TikTok app logo on the smartphone screen and US dollar bills next to it.
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Microsoft is in negotiations to buy TikTok's American possessions. After discussions with the U.S. president, Donald Trump, last week, Satya Nadella, the CEO of Microsoft has been given six weeks to work out a deal that satisfies the Trump administration and shareholders in Chinese parent company ByteDance. In an official acknowledgement that Redmond, Wash.-based Microsoft is in negotiations with TikTok, the company issued the following statement:

“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.”

The Value Of TikTok

This is where the problem begins. What is covered by the term ‘Amercian’ business and how much is it worth? It is impossible to say how much ByteDance is worth globally. However, at the end of May it recorded a number of private share transactions that are not transparent but led Bloomberg financial wires to report that the company had an estimated market value of $100 billion. According to the report, which cited people “familiar with the matter”, the valuation was built on the expectation that TikTok — one of the company’s main offerings — would keep attracting advertisers as the social network continues to expand, particularly across a young adult demographic.

Equally important was an assessment by Andrea Walne, a partner at Manhattan Venture Partners that “the trading of ByteDance [shares] is reflective of the global wave of consumers who agree that ByteDance can displace Facebook as the leading social network."

If for no other reason than this, TikTok would be an interesting buy for Microsoft and would make it a very strong competitor in a technology market that is one of the toughest to break. But is this really the reason?

Adam Rizzieri is Chief Marketing Officer with Agency Partner Interactive, a digital marketing agency based in Dallas. He believes that Microsoft’s interest in TikTok is largely for the data that is available through social networks and the value that that data could have across the company.  

This is not new though. He pointed out that in 2007, Microsoft invested $240 million in the then three-year-old Facebook but that Microsoft was too late to the party and only acquired 1.6% of the business, earning it a little over $1 billion after dilution. “Apart from its $26 billion acquisition of LinkedIn in 2016, it has generally been unsuccessful at launching its own social networks, such as So.cl," he said. “A move towards TikTok immediately gives it a functional, highly adopted social platform with over two billion downloads in the App Store and Google Play.”

If the sale goes through, Microsoft will also immediately earn revenue on the recently launched TikTok For Business Ads Manager, and in the long-term, the video platform will allow them to compete with Google's YouTube and Facebook. “On top of that, Microsoft will utilize TikTok's user data to connect with Gen Z consumers, driving innovation in new software and hardware products,” he added.

TikTok Data for Microsoft

PureVPN is a commercial virtual private network service owned by GZ Systems, which develops security-based apps among other things. Based in Hong Kong it has a foot firmly planted in the Chinese market. Muhammad Mateen Khan, a digital marketing strategy at the company agrees that this deal is about data. “This is the driving force behind concerns from the Trump administration over TikTok’s potential ties to the Chinese government and how that data might be misused,” Khan said.

The data could be used by Microsoft in a variety of ways. The software giant has long used Xbox Live to fuel parts of Microsoft Research for future software and hardware projects, and the usage data helps game developers and Microsoft better understand how people use their Xbox. Understanding how people interacted with and used the Kinect accessory for the Xbox ultimately helped Microsoft develop and improve HoloLens, too.

TikTok could also help correct a Microsoft blindspot and even influence how other software and services are developed inside the company. Microsoft has all the data it needs on business usage of software, but it has not been successful with pure consumer services in recent years, which has left the company with a gap of insight into consumer behaviors.

That is particularly relevant when you consider that many young Americans are growing up in an environment dominated by Android iOS, and Chromebooks in classrooms. With Gmail also dominating consumer email usage and document sharing through Google Docs, it is now possible to grow up in the U.S. without needing any Microsoft software or services. “Microsoft missed the mobile revolution and has been playing catch-up ever since, but it doesn’t want to miss an entire generation of future workers," he said.

Network Users' Data

If data is the new oil then the principal reason why Microsoft wants  TikTok is to cash in on the bonanza that the social network might offer. In recent years Microsoft's gap of insights into consumer behavior widened after the company missed the mobile revolution, David Morneau of the Canada-based inBeat.Agency, a micro-influencer marketing agency that works closely with TikToK, pointed out.

Gen Z  that represents a majority of TikTok-ers grew up using very little or none of Microsoft's software. They are active Android and iOS users. They use Gmail, Chromebooks, Google docs in the classrooms. With TikTok, Microsoft gets access to the data that will help make their products more consumer-friendly. “TikTok will open the doors to the world of AI consumer testing beyond the Office and feed Microsoft's Augmented Reality ambitions,” he added.

What Will Microsoft Do?

So, what will Microsoft do with the data. Among other measures, Microsoft would ensure that all private data of TikTok’s American users is transferred to and remains in the United States, according to a Microsoft statement. 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.

But it is not a done deal yet and there is a long way to go. The statement, which is dated August 2, adds that 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,” it adds.