Microsoft and TikTok Are an Odd Pairing That Might Just Benefit Both Companies

There is no obvious new owner for TikTok, a video sharing app that captured the attention of the nation—most recently, President Donald Trump—during the Covid-19 pandemic. TikTok is a formidable player. It’s trendy, musical, funny, great fodder for memes and unabashedly creative. It relies on advertising, but ads seem secondary to original content on the app, aside from an ad upon first-open. Its biggest brag is having a powerful algorithm that knows what delights users. There's a chance the handful of companies—which includes Oracle, Twitter and Microsoft—can save TikTok and shield the app from further scrutiny. And maybe TikTok can even make those companies cooler. Twitter and Oracle are reportedly intrigued by the company, though neither has confirmed their intent to buy. Microsoft, meanwhile, has said it is interested in purchasing TikTok in the U.S., Canada, Australia and New Zealand. Microsoft emerged as the likely new owner after President Trump announced executive orders that put pressure on ByteDance, TikTok’s parent company, to divest from its U.S. holdings and sell the company by Sept. 20. Trump has also heightened the speculation surrounding Microsoft’s pending new ownership when he gave the company his blessing after talking to CEO Satya Nadella. Microsoft isn’t an obvious match for TikTok at first glance, though it has experience integrating high-profile consumer acquisitions, including Skype for $8.5 billion in 2011, LinkedIn for $26.2 billion in 2016 and Minecraft for $2.5 billion in 2016. In recent years, the company has moved more toward cloud and business enterprise software, capitalizing on its dominance with the Windows operating system and its Office suite. Both Microsoft and TikTok declined to comment for this story. When Debra Aho Williamson, eMarketer’s principal analyst for social media and marketing, first heard murmurs of Microsoft acquiring TikTok, she was taken aback. “My reaction was … Microsoft?” she said. “Why, how, when and where could Microsoft and TikTok be a match?” After thinking more on it, Williamson still doesn’t see the “synergy” between the two companies, but admits it is an “opportunity for both sides to make the best of what has quickly become a crazy and unpredictable scenario.” On the consumer side, Microsoft has tried and failed with new product launches, such as its iPod competitor Zune and mobile operating system Windows Phone. Microsoft also had its own social media flop once upon a time, shuttering So.cl after an unsuccessful five-year run. The deal “makes a ton of sense” to Jed Meyer, managing director for North America at Ebiquity. He believes it will give TikTok the financial backing to keep innovating while showing regulators some commitment to better security. “To me there are four winners in this: consumers, brands, government … and it’s a win for the competitive marketplace as well,” he said. The deal could give brands “comfort” in conducting business with TikTok that might otherwise be searching for alternatives, like Facebook's new Instagram Reels. New advertising opportunities Microsoft’s advertising business pales in comparison to Google, Facebook and Amazon, but many companies have advertised with Microsoft through properties such as Bing and LinkedIn. The two would combine at a formidable scale. Microsoft sites had 222 million U.S. users in June 2020 while TikTok had 68 million U.S. users as of June, according to Comscore. Acquiring TikTok could improve Microsoft’s market share in digital advertising, Williamson said. The company is already projected to grow in this space without the acquisition, according to eMarketer, and is expected to hold 1.5% of the digital display ad market, “slightly ahead of Snapchat but well behind Facebook’s 42.0% and Google’s 10.4%.” Meanwhile, TikTok is in the early stages of its advertising business, just recently rolling out a self-serve ad platform and adding better targeting capabilities. TikTok has won over advertisers not just because of its youthful audience but because its ad formats are “highly creative and unique,” Williamson said. “To build a lasting ad business, TikTok also needs to develop easy self-serve tools that allow marketers to buy ads in bulk, using automated buying tools,” she added. “Microsoft could help with this, although it’s not particularly well known for its ad technology.” Shamsul Chowdhury, vp of paid social at digital marketing agency Jellyfish, said that advertisers have been “tentative to spend” given the uncertain state of affairs at TikTok, “reallocating their budgets as a contingency plan should the acquisition not go through.” But he said he expects TikTok will be able to continue its “impressive growth trajectory,” given the Microsoft acquisition. A shared audience While Microsoft owns a handful of popular consumer-facing tools, analysts say its closest intersection with TikTok is in gaming. It’s an area the former has grown with its Xbox gaming brand and ownership of Minecraft, among other gaming properties, that now reach a young audience—one that presumably overlaps with TikTok users. “There’s a lot of synergies that TikTok can bring to their data capture on that audience in much of the same way Google leverages so much data from YouTube,” said Scott Madden, senior director of strategy at independent agency Connelly Partners. Microsoft has narrowed its gaming offerings, though. It also recently shut down Mixer, the video game streaming platform it acquired in 2016 that was meant to compete directly with Twitch, the popular platform owned by Amazon. Microsoft is also partnering with rival Facebook Gaming for video game streaming following the end of Mixer. Microsoft would be best to take a hands-off approach to TikTok if it were to acquire it, similar to how the company treated LinkedIn, said Alyssa Stevens, director of public relations and social media for Connelly Partners, whose company has run influencer marketing campaigns on TikTok but not paid advertising through the app. “If they’re smart, they’re going to leave TikTok alone, knowing how well it’s doing,” she said. If Microsoft does not properly integrate the company, she continued, Facebook’s Instagram Reels, largely considered a TikTok copycat, could flourish. Williamson said the deal could work but thinks the acquisition needs to include all of TikTok’s operations outside of China. Doing so would put Microsoft back to competing with Facebook, which it tried to acquire in 2007. A TikTok deal would give Microsoft another shot at a “fast-growing, youth-oriented social media property,” Williamson said. And it’d be a way to “try to get back at Facebook for spurning its advances.”