Will TikTok be a boost or a blunder for Microsoft?

Microsoft looks likely to acquire the social-media platform’s US business. But would a deal make sense? Matthew Partridge reports.

Bill Gates © Alamy
Microsoft’s founder and technical adviser Bill Gates “seems as confused as the rest of us”
(Image credit: © Alamy)

Microsoft is the frontrunner to buy the US division of social-media site TikTok, says Mark Sweeney in The Guardian. President Donald Trump triggered the sale by issuing an executive order forcing the current owners, China’s ByteDance, to dispose of the subsidiary or see it shut down in the US by mid-September. However, the “jury is out” on whether it marks a “unique opportunity” to become a “global social-media giant overnight”, or a $50bn “geopolitically-fuelled business blunder”. This is because, while TikTok’s revenues are expected to increase from $1bn this year to $6bn by the end of 2021, there are concerns about the value of owning only part of a global business.

TikTok is a business that is “radically different” from Microsoft, says Salvador Rodriguez on CNBC. While the deal could help Microsoft diversify its revenue by bringing in advertising money to complement the income it derives from selling enterprise software, the downside would be having to deal with all the “problematic content” that is typically posted by users of social-media sites. Content that could cause headaches includes “misinformation, hoaxes, conspiracy theories, violence... and pornography”. Tackling such problems would require “large investments of capital and technical prowess”.

Walking into a trade war?

There’s also the question of geopolitics, says Tom Warren on The Verge. The forced nature of the sale means that Microsoft is at risk of becoming “part of a larger trade war between the US and China”. At the same time, President Trump has even suggested that the US Treasury “will need some type of cut from any acquisition”. No wonder that even Bill Gates, co-founder of Microsoft and its technical adviser, “seems as confused as the rest of us” and wonders if this could turn out to be a “poisoned chalice”.

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Microsoft will need to “tread carefully” in order to avoid the impression that it is “taking advantage of a forced sale”, says Yuan Yang and Richard Waters in the Financial Times. Still, pre-existing links between ByteDance and Microsoft would seem to reduce the scope for conflict as a result of the deal. What’s more, even if the tie-up ruffles a few feathers in Beijing, it won’t be the end of the world. Rampant software piracy means that China only accounts for less than 2% of Microsoft’s global revenue.

Yet there may be other companies better suited to taking over TikTok, says The Daily Telegraph. Twitter, which has also expressed an interest, “could be a better fit” given that it has a “proactive music and video strategy” and is likely to come under “much less scrutiny” than Microsoft in terms of antitrust and competition issues. Venture capitalist firm Sequoia Capital is another suitor, given that its pedigree is “second to none” having been an early investor in Apple, PayPal and Google. What’s more, it already owns 10% of TikTok’s parent, ByteDance.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri