Investment Bank Truist Securities. “