It’s official: Microsoft is in talks to buy the TikTok business from ByteDance in four countries: the United States, Canada, Australia and New Zealand. This comes a day after US President Donald Trump told reporters on-board Air Force One that “As far as TikTok is concerned, we’re banning them from the United States”. President Trump was not in favor of a US company buying Tiktok, but and was considering an executive order to ban it. However, as per Microsoft’s statement (reproduced in full below), its CEO Satya Nadella has had a conversation with President Trump, and Microsoft is saying that this acquisition will be subject to a security review, and the company will continue to have a dialogue with the United States Government, including with the President.
Things are coming to a head for TikTok, a global social media major, that is reportedly valued at between $20 to $50 billion, and it reportedly is also in talks with another large major, and venture investors, according to Bloomberg.
A few points to consider
1. A death blow to TikTok’s global ambitions: The last few months have been hell for TikTok, and the complete dismantling of its global ambitions. It has been banned in its largest market – India – which is the largest user market in the world outside of China. Now it faces the threat of being banned in the largest advertising revenue market in the world, the US. These two markets are critical for any technology business with global ambitions, and the threat to Facebook’s dominance of Social Media is likely to get significantly reduced if this deal goes through. So, will TikTok, which so far isn’t looking to sell its business in India, become a rest-of-the-world play?
2. What’s the rush? Acquisition conversations can go on for months. Typically, an announcement such as Microsoft’s is not made in the preliminary stages of an acquisition discussion, though Microsoft could have said they’re preliminary in order to temper down stock market impact on its share price. Responsible companies tend to do this. Microsoft would want to close this quickly, because there is still one significant factor: The US elections are still a few months away, in November, and the outcome of those elections could be a significant factor. What if, post election, President Trump no longer wants to pursue banning TikTok? What if the newly elected President Biden doesn’t have banning TikTok high on the agenda?
ByteDance might want to use this negotiation to buy time. This explains why Microsoft has said that it will complete these discussions “no later than September 15, 2020”. That being said, timelines can be extended.
3. What’s interesting, geopolitically?
- Moving closer to a splinternet? The United States, Canada, Australia and New Zealand. Along with the United Kingdom, these four countries constitute the “Five Eyes”, or the five countries that share signals intelligence with each other, and concerns applicable to one would be shared by the other four. The absence of the UK from this list is intriguing, but there remains a significant chance that if this deal goes through, then there will be pressure on ByteDance to exit TikTok in the UK. For now, it might be willing to take a chance, and wait for a separate negotiation for the UK business.
A thought experiment: What if TikTok was an Indian company in a position to unseat Facebook? Especially if India has a Personal Data Protection Law that allows unfettered government access to data (that’s the plan), and nationalises data, the way it is planning to, with Non Personal Data? How would the US react?
- Data localisation gets a boost: with Microsoft saying that it would
“ensure that all private data of TikTok’s American users is transferred to and remains in the United States. To the extent that any such data is currently stored or backed-up outside the United States, Microsoft would ensure that this data is deleted from servers outside the country after it is transferred.”
With both the EU and India pushing for “data sovereignty” and “data localisation” (adequacy not-withstanding), and China already there, this move from a US-based company will only strenghten the resolve of other countries to follow suit.
4. What’s the future of a Microsoft owned TikTok? If a deal goes through:
- Government oversight: Microsoft says that “the operating model for the service would be built to ensure transparency to users as well as appropriate security oversight by governments in these countries.”
- Independent IPO? Will Microsoft work towards an independent IPO for the US+3 business? It says that it might invite other American investors to participate on a minority basis in this purchase, and minority investors will only come in if there’s some kind of an exit in mind – either their stake will eventually be bought out by Microsoft, or there will be an IPO.
- Geo-restricted TikTok? Will a Microsoft owned TikTok compete globally with a Bytedance owned one, or will there be a geo-block in some markets?
5. Will Microsoft be “Big Tech” post-acquisition? Microsoft’s abysmal performance in the Internet space during the Ballmer years, and its lack of dominance in search, social (despite LinkedIn) and shopping, has helped it largely escape the tag of “Big Tech”. Tandem Research’s recent report outlines some criteria for big-tech: Data-Centric Models, Network Effects, Infrastructural Role and Civic Functions. Technically, Microsoft fits the bill, but from a civic functions perspective, it hasn’t been in the spotlight, despite LinkedIn and Bing. Nadella wasn’t a part of the anti-trust hearings last week, unlike Pichai, Zuckerberg, Cook and Bezos. With controversial acquisitions like TikTok, things could change for Microsoft.
