Microsoft’s acquisition of TikTok is making headlines followed by conflicting reports. There are only a few reports that claim that Microsoft will take over the complete business of Tik Tok that spans over 155 countries. However, a large number of news reports have only confirmed the partial acquisition.
Microsoft is acquiring TikTok in the time of heightened US-China trade tensions and a presidential election season. Donald Trump, the President of the United States has already proved his hard stance over US corporates dealing with Chinese businesses due to concern over national security.
US-China Trade Tensions Impact on Microsoft’s Acquisition of TikTok
Earlier in May 2019 Trump issued an executive order to ban dealings of US businesses with foreign Telecom companies. Such decisions by the head of governments in the era of globalization and domination of free-market economies don’t make much sense as they impact businesses and consumers in adverse manners and even the economies of entire nations in some cases.
Following Trump’s executive orders Google revoked Huawei’s license for android making the Chinese smartphone giant which was on its way to eclipsing Samsung, to bring its own operating system.
Now a similar interference from Trump administration may also impact Microsoft’s acquisition of TikTok particularly when it is partial. A day after Microsoft’s interest in buying TikTok, Trump introduced a deadline of 15th September for the TikTok to find an American buyer. If it fails, then it will be banned from operating in the country. Furthermore, President Trump also reportedly stated that any kind of deal involving the purchase of TikTok would have to submit a substantial amount of money in the US treasury.
President also issued an executive order under the International Emergency Economic Powers Act to stop all businesses with two major Chinese apps; TikTok and WeChat.
He was addressing national security concerns regarding TikTok for months. His administration claims that the video-sharing platform is sending user information to the Chinese government.
How Microsoft Is Complying with Trump’s Concerns
Microsoft agreed with POTUS to perform data security screening before acquiring Tik Tok’s business in the US. Trump’s order also claims that both apps are keeping tabs on Chinese nationals who are visiting the US. The apps have categorically denied all allegations and threatened to take action against the President.
Tik Tok has challenged the legality of Trump’s order. The parent company, ByteDance has mentioned that it was engaged with the US government in the good faith but in return, the US did not care about the facts. It further added that the US government was not using a standard legal procedure but just dictating the terms of the agreement and forcefully inserting itself into a deal between two private businesses.
Despite the conflict, Microsoft continues to negotiate a workable deal with its allies in the Asian country. However, it has only 45 days to accomplish the most bizarre deal in the history of the tech industry. Many analysts have done some psychological aerobics in their arguments about Microsoft’s acquisition of TikTok but even the discussions are currently preliminary and the tech giant is not sure how the deal will proceed and how they will operate the app.
How Microsoft Will Benefit from Any Possible Deal
Microsoft’s acquisition of TikTok for few countries will not be enough for the company to make a prominent mark in the world of social networking. Stripping away those four countries from TikTok’s business also means that Microsoft will only get a very strange undersized regional social network. Not to mention the significant challenges involving investment and profits. The majority of Tik Tok users are from Asia and Europe but India’s TikTok ban has dramatically reduced that number too. Still, if Microsoft goes ahead with the partial acquisition, it would only be buying less than a third of the video-sharing platform.
Microsoft would need separate servers, codebase, and even users which would greatly impact everyone who works with TikTok. Influencers would get a very small area to be viral in and the users would be entertained by less content than before. Advertisers would also reach fewer users with their ads. The success of TikTok depends on the users getting exposed to wild and interesting content. For example, without diverse dance moves and entertaining videos from Asia and Africa, it will be hard for Microsoft to earn any real profits.
Therefore, splitting the TikTok network would not be an ideal way to take over this business. It would turn out to be rather expensive. Microsoft is likely to receive less return on investment because of the interest factor in the chosen regional lines and the less number of users outside Asia and Africa. The classic law of returns to scale will come into play which states that to change the behavior of the output, there must be a proportionate change in the amounts of input. Acquiring the whole business of TikTok seems like a safe choice because it will leave the app unchanged which can make the deal worthwhile. There’s still so much concealed about this agreement between Microsoft’s acquisition of TikTok so reaching any conclusion is not recommended.