The summer has been eventful for ByteDance, the owner of the rapidly growing social network TikTok. First, the government of India banned the application from distribution in the country due to concerns that the Chinese government is accessing user data. Then, a number of US companies warned employees to remove TikTok from their work phones. Most recently, US President Donald J. Trump threatened to ban TikTok in the US.
Into this maelstrom has stepped Microsoft CEO Satya Nadella with an offer to purchase the US business of TikTok. Nadella has earned a reputation as a savvy operator. He has restored Microsoft’s growth with smart bets on various types of business software, and a strong push to move the users of various applications, including the company’s lucrative Office products on to the online Office 365 version. Nadella has also remade the image of the swaggering giant as a kinder, gentler, more thoughtful company.
Microsoft’s purchase of TikTok would be Nadella’s riskiest bet to date. If Beijing, in fact, views TikTok as a crucial asset for influencing US political and social discourse, it could attempt to put backdoors into the software and service. Microsoft would need to work hard to extricate them, and they could result in TikTok’s being shut down anyway.
Also, with TikTok, Microsoft would enter the politically fraught world of social-content moderation. Microsoft has assiduously avoided political controversy, but TikTok would inevitably force Nadella to enter that arena in one way or another. For example, critics have loudly complained that TikTok censored videos of recent Hong Kong protests, citing that as evidence of Chinese government control. One can imagine similar discontent, due to slights — real or perceived — arising among any number of causes, particularly at either extreme of the US political spectrum.
TikTok’s present valuation $5 billion has critics warning that Microsoft is about to overpay. That is one of many things that could halt the deal altogether — valuation, government intervention, and fresh revelations of spying on users being just a few.
Yet the logic of the acquisition is clear. TikTok is under threat of closure by the US federal government. It’s hard to imagine that Microsoft will pay its full valuation price. For ByteDance, this may offer a graceful exit from a business that it realizes will only create more problems. So, Nadella may be making a smart bet — one with less to lose and more to gain than others realize.
Microsoft would increase its market presence by simultaneously acquiring both a social medium and an application popular with the younger crowd. It has long pined for more of the under-25 group, and TikTok may fulfill that aspiration most clearly and cleanly. Also, TikTok, a kinder, gentler social network than Facebook and Twitter, aligns culturally with Microsoft’s carefully groomed image.
The platform is designed to encourage discovery and consumption, but not to fan the flames of extremism. That does entail algorithmically controlling content more carefully and spreading new content more slowly than Facebook and Twitter care to. To date, however, moderation has been a lesser problem on TikTok than on other platforms and, due to its design and mechanism, is likely to remain so.
With TikTok would come a large and growing pool of user-generated video data for training Microsoft’s artificial intelligence (AI) engines. In theory, if Microsoft can continue to grow TikTok’s user base, its advertising benefits to Microsoft may be enormous. Microsoft’s cash flow would benefit from the added diversity of the advertising revenue and potentially of another rapidly growing source: social advertising. To put this into perspective, Amazon’s fastest-growing revenue stream, of late, has been advertising sales on its powerful eCommerce platform.
The purchase’s major benefit to Microsoft and the US public may be the ability of US consumers to continue to use an innovative platform for free expression and creativity after rescuing it from the quicksand of politics. Yes, we must remain vigilant in limiting government spying (which, let’s be honest, both sides engage in) and restrictive business practices (in which China is clearly the worst offender). But ultimately the potential of such technology as TikTok is to soar above partisanship and divisiveness to let people connect and create.
Certainly, social networks have created their fair share of problems for society, and TikTok is not a perfect vessel. People will find ways to abuse its potential. For now, however, Microsoft’s purchase of TikTok would, in a rare win-win, benefit Microsoft, TikTok’s users, and society.
And just as the US learned from India’s ban, India now needs to learn from it. China’s National Intelligence Law of 2017 requires all of its companies and citizens to ‘support, assist and cooperate with the state intelligence work’. If China decided to launch more aggressive moves against India, it could have its companies intercept private communications, shut down key services, or even sabotage infrastructure. This is why the US State Department launched the Clean Network program: to purge Chinese companies from US infrastructure. This applies to telecoms carriers, cloud services, undersea cables, apps, and app stores.
Removing Chinese-developed infrastructure will take time. But India can surely take a page out of the US State Department’s book and require companies such as Xiaomi, Haier, Oppo, Vivo, Oneplus, Huawei, and Motorola to sell their Indian products to local players. Companies such as Reliance, Mahindra, and Tata have the capability and funding and could win in the same way as Microsoft.
Vivek Wadhwa is a distinguished fellow, Labour and Worklife Program, Harvard Law School, US, and co-author of the forthcoming book, From Incremental to Exponential: How Large Companies Can See the Future and Rethink Innovation.
This piece was first published here.
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