With TikTok, ‘uncool’ Microsoft aims for the love of tweens

Karen Weise, The New York Times

Posted at Aug 04 2020 08:05 AM

SEATTLE — Maybe money can buy love. Or, at least, Microsoft would like to find out.

On Sunday, the tech giant announced in a blog post that it would continue holding talks to buy TikTok in the United States, opening up the possibility of using its financial might to buy the fickle infatuation of tweens.

Microsoft made the announcement after its chief executive, Satya Nadella, talked with President Donald Trump, who had threatened to ban the popular social media company, which is owned by China’s ByteDance, because of national security fears. On Monday, Trump said that TikTok would shut down in the United States on Sept. 15 unless Microsoft or another company bought it.

A deal for TikTok — whose app featuring video clips has become wildly popular among young smartphone users — could give Microsoft, a company best known for databases and operating systems, control of one of the largest and most influential social networks in the country.

“Microsoft is viewed as your grandpa’s company, and it is trying to change that,” said Dan Ives, a managing director and an analyst at Wedbush Securities. “Microsoft goes from an uncool company to many under 25 to potentially as hip as TikTok if they get this done.”

Microsoft declined to comment beyond its blog post.

Under Nadella, who became chief executive in early 2014, Microsoft has turned the company into a giant of cloud computing. It has a market value above $1.5 trillion and more than $130 billion in cash.

But Microsoft has not had a clear path to serving young consumers beyond its video gaming business. The company is behind the Xbox video game console and owns Minecraft, the popular building game. As social media grew into enormous consumer businesses — Facebook alone is worth more than $720 billion — Microsoft largely missed out.

Under Nadella, Microsoft’s biggest acquisitions have been of online communities, those whose networks hooked users but also required a complex cloud-computing infrastructure that Microsoft could provide.

In 2014, it bought the Swedish company that created Minecraft for $2.5 billion, and in 2016, it acquired LinkedIn, the professional social network, for $26.2 billion. In 2018, Microsoft bought GitHub, an online network for software developers, for $7.5 billion.

If history is a guide, teens and tweens may not need to worry that Microsoft will mess up the product they love. With those recent acquisitions, Microsoft increased the financial and tech resources at the companies but largely let them run independently.

When Christopher Wanstrath, co-founder of GitHub, discussed the deal in a call with investors after it was announced, he said the way Microsoft handled Minecraft and LinkedIn showed him “how serious they are about growing new businesses while maintaining their independence and identity.”

Analysts say that patient approach has been successful. Until the coronavirus pandemic, LinkedIn had been growing faster under Microsoft’s ownership than before it was acquired.

TikTok, with its fun artificial intelligence tools and more than 100 million US users, would most likely fit that pattern. To be successful, its owner would need to run the technology and sustain its online community. The deal being discussed involves purchasing TikTok offices in the United States, Canada, Australia and New Zealand. ByteDance would continue to own the social media app’s offices in Beijing.

Microsoft also offers something other giant tech rivals cannot: peace in Washington. Amazon, Facebook and Google have to tread carefully amid antitrust scrutiny, making a blockbuster deal with obvious political baggage unappealing. Other than its gaming business, Microsoft is mainly in business markets.

And it has strategically navigated Trump’s Washington. While the company has criticized some of the president’s policies, such as immigration restrictions, it won a high-profile, $10 billion contract to provide cloud computing to the Pentagon, which many analysts had expected Amazon to get. Amazon is contesting the award, saying it was politically motivated.

Microsoft has gingerly tried to court China for more than a decade, with only modest success. Its search engine, Bing, was one of the last remaining portals to the global internet, in part because the service directed users in China to state media accounts on disputed topics like the Dalai Lama. Even so, Bing was taken down briefly last year. While Microsoft Windows and Office are common in China, they are largely pirated copies; the country accounts for less than 2% of Microsoft’s revenue.

Nadella’s conversation with Trump appeared to assuage the president’s worries about TikTok’s security, at least temporarily. The concern of the US government is that the app potentially gives the Chinese government access to Americans’ user data. Microsoft’s statement said it would “ensure that all private data of TikTok’s American users is transferred to and remains in the United States.”

On Sunday evening, the news of continuing talks quickly garnered praise from Republican lawmakers.

Sen. Lindsey Graham of South Carolina, who spoke with Microsoft officials a few times about the deal, tweeted that the talks between TikTok and Microsoft were “a win-win in the making.” And Rep. Kevin McCarthy of California, the House minority leader, said the deal “would protect Americans’ data, increase competition and secure a creative platform for millions of users.”

Microsoft, said Ives, the analyst, “realized there is a window in the clouds that just opened up, and they have to fly right through.”

c.2020 The New York Times Company