Microsoft buying TikTok wouldn’t be so strange after all — here’s why it’s still unlikely to happen – GeekWire

Microsoft CEO Satya Nadella called the company’s negotiations to buy TikTok in 2020 “the strangest thing I’ve ever worked on.” (GeekWire Photo Illustration)

With the future of TikTok in the U.S. in doubt again, there’s a fresh round of speculation about potential buyers for the hit social video app.

Microsoft is among the companies frequently mentioned in a hypothetical deal to acquire TikTok from its parent company, Beijing-based ByteDance.

Even if the opportunity emerges from this complex geopolitical stew, there is no indication that Microsoft would be interested in revisiting its unsuccessful negotiations to buy TikTok in the U.S. and a few other countries in 2020.

Microsoft CEO Satya Nadella last year called the TikTok talks the strangest thing he has ever worked on, for reasons including the Trump administration’s fleeting interest in the issue.

Viewed from the outside, the prospect of Microsoft buying TikTok was a real head-scratcher at the time, starting with the fact that TikTok seemed like a massive mismatch for Microsoft’s enterprise technology focus.

TikTok’s move into search ads changes things.

In the meantime, however, TikTok has been positioning itself to use its large, loyal audience to become a key player in search advertising.

This is where a Microsoft-TikTok deal would start to make more sense.

That’s because search is a market of growing financial significance and technological focus for Microsoft. In addition to its existing and longtime presence in traditional search advertising, Microsoft has said that it plans to eventually offer ads, in some form, as part of its GPT-4-powered Bing search chatbot.

A Google executive said last year that “something like almost 40% of young people, when they’re looking for a place for lunch, they don’t go to Google Maps or Search. … They go to TikTok or Instagram.”

Of course, for that reason, Google itself would no doubt benefit from owning TikTok, too. But the search giant’s ownership of TikTok competitor YouTube would probably make that a non-starter for regulators.

In theory, Microsoft would have a much better chance on that front — if the company didn’t already have its hands full trying to overcome regulatory opposition to its proposed $69 billion Activision-Blizzard acquisition.

Larger challenges make a Microsoft-TikTok deal unlikely.

Perhaps the biggest hurdle is China’s opposition to a forced sale of TikTok and its coveted recommendation algorithm.

As GeekWire reported in 2020, Microsoft’s bid for TikTok in the U.S., Canada, Australia, and New Zealand failed after the company insisted on acquiring full control of TikTok’s operations, data, source code and algorithms. Microsoft declined to settle for a lesser deal that didn’t put those assets under its control.

Ultimately, TikTok struck a lesser partnership with Oracle and Walmart that was later shelved by the Biden administration.

Last week, a contentious U.S. House committee hearing with TikTok CEO Shou Zi Chew increased the likelihood of the U.S. attempting to ban the app, or trying to force a sale. U.S. officials warn that TikTok could give the Chinese government a backdoor to the personal data of millions of Americans. TikTok denies this.

TikTok last week reported that it has reached 150 million monthly active U.S. users. That scale increases the U.S. government’s security concerns, and the backlash it would face in trying to implement a ban.

Could Microsoft afford TikTok?

Recent price estimates for TikTok’s U.S. operations range from $40 billion to $100 billion. Microsoft’s balance of cash and short-term investments stood at just under $100 billion as of December 2022. At the high end, Microsoft would likely need to use a combination of cash and stock, or more creative terms.

“While the price tag will be eye-popping, TikTok’s strategic value and consumer platform will have a number of financial and tech strategic players interested once a sale becomes the formal path,” wrote Wedbush analyst Daniel Ives in a note to clients Sunday evening.

In addition to private equity firms, “a number of tech stalwarts will also likely focus on TikTok including Microsoft, Apple, Oracle, and/or joint bids from a handful of Big Tech players depending on the structure and price tag,” Ives wrote.

Microsoft executives aren’t commenting, and who can blame them?

Aside from the risk of becoming a U.S.-China lightning rod, they’ve got a lot going on right now: not just attempting to pull off the biggest video-game deal in history, but also trying to put AI into seemingly everything in Redmond, and upholding the tech industry’s new tradition of rolling out thousands of job cuts over multiple months.

It would seem difficult, if not impossible, to focus on TikTok long enough to try again. Ultimately, that’s what makes it unlikely for Microsoft to revisit this strangeness.

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