Meanwhile, in India
1. TikTok remains banned, since June 29th, 2020, along-with 58 other apps. That’s 36 days and counting. Creators and advertisers are likely to make a switch eventually, and my guess is that 100 days will be a tipping point.
2. Tensions are still running high between India and China, and de-escalation talks haven’t led to a resolution, especially at Pangong-Tso, and the ban is likely to remain until there is a de-escalation.
3. TikTok is continuing to play nice with the Indian government: they haven’t gone to court. They geo-blocked India and starting blocking access for Indian users shortly after the ban was announced, instead of waiting for formal orders from an ISP or the government.
An Indian Regulatory Timeline: TikTok
- After the ban:
- July 29: ‘Won’t share Indians’ data with any country even if requested’: TikTok
- July 15: IT Parliamentary Standing Committee questions MEITY, MHA on ‘Chinese’ app ban
- July 10: TikTok received a questionnaire from MEITY after app ban
- July 10: Opinion: Why the US will face an uphill climb in banning TikTok
- July 2: TikTok denies initiating legal action against govt’s app-ban decision
- July 2: Google, Apple remove majority of the banned Chinese apps, some still up on their app stores
- June 30: India’s app ban decision ‘suspects’ of violating WTO rules: Chinese Embassy
- June 29: India blocks access to 59 apps including TikTok, Shein, UC Browser over national security and privacy issues
- March 20: No proposal to ban TikTok, says India’s Home Ministry
- Demands for a ban and TikTok’s regulatory moves
- September 17: What TikTok told MEITY about its intermediary status, data collection, and policies for children
- September 9: Jharkhand MLA raises concerns over NSDC’s partnership with TikTok
- August 29: BJD MP Pinaki Mishra questions TikTok over its intermediary status, info-sharing with Chinese govt
- July 23: Why they want TikTok banned in India
- July 22: ByteDance to open a data centre in India
- July 18: MeitY issues notice to TikTok and Helo, threatens with ban if questions not answered by July 22
- July 11: MPs seek ban on TikTok, Helo, saying it spreads fake news
- July 3: TikTok shares user data with Chinese government, Tharoor tells Lok Sabha; company denies his claims
- Madras High Court case against TikTok
- May 6: Madras HC may hold TikTok in contempt if it fails to moderate “negative”, “inappropriate” or “obscene” content
- April 25: Madras High Court lifts ban on downloading TikTok, with a no-porn condition
- April 22: TikTok ban will be lifted if Madras HC fails to decide on interim ban order: Supreme Court
- April 15: Supreme Court directs Madras HC to hear TikTok’s objections on interim ban
- April 4: Opinion: Why the Madras High Court’s interim ban on enabling download of Tik Tok is worrying
Following a conversation between Microsoft CEO Satya Nadella and President Donald J. Trump, Microsoft is prepared to continue discussions to explore a purchase of TikTok in the United States.
Microsoft fully appreciates the importance of addressing the President’s concerns. It is committed to acquiring TikTok subject to a complete security review and providing proper economic benefits to the United States, including the United States Treasury.
Microsoft will move quickly to pursue discussions with TikTok’s parent company, ByteDance, in a matter of weeks, and in any event completing these discussions no later than September 15, 2020. During this process, Microsoft looks forward to continuing dialogue with the United States Government, including with the President.
The discussions with ByteDance will build upon a notification made by Microsoft and ByteDance to the Committee on Foreign Investment in the United States (CFIUS). The two companies have provided notice of their intent to explore a preliminary proposal that would involve a purchase of the TikTok service in the United States, Canada, Australia, and New Zealand and would result in Microsoft owning and operating TikTok in these markets. Microsoft may invite other American investors to participate on a minority basis in this purchase.
This new structure would build on the experience TikTok users currently love, while adding world-class security, privacy, and digital safety protections. The operating model for the service would be built to ensure transparency to users as well as appropriate security oversight by governments in these countries.
Among other measures, Microsoft would ensure that all private data of TikTok’s American users is transferred to and remains in the United States. To the extent that any such data is currently stored or backed-up outside the United States, Microsoft would ensure that this data is deleted from servers outside the country after it is transferred.
Microsoft appreciates the U.S. Government’s and President Trump’s personal involvement as it continues to develop strong security protections for the country.
These discussions are preliminary and there can be no assurance that a transaction which involves Microsoft will proceed. We do not intend to provide further updates until there is a definitive outcome to our discussions.