- Microsoft's plans to buy TikTok may seem crazy at first, but it's all about the data.
- TikTok would give Microsoft eyes into a market where it is mostly blind: smartphone use among Generation Z.
- But there's another appealing side for Microsoft: TikTok is reportedly a huge customer of arch-rival Google Cloud.
- Visit Business Insider's homepage for more stories.
At first glance, Microsoft's talks to acquire TikTok's US operations from Chinese owner ByteDance seems somewhere between odd and crazy. But at second glance and beyond, it could be a brilliant strategic move.
That's because the deal is all about data, the cloud, and an opportunity for Microsoft to own something that could be as big as YouTube for the next generation — complete with at least 80 million US users already (and probably more, given that the app has been downloaded 2 billion times) — at a potentially bargain price, thanks to the growing list of companies and governments banning or threatening to ban the app.
And if the deal goes through, it would also take a shot at Microsoft's longtime arch-rival Google in the doing.
With TikTok, Redmond would gain eyes in an area where it has been mostly blind: Generation Z's smartphone use. When a user downloads TikTok, the app collects a lot of information by default (although its privacy policy says that users can opt out of some). This includes info about the smartphone itself, as well as the users' location, data gathered by other social media sites and third-party data collectors, the content of private messages, and other websites the person visits, according to TikTok's privacy policy.
Microsoft doesn't have a popular smartphone operating system, nor is its Bing search engine the preferred choice on most phones. This means that TikTok could be Microsoft's best choice for visibility into what the next generation is doing with and on their phones.
Microsoft could use this data to challenge the Google/Facebook duopoly in online advertising, or in myriad other ways.
But the best part for Microsoft is that such a deal could also come at the expense of its arch rival Google, and its Google Cloud. While Google Cloud is a smaller challenger to Microsoft Azure, Google has big ambitions for its cloud. In May, 2019, TikTok signed a three-year agreement with Google Cloud to buy more than $800 million in cloud services, The Information's Kevin McLaughlin and Amir Efrati reported last month.
Even if Microsoft's purchase of TikTok wouldn't negate that deal immediately, Microsoft would likely snatch TikTok away from Google Cloud and move it to its own Azure at the earliest opportunity. Such a move would be about more than lost revenue for Google: It would take-away from Google Cloud a huge marquee user that shows other potential customers it can handle big workloads and their long-term cloud needs.
But the deal is opportunistic, too. TikTok is facing an existential threat — India has already banned the app, as had much of the US military and some private companies, like Wells Fargo thanks to fears that its Chinese origins make it a security threat (allegations the company has repeatedly denied). The Trump administration has been threatening to have it banned it in America, too.
Microsoft is one of the few companies with deep enough pockets, and enough of a business need, to make an offer. And it knows it's negotiating from a position of strength.
Neither TikTok nor Google Cloud immediately responded to our request for comment.
