TikTok deal with Microsoft can make Satya Nadella the New Kingmaker
On Sunday, the tech giant Microsoft announced in the blog post that it will continue to be holding talks to buy TikTok in the United States, opening up the possibility of using its financial might to buy the fickle infatuation of the tweens. It is clear that uncool tech giant “Microsoft” is aiming to get the love tweens with the help of TikTok – whose app featuring video clips is widely popular among young smartphone users. Meanwhile, Donald Trump threatened to ban popular social media app (TikTok) in the US which is owned by China’s ByteDance due to the national security concerns unless the app will be bought by any other company. Therefore, Satya Nadella, Chief executive of Microsoft, took the opportunity and made a deal with TikTok. Let me ask you a question, do you think money can buy love? Microsoft deals with TikTok in order to get the love of young users, will it be successful?. I can’t be answered until done. Well, at least Microsoft would like to find out if it’s possible!
After the weekend of speculation, on Monday Microsoft confirmed to buy the short video sensation that boasts more than 100 million users in the US alone. But I don’t think this deal is worth $50 billion. However, it depends on the investor (Microsoft) how much money they want to invest. With this deal, Microsoft which is best known for database and operating systems will control one of the largest and social networking sectors in most of the country. The deal is more benefitted for TikTok as it has been banned from India after the recent border clash.
In the blog post where the conversation between Satya Nadella and Donal Trump was shown about the deal of TikTok. But until the third paragraph ByteDance, the TikTok Beijing based owner wasn’t mentioned. It is not about to downplay the importance of the founder Zhang Yiming or his team, who built such an amazing social-driven app. However, the deal already transcends them.
Nadella plays an important role in the transformation of Microsoft. Nadella is a powerbroker now. Under Nadella, when he became the Chief executive in early 2014, Microsoft transformed from a PC operating system to cloud computing. It has a market value of $1.5 trillion and more than $130 billion in cash. He has already overseen some big deals. He bought a video game company behind Minecraft and closed a deal with professional network site LinkedIn Corp. But Microsoft has not had a clear path in serving young consumers beyond its video gaming business.
Microsoft always uses the patient approach which has been successful on a large scale. And, also it offers something other tech giants don’t, that is, peace in Washington. Whereas other companies like Amazon, Facebook, and Google making the blockbuster deal with obvious political baggage unappealing, Microsoft deals mainly with gaming and business markets.
And, the idea to buy TikTok or at least its US operations, spun off and bought by existing ByteDnace investor looks good on paper. But it was obvious that there will be issues with the US about concerns on data privacy and security. Given how opaque will be the ownership structure under Chinese control.
The only way this deal makes sense is because it could allay antitrust just days after four other tech CEOs were grilled by Congress. It can also solve the issue of data transparency by putting the U.S. operations of TitTok under the trusted American company. This will help not to ban TitTok from the country as it has millions of users and creates revenue.
Microsoft is also outlining the ways to do so, that how it would transfer and protect the user’s data. It will ensure that the transformation and sharing of data on TikTok under the US operation will not go outside the United States. And any such data currently stored outside the US will be deleted from the servers overseas.
Still, there is a lot to do before this can work. Microsoft will need to convince the US administration. However, it is not only up to Congress, there supporters also need to agree on the deal. They give more political momentum to this deal. It is likely that many more competitors will come for Microsoft to grab this deal. But till now it only has the strategy and capability to get the deal. The final discussion will be completed by Sept 15.
If Microsoft finally got this deal, let’s see how it will boost the company!
TikTok’s revenue last year was around $300 million globally, and collectively ByteDance had revenue of $17 billion. It has been listed as the world’s top unicorn at $140 billion in value. This year, TikTok is aiming for $500 million sales especially under US operations. Besides the US, Microsoft is looking to buy operations in Canada, Australia, and New Zealand. These small investments maybe generate $700 billion in annual revenue for this year, it can even exceed $1 billion if everything goes according to plan.
The social media apps are growing rapidly, Facebook Inc. shares trade at 9.6 times sales and twitter with 8.5 times sales. It is obvious that TikTok is also growing at the fastest pace but the idea of TikTok without the UK, India, and other countries is the greatest loss for ByteDance and will majorly affect Microsoft after the completion of the deal. India and other companies are TikTok’s largest potential markets.
Maybe after all this discussion and the negotiations between the Nadella and Trump, he will be getting a huge discount, which will make it the deal of the decade.
