The Potential Microsoft-TikTok Deal, Explained

Under 45 Days to Reach an Agreement

Lawmakers, investors, and teenagers had one thing in common this past weekend: they were all buzzing about TikTok. The Chinese-based video sharing app has been in the spotlight for some time as tensions between China and other global powers, like the US and India, mount. On Friday, President Trump announced plans to ban TikTok’s operations through an executive order because of security concerns—but by Monday the President’s plans tentatively changed changed his mind.

On Sunday, after a phone call between President Trump and Satya Nadella, CEO of Microsoft (MSFT), the tech company released a blog post about its plans to pursue TikTok’s US operations.

Yesterday, President Trump gave Microsoft a deadline, saying it must come to a deal with TikTok’s parent company ByteDance Ltd. by September 15. Trump noted that TikTok will not be allowed to operate in the US unless a deal is reached by the deadline. “It’ll close down on Sept. 15 unless Microsoft or somebody else is able to buy it and work out a deal,” the President said at a press conference yesterday.

What Could a Deal with Microsoft Look Like?

A deal between Microsoft and ByteDance Ltd. could take on a number of forms. Under Microsoft’s proposed agreement it would gain control of TikTok’s operations in the United States, Canada, Australia, and New Zealand. It would make sure that all data for US TikTok users would not leave the country.

Another option the companies have discussed is developing technology which would allow Microsoft to run TikTok completely separately from ByteDance’s code.

The companies have not released information about how much Microsoft might pay for TikTok, but ByteDance’s valuation expectations for the app are over $50 billion. All negotiations between the companies will be monitored by CFIUS, a government panel that has the ability to veto any agreement. Dan Ives, an analyst at Wedbush, predicts the deal has about a 75% chance of being completed.

Microsoft’s Competition

If Microsoft were to acquire TikTok, the company would automatically be launched into the world of pop-culture driven social media which generates billions of dollars through digital advertising. The company’s other operations are somewhat more “buttoned-up” than TikTok. At the moment, Microsoft mainly focuses on cloud-based enterprise software. It also owns LinkedIn and makes Surface tablets.

Buying TikTok would put Microsoft in direct competition with Facebook (FB), which owns Instagram, and Snapchat (SNAP). Both these companies have closely watched TikTok’s skyrocketing user numbers and are creating competing services on their platforms. Yesterday, Snapchat announced that it will soon offer users the option to add music to their Snaps. Instagram is in the process of rolling out “Instagram Reels,” a TikTok-like video sharing service within the Instagram app.

TikTok has shown that anything can happen in just 15 seconds. It’s been a volatile week for the app already, and it’s likely that the controversy will continue. Investors and users will be carefully watching to see how talks between Microsoft, TikTok, and lawmakers unfold.

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