For the last two years, TikTok has been in the public eye for all sorts of reasons. First, it was the exploded and unparalleled growth that stole the limelight; then came the showdown, with the sudden ban on this massively popular short video app in various countries. And, if all that bang didn’t make your heads turn, the hostile, albeit circumstantial, acquisition of TikTok can’t go unnoticed.
There are many companies that are reportedly evaluating their options to pocket TikTok. However, even an astute gambler wouldn’t have predicted Microsoft Corporation (NASDAQ:MSFT) to emerge as a potential suitor when TikTok looked towards buyers. As the Redmond, Washington based tech giant is eager to grab this seemingly superlative opportunity, several angles are up for consideration. With the deadline of 15th September looming in the background, the most pertinent questions remain:
- What does this deal spell for Microsoft?
- What does the tech behemoth stand to gain?
Let us examine this curious development from its standpoint and follow a trajectory, travelling through the various details which would aid in better understanding of how Microsoft could reap its benefits from the deal. The best place to start is with the phenomenal growth of TikTok which has redefined the social media space, single-handed.
And The Clock Starts
Musical.ly, the lip-sync VFX video social platform that started in 2014, grew leaps from 10 Million users in 2015 to 200 Million users in 2017. Come August 2018 and ByteDance acquired Musical.ly and merged it with TikTok, to consolidate it into a single platform. By April 2020, the explosive growth of ByteDance’s unicorn baby TikTok (or ‘Douyin’ as it has been termed in China), surpassed 2 Billion downloads worldwide. While such a growth in a mere couple of years is in itself phenomenal, the laurels don’t stop there.
In the first quarter of this year alone, there were a total of 315 million downloads, making it the app with the most downloads in any single quarter and marking a dramatic increase of 58% from the previous quarter.
What points to an interesting subset is that it has also been the most downloaded app on the Apple store for a running of five quarters, something Microsoft has clearly taken notice of.
From Global Impact to Winner By Region
Being alive in 155 countries around the globe, TikTok has soared in the Asian diaspora, with India and China accounting for the top two spots in terms of downloads. With a whopping 611 million lifetime downloads by the end of Q1 2020, India is ranked highest and accounted for 30.3% of the total TikTok app downloads worldwide. On a rather far second with 196.6 million lifetime downloads, China has just about 9.7% of the overall share. The United States, the largest non-Asian market, with 165 million lifetime downloads, is a close third with 8.2%.
TikTok’s reach has only furthered in the last 18 months. As the app has 800 million monthly active users worldwide now, female users are leading the base, constituting 60%, in comparison to their male counterparts. The scenario is no different in India and the US, the two biggest markets outside China, which has 124.9 million and 37.5 million monthly active users, respectively.
While the user base is hugely dominated by the millennial, 41% being in the age group between 16 and 24, users of other ages have been ambling towards a raise too.
Aided in no small part thanks to the pandemic, TikTok’s pull towards user engagement can be evidenced by the fact that its users spend an average of 52 minutes per day on the app. For the potential advertiser, this becomes a powerful statistic to recon with. Even though Facebook’s users lead with spending 58.5 minutes on the app, TikTok is right in the mix with Instagram (53 minutes) and Snapchat (49.5 minutes) stealing attention in the short video format.
Indeed, it’s a phenomenal growth that TikTok has achieved in the last few years!
While the stats do offer a concrete backing of its credentials, TikTok has also gone all out in making moves to garner more revenue and tap more users. With the snaring of “Buzz Lightyear” Kevin Mayer as its CEO (ex-Disney exec), as recently as June this year, TikTok has been primed for growth with the help of targeted leadership and an ally to strengthen its roots in the US.
Making “Stars” out of common citizens and giving them their dash at fame, TikTok has been the key driving force behind ByteDance reaching its estimated valuation of over $100 billion. TikTok individually is touted to be worth between $25 Billion and $40 Billion.
The one thing that is in no more dispute however, is despite entering the scene as recent as 2016, TikTok has completely turned the social media game on its head with its novel and generation relatable offering. While it has been seen as a direct competitor to Facebook, Snapchat and the likes for quite some time now, TikTok has created a loyal niche amongst its user base, a point which sympathises perfectly with Microsoft’s aims.
And that’s where the good news ends.
The Recoil : Unrelated And Unsavory
It is perhaps somewhat unfortunate to consider how TikTok landed in a big hot soup. Caught in the crossfire due to the distasteful border brush between China and India, TikTok consequently became a prominent face of China in the country, invariably facing the brunt of nations around the globe.
The Bharat Ban
On 29th June 2020 when India took the resolute decision of banning the app with finality, along with 59 other Chinese ones, it resounded over the world and was certainly felt by ByteDance. With an estimated loss to the tune of $6 billion, ByteDance has seemingly lost its largest market with record number of downloads and revenue, and furthermore, a larger untapped market waiting to be acquired. Even as Nikhil Gandhi, Country Head – TikTok India, and his team have sent out pleas of peace, it is difficult to predict the Indian government relenting any time soon, with data theft and privacy concerns having been cited as core reasons behind the ban.
