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Why Microsoft wants TikTok

Forty-five days to close the deal

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At first glance, a Microsoft acquisition of TikTok seems a little unusual. Microsoft has spent years walking back consumer plays like the Groove Music service, the Kinect Xbox accessory, its Microsoft Band fitness device, Windows Phone, and more recently the Mixer streaming service. Microsoft has been favoring its enterprise software and services, and even Cortana has transitioned to be productivity-focused. How does a service that caters to dancing teenagers fit with Microsoft’s buttoned-up business demographic?

If you dig a little deeper into Microsoft’s future ambitions, though, a move to acquire TikTok’s operations in the US, Canada, Australia, and New Zealand could benefit many of Microsoft’s existing businesses while also setting the company up as a real competitor to YouTube and Facebook.

TikTok on an iPhone.

Data, data, and more data

The key part of any TikTok deal will be the data and users Microsoft gains access to. This is the driving force behind concerns from the Trump administration over TikTok’s potential ties to the Chinese government and how that data might be misused. Microsoft acknowledges the data’s importance in its blog post confirming acquisition talks, noting that “Microsoft would ensure that all private data of TikTok’s American users is transferred to and remains in the United States.”

This data could be used by Microsoft in a variety of ways. The software giant has long used Xbox Live to fuel parts of Microsoft Research for future software and hardware projects, and the usage data helps game developers and Microsoft better understand how people use their Xbox. Understanding how people interacted with and used the Kinect accessory for the Xbox ultimately helped Microsoft develop and improve HoloLens, too.

TikTok could help correct a Microsoft blindspot and even influence how other software and services are developed inside the company. Microsoft has all the data it needs on business usage of software, but it hasn’t been successful with pure consumer services in recent years, which has left the company with a gap of insight into consumer behaviors.

That’s particularly relevant when you consider that a large number of young Americans are growing up in an environment dominated by Android, iOS, and Chromebooks in classrooms. With Gmail also dominating consumer email usage and document sharing through Google Docs, it’s possible to grow up in the US without needing any Microsoft software or services. Microsoft missed the mobile revolution and has been playing catch-up ever since, but it doesn’t want to miss an entire generation of future workers.

TikTok gives Microsoft a direct line to millions of youngsters using the app to watch videos and even those who use it to create content. Microsoft has tried desperately to adapt its Windows operating system to be more consumer-friendly with video creation apps, but TikTok offers an easy way for millions to create videos from their phones instead.

Microsoft’s Surface Pro X.
Microsoft’s Surface Pro X.
Photo by Amelia Holowaty Krales / The Verge

Microsoft could take advantage of that direct access to TikTok users with ads for Surface, Xbox, and other products, or even as another base for its game-streaming ambitions. Google is planning to leverage YouTube to integrate its Stadia streaming service, and TikTok would give Microsoft a response with xCloud game streaming. Microsoft had been planning to use Mixer for Xbox game streaming, but the service never gained enough traction, and the company was forced to strike a deal with Facebook for xCloud integration instead. It’s not hard to imagine watching a Call of Duty video on TikTok and then being able to click and instantly play the game as it streams to your phone via Microsoft’s xCloud service.

Microsoft also has broad ambitions for artificial intelligence that go beyond just the workplace. While its initial foray into AI-powered chatbots for consumers didn’t go to plan, Microsoft does need a consumer testing ground for its AI work that goes beyond Office. TikTok already utilizes AI for facial recognition with the app’s popular filters and in the recommendation engine that drives the For You feed. TikTok’s AI feed dictates exactly what you see in the app, and the algorithm improves the more people use TikTok.

TikTok has also been venturing into augmented reality, with both filters and ads that utilize AR. Microsoft’s AR ambitions have been largely limited to its HoloLens hardware, Windows Mixed Reality headsets, and some experiments on mobile with Minecraft. TikTok would be another gateway into the mobile world of AR for Microsoft.

A stock image of the Microsoft logo.

A complicated acquisition

Microsoft doesn’t offer any clues as to how its acquisition could directly affect TikTok features, apart from noting it “would build on the experience TikTok users currently love.” Exactly how Microsoft could operate TikTok in the US, Canada, Australia, and New Zealand is unclear. This leaves large swathes of the world, particularly across Asia and Europe, with a version of TikTok that will potentially have different features to Microsoft’s version.

How Microsoft operates TikTok in the US and beyond will be key to its future success if the company is able to acquire operational control. One of Microsoft CEO Satya Nadella’s first big acquisitions was Minecraft maker Mojang. It has been a huge success, particularly as Minecraft has continued to grow and Microsoft has largely left the Mojang studio to continue to develop the game independently.

Equally, Nadella’s acquisition of LinkedIn for $26.2 billion has also been a success story for Microsoft. The company has been operating LinkedIn separately, with some clever integration points with Office where it makes sense. Microsoft has access to a giant enterprise social network to fend off competition from Google and Facebook in the workplace, and the company continues to dominate with Office as a result.

Even GitHub appears to be a successful acquisition for Microsoft. The software maker has also been operating this business separately, but again, it’s a key point of data for Microsoft to understand how developers are responding to the world’s app needs.

If Microsoft’s TikTok deal is successful, then it’s likely the company will also be run separately. Microsoft’s messy acquisitions of Skype and Nokia’s phone business have been lessons in how not to aggressively integrate businesses. Microsoft is also new to the world of content moderation and the associated headaches that brings, so it’s unlikely Microsoft will attempt to deeply integrate TikTok or re-brand it in any way. Acquiring TikTok in English-speaking countries also helps avoid some of the moderation complexity faced by Facebook and Twitter. Oddly, Microsoft doesn’t list TikTok’s UK operation as a target for acquisition. (The UK, US, New Zealand, Australia, and Canada are also intelligence sharing partners under the Five Eyes alliance.)

Running TikTok separately could allow Microsoft to leverage its all-important data and integration points but also position TikTok as the YouTube and Facebook rival Microsoft has always wanted. Microsoft teamed up with News Corporation and NBC Universal back in 2006 to launch its Soapbox on MSN Video service. It failed to compete with YouTube and was shut down a few years later, leaving Microsoft to adopt YouTube as the primary way it shares its own videos.

Microsoft also experimented with its own social network, Socl, back in 2012 before shutting down the service five years later. Microsoft always understood the potential for Facebook’s growth, after initially investing $240 million in Facebook back in 2007. TikTok is rapidly turning into the next big consumer social media space, acting as a direct competitor to Snapchat, Instagram, and Facebook, both in terms of scale and the features involved in sharing and commenting on videos.

It’s difficult to say exactly how Microsoft’s potential TikTok takeover will progress. It’s an unusual deal for the company, particularly with the US government’s ongoing threats. Microsoft doesn’t typically confirm it’s in acquisition talks before deals are made, and the company’s odd blog post specifically thanks President Trump for his personal involvement. The Wall Street Journal reports that Microsoft’s blog post may have been prompted specifically by allies of the president pressuring the company to acknowledge the deal publicly.

It’s a complex deal, and Microsoft is trapped in it. Owning the network could benefit the company, but if it happens, it would also benefit President Trump, who could claim to have unwound one of China’s stickiest footholds in the US tech ecosystem. And he wouldn’t be shy about highlighting his involvement.

There will likely be more twists and turns in the TikTok talks in the coming weeks, but now that Microsoft has committed to finishing these discussions no later than September 15th, the clock is TikTok-ing.