TikTok | Representational photo | Kon Karampelas | Unsplash
TikTok | Representational photo | Kon Karampelas | Unsplash File photo
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It looks like the TikTok spinout scenario is fully in play.

For weeks, White House officials – including Secretary of State Mike Pompeo and President Donald Trump – have raised the prospect of a ban of ByteDance Ltd.’s TikTok app in the U.S., citing national security concerns. But now it seems the government could be amenable to a middle ground. On Friday, Bloomberg News reported Trump plans to order ByteDance Ltd. to divest its ownership of TikTok. Then later in the afternoon, several media outlets reported Microsoft Corp. is in talks to purchase TikTok’s U.S. operations.

To be clear, if ByteDance is forced to sell TikTok under the administration’s pressure, the story won’t be over. TikTok is only one front in a wider campaign of rising political and economic tensions between the U.S. and China. China may retaliate by targeting American business interests on its soil or taking other measures that further inflame the situation. But putting all that aside and in the meantime, let’s consider the merits of a TikTok sale.

There seem to be two active bidders for the app. One is Microsoft. As for the other, Reuters reported earlier this week that some of Bytedance’s U.S investors have proposed a bid for a majority stake of TikTok, valuing the company’s non-China operations at $50 billion. The offer would be about 50 times TikTok’s forecast sales of $1 billion this year, Reuters reported.

On a personal level, an independent TikTok owned by American venture capital firms is the preferable option. By staying separate, the social media app can hire and retain the best engineers with tantalizing pre-IPO stock compensation. Top-tier technical talent is needed to keep the company on the bleeding edge. And history is littered with examples of upstarts that were acquired by larger companies and subsequently lost their ability to nimbly react to competitors. Examples of M&A debacles include Yahoo’s acquisition of Tumblr and News Corp.’s Myspace purchase.

In this instance, though, Microsoft may be the best suitor. On the surface, it may seem strange to contemplate such a large deal in an environment of greater regulator scrutiny over the technology industry’s acquisitions. In fact, we are just days removed from CEOs of four other Big Tech companies getting grilled over their anticompetitive practices before a House subcommittee. However, counter-intuitively this merger can make sense in terms of antitrust principles. A Microsoft-TikTok combination would create a much more competitive U.S. digital advertising market by establishing a powerful third player against the two dominant internet ad goliaths, Google parent Alphabet Inc. and Facebook Inc. And let’s face it, the administration may prefer a sale of TikTok — even to a giant like Microsoft — over banning an app that’s wildly popular with millions of Americans.

Microsoft’s businesses would benefit as well by adding scale to its burgeoning digital advertising operation, anchored by its Bing search engine. The company could also cross-promote TikTok’s social media video features across its Xbox gaming console and cloud services. And finally, ByteDance may appreciate a deal with Microsoft for a purely expedient purpose. The software giant valued at roughly $1.6 trillion can quickly and easily pay the Chinese company the tens of billions TikTok is worth without the complications of dealing with multiple smaller investment firms.

So at the end if the day, a Microsoft-TikTok combination may be the best and most elegant solution for all parties involved. The happiest may actually be the apps users, celebrating their favorite service’s survival. – Bloomberg


Also read:Democratic, Republican senators want US govt to probe if TikTok, Zoom shared data with China


 

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