Notes

Why Microsoft Wants TikTok to be Purchased

Many analysts have described the acquisition by TikTok as a potential "coup". This is a chance to acquire one of the fastest-growing social media platforms in a moment when TikTok might be in desperate need of a deal.



"This is a unique deal of a decade with a price tag that is likely to be redeemed," Wedbush analyst Dan Ives wrote in an investor note on Monday.



Microsoft claims that it is in talks with Trump over TikTok's purchase by its Chinese owner



Microsoft would likely pay an amount of $50 billion that is the estimated value of TikTok as an independent company, to purchase the app's operations in the United States of America, Canada, Australia, New Zealand and Australia. The news of the possible deal broke Friday. Since the closing bell on Thursday Microsoft's market capitalization has risen to $80 billion. This is an indication that investors are enthusiastic about the idea.



Ives said he estimates that TikTok's valuation could reach $200 billion in just few years "given the steep user and engagement trajectory of TikTok." Rishi Jaluria, DA Davidson analyst, agreed that TikTok's potential growth is exponentially due to the explosion of social media use during the coronavirus pandemic.



A consumer-focused investment



Microsoft is a longtime leader in the corporate world that has shifted its focus away from services that are geared towards consumers and linked its future to the success of its cloud business. Cities Thus, the TikTok deal could be a significant push into the consumer space.



It would add a major name to Microsoft's existing consumer-focused offerings that have had mixed results. While LinkedIn has a growing group of influencers, and gaming products Xbox and Minecraft are popular, Microsoft recently shut down its Mixer game streaming platform. Other Microsoft products aimed at the consumer, such as Bing and the now-defunct Windows phone, have not been a success.



Jaluria stated that Microsoft is a firm that we all know, however, it's a large enterprise software company. "TikTok could be a means that Microsoft can grow their consumer presence and also their business with consumers."



While the majority of people don't think of dancing teens when they think enterprise software, bringing in TikTok could help showcase Microsoft's corporate prowess If Microsoft can address concerns about the app's data privacy policies and host a rapidly growing social network on its Azure cloud platform, it will demonstrate the geofencing and security capabilities of the service, Jaluria said.



Will it work?



Despite some flops in the past of the acquisitions made by Nadella during his time at Microsoft have been very successful.



Jaluria said that Microsoft's acquisition of LinkedIn for $26 billion in 2016 was a "slam-dunk" deal for the company. This was partly because the social media platform was given considerable autonomy.



"They haven't rebranded it. If you go to the site they don't use the name LinkedIn By Microsoft or anything silly... And LinkedIn provides Microsoft this data which they can use," Jaluria stated, noting that a similar strategy could be applied to TikTok.



He added, "As long they don't alter the basic product and let it run as (the app's leadership) would like it to I believe it will be a successful acquisition."



How TikTok users feel about Trump's ban on the USA



However, there are risks too.



Microsoft has pledged to store American users' private data in the United States as part of the agreement. Microsoft and TikTok parent company ByteDance will require US officials' approval for the deal and may have to make some kind of payment to the US Treasury. In addition, acquiring an app developed in China could result in new scrutiny to Microsoft at a time when relations between China and the United States, particularly in relation to technology are at an all-time low.



Microsoft has been largely insulated from the recent storm of regulatory scrutiny targeted at its Big Tech peers, but that could change if it buys a controversial social media application developed in China with a huge user base. Already, White House trade adviser Peter Navarro has floated a suggestion that Microsoft be required to "divest its Chinese holdings" to be allowed to buy TikTok, he told CNN's Jim Scuitto on "Newsroom" Monday.



Jaluria stated that "I don’t believe there will be any significant antitrust scrutiny over this deal, as Microsoft does not have any presence on consumer social media." "But a post-TikTok Microsoft could be in the crosshairs because they would have a business where they're leveraging data. This is the issue that people are worried about with Facebook and Google using data to advertise."



There's also the question as to whether TikTok is actually sustainable.



If TikTok proves to be the next Instagram (and is capable of surviving the competition from a Facebook-owned competitor launching soon) the deal is sure to be a winner according to Wedbush's Ives said.



"However should we proceed? If TikTok is the next Snapchat and has a plethora of monetization and user growth issues in the future, this acquisition could detract from the value over time due to massive competition from Facebook and other companies," he said.


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