In the same breath, Indian TikTokers did not battle an eyelid before jumping ship to its native alternatives. Less than a month after the ban Indian TikTok alternatives garnered a whooping 155% increase in adoption. Roposo leading the pack at 71 million installs, even the less known apps had Stars and Celebrities flocking their doors.
Sadly however, in spite of cloning the best features of TikTok in them, KalaGato’s study confirmed the Indian counterparts are not as engaging. Other than Sharechat barely making to a third of TikTok’s impressive engagement, commanding a daily session time of 22.1 minutes, there are all indicators hinting the possibility of TikTok claiming back its popularity and position, if it were to be relaunched. And that certainly is music to Microsoft’s ears.
And The World Follows
In the same note, the US (read President Trump) made a series of public statements before eventually putting out a blanket ban on the app, reportedly reducing the ‘sentence’ upon the app, only after talks with Satya Nadella took place.
With bans in India and US, its biggest markets away from China, nearly 20% of its monthly active user base could be practically inactive. Security concerns have got even Japan to consider a countrywide ban on TikTok and WeChat. While TikTok has turned all its cards to save itself from a downward spiral, including distancing itself from its home country, the unsavory surprises do not seem to have ended yet.
Even though ByteDance has repeatedly stressed that it is not in subordination of the Chinese government, seeing such strong actions, other countries have been emboldened and Australia, Turkey, the European Union, and Indonesia have all expressed the desire to take similar steps if they deem the app’s pleas unsatisfactory.
Instagram Reels: Envious or Shrewd
With TikTok facing potential bans, Facebook sought to capitalise on the situation. In a bid to divert user stream away from ‘the pretender’, Reels lets people create short-form videos (15 second length) set to music that can be shared with friends and followers and discovered while browsing the app. It is accessible through its revamped Explore page, eerily similar to TikTok, but also a different commodity, seeing as how it ties in the overarched Instagram creator ecosystem.
With some justification, TikTok has since accused Facebook of plagiarizing its offering and taking undue advantage of its situation with these remarkably similar features. It fits in the classic “You know you’re winning when you see others copying you”, seeing as how Facebook has a suspect record in allegedly “borrowing” features from rival apps and using it to its advantage.
Seeing such developments in the macro view unfold, TikTok is in immense pressure and it has been pushed tight against the wall. The situation seemed no better until Microsoft decided to swoop in with the plans to acquire it. What it also tells us that there may be smiles and chimes of healthy rivalry, but seeing TikTok make such inroads is having Microsoft’s competitors worried, which further makes it a juicier option for Microsoft.
The Reign Of The Instant Short Attention Burst
The short video feature is the one at the centre, which ties all ends and which has indeed been a cornerstone in introducing a new way. It overhauls the way brands and users could choose to put themselves out in the world and interact with the consumers and the media.
Meanwhile, back in 2018 itself the sentiment of US millennials, eager to confidently put themselves out, voted Facebook out to lean more to visual expression platforms such a YouTube, Snapchat and Instagram.
Be it Wechat, Snapchat, Instagram Reels or TikTok, every company has incorporated this in its strategy, the appeal lies in the simple and snackable nature of the content, thereby resulting in higher user engagement rates and usage traffic across all platforms.
As far as TikTok goes, it began rolling out this format to enable advertisements, to select viewers on the platform, somewhere at the start of 2019. As with nearly all in the social media space, it has proven to be a big success for the company. Reports depict that TikTok’s Q4 2019 revenue grew over 300% from the same period a year earlier, coinciding with the introduction of these ads, where advertisers paid for impressions.
These types of ads can be typified as In-Native feed video ads, brand takeover ads or some which appear in the form of promotional branded hashtag challenges. Like Facebook’s algorithm gives precedence to promotional content in the video format, other platforms have also been trying to navigate it in the same manner. As far as garnering consumers, creators or merely traffic goes, Microsoft can stand to leverage the TikTok platform’s attribute and loyal user base on all counts. If nothing else, it could be on the way to introducing some clever redesigns which tie up nicely into promoting or enhancing its existing Xbox gaming experience and other products. From the outside, it looks like an exciting and enthusing roadmap to pan.
Microsoft’s previous forays into consumer tech
The potential acquisition of TikTok is not Microsoft’s first rodeo into consumer-based services, even if TikTok would potentially represent the most consumer-centric offering of the tech giant. However, for all its successes, it has several misfortunes etched in its history on its consumer-related ventures – Groove Music service, the Kinect Xbox accessory, its Microsoft Band fitness device, Windows Phone, and more recently the Mixer streaming service instantly come to mind.
Ever since Satya Nadella has been at the wheel of the ship, he has stuck to the enterprise business model and developing the cloud-based system. This is not to say that Microsoft has been dormant over this time period though, he has overseen some big deals which give us a glimpse into how Microsoft has been approaching consumer end services.
