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TikTok Could Become Microsoft's Deal of the Decade

TikTok Could Become Microsoft's Deal of the Decade

Thursday, 6 August, 2020 - 07:30

Let’s get something clear upfront: Microsoft Corp.’s purchase of TikTok isn’t worth $50 billion.


That’s my opinion. But then again, it’s not my money. 1 Some investors in its parent company, ByteDance Ltd., think it’s worth that much, according to a Reuters report last week. Good for them. We’ll soon find out its true value, and more importantly, that of Microsoft’s chief executive officer.


After a weekend of speculation, the American software giant came out Monday morning, Beijing time, to confirm talks to buy the short-video sensation that boasts more than 100 million users in the US alone.


The opening line of the blog statement notably said: “Following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump.” This came after after Trump had suggested that he may ban TikTok from the US altogether.


ByteDance, TikTok’s Beijing-based owner, wasn’t mentioned until the third paragraph. I don’t want to downplay the importance of founder Zhang Yiming or his executive team, who have done a fabulous job of building a powerhouse of an internet company, but this deal already transcends them.


Nadella is the kingmaker now.


The architect of Microsoft’s transformation from PC operating systems to cloud computing, he’s already overseen some big deals. Within a year of taking over as CEO in 2014, he bought the Swedish games company behind Minecraft; later, he closed the $24 billion purchase of professional-network site LinkedIn Corp.


An earlier idea to have TikTok, or at least the US operations, spun off and bought by existing ByteDance investors looked good on paper. But it likely wouldn’t have allayed US concerns about data privacy and Chinese control given how opaque the ownership structure would be afterward.


As my colleague Tae Kim wrote, a TikTok-Microsoft deal makes sense because it could allay antitrust concerns just days after four other tech CEOs were grilled by members of Congress. I also think it might solve the issue of data transparency by putting the US operations of TikTok in the hands of a trusted, publicly listed American company.


Microsoft thinks so, too, outlining how it would transfer and protect user data. The company "would ensure that all private data of TikTok’s American users is transferred to and remains in the United States,” it said. Any such data currently stored outside the US would be deleted from servers overseas, it continued.


But first, Microsoft will need to convince the US administration. The company indicated which buttons it’s pushing, mentioning in its statement — before it even named ByteDance — both the US Treasury Department and the Committee on Foreign Investment in the United States.


Some US lawmakers are already on board. “Win-win,” Senator Lindsey Graham wrote on Twitter. His fellow Republican John Cornyn and others looked ready to sign off, too.


It’s not really up to Congress, but their support adds important political momentum to the deal. Democrat Senator Richard Blumenthal is among those more cautious, noting that such a transaction “should not distract us from the need to crack down on insidious spying & surveillance” by Chinese companies.


It’s quite likely other names will pop up as potential suitors, leaked by bankers or ByteDance insiders in the hope of building the illusion of a bidding war. But Microsoft has the credibility and strategy to get a deal past the real gatekeepers in Washington, leaving ByteDance with few other options.


The onus is on Nadella to get it done, and quickly. Microsoft said it will complete discussions by Sept. 15.


Now let’s look at what’s for sale.


ByteDance itself had revenue of $17 billion last year with profits of $3 billion. But that’s the entire company, with a stable of at least 20 apps — including Douyin (the local version of TikTok) and news feed Toutiao. According to The Information, TikTok’s revenue last year was around $300 million globally — that’s less than 2% of an entire company which CB Insights lists as the world’s top unicorn at $140 billion in value. This year, TikTok is aiming for $500 million in sales in the US, The Information reports.


Bloomberg


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