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Story of the week: TikTok, Microsoft and President Trump

Peter Krass's picture

by Peter Krass on 08/07/2020
Blog Category: devices

Tech industry acquisitions often get government oversight, but we’ve never seen anything quite like the attention the U.S. government is showering on Microsoft’s possible acquisition of the TikTok app.

It’s a business deal essentially being brokered by the U.S. president.

The situation really got rolling last month, when U.S. Secretary of State Mike Pompeo raised the option of banning the TikTok app in the United States. India actually did ban the app in June. This would be a good point to mention that TikTok reportedly has 100 million users in the U.S. That works out to nearly 1 of every 3 Americans.

TikTok logo

Pompeo’s concern was that TikTok’s owner, a Beijing-based company called ByteDance, could use the app to collect information on American citizens, then share that information with the Chinese government. For the record, ByteDance has denied this.

The TikTok app does collect a fair amount of information about its users. This reportedly includes a user’s location, IP address, type of device, browsing history, search history, and the actual content of messages they’ve shared via the app.

It’s difficult to see the situation as anything but a manifestation of the cold war heating up between the U.S. and China. 

Microsoft connection

As you probably know, this past Sunday, Microsoft said it was now in talks with ByteDance to acquire the TikTok service in 3 English-speaking markets: the U.S. and Canada, Australia and New Zealand.

Microsoft CEO Satya Nadella even discussed the proposed deal on the phone with President Trump, according to a Microsoft corporate blog. “During this process, Microsoft looks forward to continuing dialogue with the United States Government, including with the President,” the blog post states, adding, “Microsoft would ensure that all private data of TikTok’s American users is transferred to and remains in the United States.”

For the president’s part, Trump said he would approve the purchase, but added that a “very substantial portion” of the sale price should go to the US government. That’s got to be a first.

Earlier, President Trump had called for shutting down the app should no American buyer complete a deal within 45 days. This week he also issued executive orders that bar Americans from transacting with ByteDance after this 45-day period. That might even prohibit U.S. citizens from downloading the app, if the Microsoft deal falls through.

Congress has gotten in on the TikTok action, too. The U.S. Senate has unanimously passed a bill that prohibits the country’s federal workers from using TikTok on government-issued devices. The House had already approved a similar provision as part of a larger bill. For the measure to become a law, both chambers would need to enact it in the same format.

What’s next?

Microsoft says it plans to conclude the TikTok negotiations by Sept. 15. There are reports that Microsoft may also invite other investors to participate on a minority basis. Still other reports, disputed by some, say the proposed deal has been expanded to include other markets, perhaps every country in the world except China.

Even on the original scale, the deal is likely to cost Microsoft billions of dollars, so what’s in it for the company? A lot of youthful users, mainly. The same people who now consider Microsoft to be stodgy and old-fashioned.

Microsoft’s risks? At least three. One, the deal could fall apart. And two, even if the deal does get made, it could fail to work out. This wouldn’t be the first time. Microsoft essentially wasted more than $7 billion buying Nokia’s phone business in 2013 and then shutting it down. And three, how is Microsoft supposed to answer President Trump's call that it share some of the money in the deal with the U.S. government? That would seem to be a complete terra incognita.  

As of today, the fate of TikTok remains uncertain. What is clear is that the possible deal sets a new precedent: an IT industry acquisition being brokered in part by a U.S. president.

 

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