With subscription being the call of the hour and Microsoft quickly adopting the model with its offerings like Office 365 and Power BI, it would seem like the failures of their struggling past has taught them a few valuable lessons.
Among the first bid acquisitions was Minecraft maker Mojang, which has been a great success, as Minecraft has continued to grow and Microsoft has left the control to Mojang Studios. Similarly, the acquisition of LinkedIn for $26.2 billion has seen a similar trend. A prominent buy in the professional workspace media, apart from some really clever integration points with Office 365, it has left the organisation to its own devices. Even GitHub appears to be a successful acquisition for Microsoft. The software maker has also been operating this business separately too, but again, it has become a seat of data for Microsoft to understand how developers are responding to the world’s app needs.
Therefore, it would seem to follow that if Microsoft’s acquisition of TikTok is successful, then it is likely that TikTok will also be run independently. Microsoft has already had bitter memories from the messy acquisition of Skype and taking over Nokia’s phone business. As far as putting an imprint goes, maybe the lessons learnt were not to aggressively integrate businesses from the very off and let the product keep its charm.
Microsoft is new to the world of content moderation and the associated headaches, so it should proceed with some degree of caution and maybe stave off re-branding it for better garnering revenue and user base. Also, how it chooses to operate it in India and US, will be key to its global success if and when it gains operational control.
Weighing The Benefits And The Blunders
The scenario leads us to a few more questions though.
- What ahead then for Microsoft?
- Are we seeing a tech titan come to the realization that consumer business is the next trillion-dollar opportunity?
Microsoft’s presence in China, which it proudly proclaims on its website, may make the deal easier to broker. The almost half-century-old software establishment is one of tech’s most powerful companies. With a market value topping $1.6 trillion and easily accessible funds, the buyout is going to be simple enough.
Straightaway, what Microsoft would add to its services is something its key rivals have, and that it presently lacks: a video service. Often repeated these days are the words – “AI is the new electricity and the fuel that powers it is data”. Keeping this in mind, Microsoft could cull and harvest the valuable consumer behaviour data it receives, to enhance the creation and assorted services related to artificial intelligence. The buyout would also serve as a data goldmine to fuel those AI ambitions, also helping understand trends for the company and better strategize its interests.
It would also provide a premade product tailored to engage the upcoming generations, something whose lifetime value could not just be calculated in mere dollars. Along with LinkedIn in the professional world, the combined might of these two platforms will catapult Microsoft to an enormous advantage. This deal would act as a headstart for understanding a new demographic of users and rolling out future products by mapping consumer behaviour.
Advantage Microsoft
Also, if the deal was to go through, it would be a double win.
Firstly, from an administrator’s perspective, Microsoft is an attractive and credible buyer because it’s one of the few tech powers that isn’t being investigated for indulging in any alleged anti-competitive tactics. While the CEOs of Google, Amazon, Facebook and Apple all appeared last week before a House subcommittee investigating tech giants’ misuse of their power, Microsoft is bereft from it.
Secondly, it will help allay antitrust concerns of the US Congress and Mr. Trump by putting the US operations of TikTok in the hands of a trusted, publicly listed American company, and more importantly, somebody who has the acumen and the resources to offer reliability.
As a bonus, Microsoft scoring high on reputation and winning the best employer laurels in India, just makes it easier to regain the trust of the biggest market TikTok ever had.
TikTok could help correct a Microsoft soft spot and fulfil a distantly held fascination by the company. While Microsoft has all the data it needs on business and the usage of software, the deal could finally give a sort of leverage for utilizing video services in comparison to Google owned YouTube, Amazon owned Twitch and Facebook’s Instagram. This could be the base for further research operations as in the case of Xbox Live.
But, There Is Facebook Angle!
Buying out TikTok would put Microsoft in a direct competitor to Facebook. Back in 2007, Microsoft invested $240 million in Mark Zuckerberg’s company, before experimenting with its own social network Socl in 2012. Although the experiment did not last and was shut down five years later, it did prove that Microsoft saw some potential in Facebook’s growth.
Today, yet again the question arises over the TikTok deal being aimed at competing in the customer-centric media frame with Facebook. Considering Facebook is going gung-ho with Instagram Reels to eat into the TikTok market, it does put both Facebook and Microsoft in quite some pickle even if it does not lead to jeopardizing their business relationships, though there has been some back and forth between the two sides since 2014. Alternatively, it could be the high-value ticket to go one up on Alphabet and Apple and emerge into the top 10 sooner.
TikTok is rapidly turning into the next big consumer social media space, what with its features involved in sharing and commenting on videos to scale, it makes Microsoft’s acquisition stand on solid ground from its renewed foray into the social media space.
Conclusion
This acquisition may be unusual, brimming with complexities and mired in controversy regulating its content, yet with some smart strategic negotiation, Microsoft may be winning all the way. Adding a new dimension while simultaneously harbouring trust from the government, is something Mr. Nadella would take in these testing times. With the clock ticking fast, when the deal is done, Microsoft and TikTok would have formed an alliance, and perhaps the deal of the decade.
