Business Maverick

Business Maverick

Microsoft Tries To Salvage Deal To Buy TikTok, Appease Trump

The logo for ByteDance Ltd.'s TikTok app is arranged for a photograph on a smartphone in Hong Kong, China, on Tuesday, July 7, 2020. TikTok, which has Chinese owners, announced it would pull its viral video app from Hong Kong's mobile stores in the coming days even as President Donald Trump threatened to ban it in the U.S. Photographer: Lam Yik/Bloomberg

Microsoft Corp. Chief Executive Officer Satya Nadella spoke with U.S. President Donald Trump on Sunday to salvage the company’s effort to buy TikTok’s operations in the U.S. and several other countries.

Microsoft Corp. Chief Executive Officer Satya Nadella said talks to buy the music video app will move quickly “in a matter of weeks” and are expected to be completed no later than Sept. 15, Microsoft said in a statement. The company will continue to engage Trump and the U.S. government.

The purchase would result in Microsoft owning and operating TikTok in the U.S., Canada, Australia and New Zealand. Microsoft said it may invite other American investors to take minority stakes in the company, which is owned by one of China’s largest tech companies, ByteDance Ltd.

Microsoft pledged to add more security, privacy and digital safety protections and ensure that all private data of Americans be transferred back to the U.S. and deleted from servers outside the country.

Day Two Of The World Economic Forum (WEF) 2020
Satya Nadella

“Microsoft fully appreciates the importance of addressing the President’s concerns,” the company said. “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.”

The statement didn’t explicitly say whether Trump had signaled he would approve an agreement and forgo a TikTok ban, though Microsoft said it has been in discussions with Trump and would likely make such a public pronouncement only if it thought that would be forthcoming. Microsoft also didn’t disclose a likely price for the deal.

TikTok didn’t immediately respond to a request for comment.

The blog post from Microsoft came after a weekend of tense negotiations that lasted late into the night among Microsoft, TikTok and the White House, as well as a string of appearances on Sunday morning cable shows by U.S. politicians trying to sway the President’s decision. Factions within the administration have split into two camps: Those that want to keep the wildly popular music video app in operation by delivering it into the arms of an American company like Microsoft, and those that want to ban the app altogether and shut it down in the U.S. because of TikTok’s Chinese roots.

Critics say they fear the parent company, ByteDance, will share data on American users with the Chinese government, or use the app to influence the 165 million Americans, and more than 2 billion users globally, who have downloaded the app.

TikTok was launched in the U.S. more than two years ago, following Bytedance’s 2017 purchase of lip-synching app, which it folded into TikTok. The app became a social-media hit in the U.S — the first Chinese platform to make such inroads.

As TikTok became more popular, U.S. officials grew concerned about the potential for the Chinese government to use the app to gain data on U.S. citizens. The Committee on Foreign Investment in the United States, or CFIUS, which which investigates overseas acquisitions of U.S. businesses, last year opened a review of the purchase.

Over the summer, anti-TikTok rhetoric among U.S. politicians grew louder and Trump floated a possible ban of the app. In response, ByteDance’s venture investors, including Sequoia Capital, urged company founder and Chief Executive Officer Zhang Yiming to head off any U.S. government action by selling a majority stake in TikTok to them, people familiar with the matter told Bloomberg News in July. But that arrangement wasn’t sufficient to administration officials who didn’t want to leave the company’s Chinese founder with a even minority stake in the company and didn’t want ByteDance’s long-time allies to have a majority.

Over the weekend, U.S. Secretary of State Michael Pompeo said the Trump administration will announce measures shortly against “a broad array” of Chinese-owned software deemed to pose national-security risks, suggesting the actions may go beyond the one Chinese app.

TikTok has repeatedly rejected accusations that it feeds user data to China or is beholden to Beijing, even though ByteDance is based there. But in recent months the company has bolstered its efforts to distance itself from its Chinese roots. It hired its first American CEO in June, former Walt Disney executive Kevin Mayer, hired dozens of D.C. lobbyists, and said it would consider a new global headquarters and other organizational changes to satisfy U.S. authorities.

TikTok has hired almost 1,000 people in the U.S. this year and will be employing another 10,000 into “great paying jobs” in the U.S., a company spokeswoman said in a statement. The business’s $1 billion creator fund also supports people in the country who are building livelihoods from the platform, she added.

“TikTok U.S. user data is stored in the U.S., with strict controls on employee access,” she said. “TikTok’s biggest investors come from the U.S. We are committed to protecting our users’ privacy and safety.”

The purchase of TikTok’s operations in the U.S. and the three other countries, should it be concluded, would represent a huge coup for Microsoft. The world’s largest software company would gain a social-media app that has won over young people with a steady diet of dance videos, lip-syncing clips and viral memes. The company has dabbled in the lucrative sector, but hasn’t developed a popular service of its own. Microsoft acquired LinkedIn, a job-hunting and corporate networking company, for $26.2 billion in 2016.

A deal would vault Microsoft into the social media and advertising markets — areas dominated by Facebook Inc. and Google. Microsoft once paid $6.3 billion for Internet ad company aQuantive, the largest deal ever for the company at the time. The effort failed and the company ended up writing down almost the whole value of the deal and then selling its remaining display ad business to AOL in 2015.

The company has a search ad business but it declined 18% last quarter. It has no consumer social media app, and Xbox and Minecraft are pretty much its sole attention-getter among younger users

As Trump officials stepped up their threats, an outpouring of support for TikTok spread across the Internet as users displayed outrage with a potential U.S. ban on what’s become one of the most popular media companies in America. Videos with the hashtag #ban had more than 620 million views by Sunday night on TikTok.

“This is what Trump gets for planning to ban Tiktok,” wrote one user on TikTok named @rainbownursesarah, flashing to a video of a sparsely-packed stadium at a Tulsa, Oklahoma Trump campaign rally that TikTok users sought to disrupt in June.

Free speech advocates also piled on against the idea of banning any kind of Internet service, regardless of its owner.

“Banning an app that millions of Americans use to communicate with each other is a danger to free expression,” said Jennifer Granick, surveillance and cybersecurity counsel at the American Civil Liberties Union. “Shutting one platform down, even if it were legally possible to do so, harms freedom of speech online and does nothing to resolve the broader problem of unjustified government surveillance.”


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