It is still unknown what a fate TikTok will have in the United States and in other markets as well. The Redmond-based Microsoft has restarted negotiations for the acquisition of TikTok’s U.S., Canada, and New Zealand businesses. But nothing still looks certain.
Why did TikTok suddenly become a target of Trump? How did the thousands of Internet celebrities and users on TikTok respond to Trump’s recent frequent ban threats? If you still don’t understand, we will try to put the puzzle together.
Secret Behind TikTok’s Success
It’s not easy to say why the Indian and American markets began to hunt on TikTok. But the fundamental reason is that Bytedance has attracted the attention of the United States and India.
According to Sensor Tower’s data, during the epidemic, TikTok became more and more popular, with cumulative downloads reaching 2 billion in April, surpassing competitors Facebook and Snapchat. By the first quarter of 2020, it has set a record for the most downloads among all applications.
Now, when TikTok is so popular, it is bound to change the ByteDance listing timetable again to a certain extent. ‘Besides being acquired or closed, TikTok should have no other hope in the United States, because the United States will deal with it more decisively than India.’ Some people admitted that since TikTok entered the United States, it has been predicted that the number of users will increase. After reaching a certain level, it will encounter various forces within the United States sooner or later. And the TikTok US team has no way, because what they are doing now is wrong.
According to Guan Ning, the person in charge of a Chinese automobile brand going overseas, the Committee on Foreign Investment in the United States (CFIUS) represents the interests of the United States. ‘Many Chinese companies will appear in the blacklist after they develop to a certain scale in the United States. CFIUS will choose which companies are censored to restrict their business development and investment on the grounds of threatening national security, data security, user information, or affecting the perceptions of the American people.’ Moreover, CFIUS’s interference in Chinese companies’ business and investment in the US is cyclical. For example, Chinese companies will become targets during the general election season. This time, targeting TikTok is a slamming operation. It is more like using TikTok as a political bargaining chip for interest exchange.
Google’s Android platform, Apple’s software and hardware, and Amazon’s logistics are all connected to the Chinese market. Facebook, as a social media, not only does not have such a connection, TikTok also threatens it.
However, Silicon Valley has basically remained silent about this. No one stood up to support it, and no one stood up to strongly oppose it.
TikTok’s Growth In Numbers
Wang Chao regards the TikTok incident as a continuation of the China-US trade friction. Now the war has spread to the field of science and technology. So he focuses on TikTok, the only product that has succeeded in the US market. In fact, before 2019, TikTok’s ranking on some app rankings in the US has risen rapidly. But it has not attracted the attention of opponents.
Market research agency eMarketer reports that the number of TikTok users in the United States in 2019 was approximately 37.2 million, and it was originally expected to reach 45.4 million in 2020. As of May this year, TikTok had more than 2 billion downloads worldwide. Statistics from Statista show that the number of TikTok users increased by 1533% from 2017 to 2019, while the established social media Twitter and Instagram only increased by 13% and 6%, respectively. Facebook users not only did not increase but also decreased by 26%.
TikTok has become the fastest growing social media in the United States. The scientific and political circles can no longer ignore the ‘elephant’ in this room. It is still an enterprise under the Chinese capital control, which always exports values and culture around the world.
A Hunt On TikTok
Almost at the same time, the US authorities started the hunt for TikTok. At the end of February 2019, TikTok was fined $5.7 million by the US Federal Trade Commission (FTC) for illegally collecting personal privacy data of children under 13 years of age. Nine months later, CFIUS has been investigating ByteDance, involving the acquisition of Musical.ly. ‘But the ByteDance at that time was busy responding to the competition with Facebook and Google, and did not invest too much energy in response,’ Wang Chao said.
When ByteDance puts overseas risks on the table, the time has come to January this year. From the Pentagon to the Senate, and then to the U.S. Transportation Security Administration, the United States has imposed bans on TikTok one after another. Zhang Yiming had to make an emergency card to form the White House lobby group and hire a former Disney executive to serve as the CEO. But in Wang Chao’s view ‘It’s too late to start’, ‘At this time, the United States has formed a joint force from Congress to the people, which is very detrimental to TikTok.’
More than one practitioner in the overseas field told Ran Caijing that this was related to the ‘incitement’ of American politicians. Both the ruling and opposition parties generally didn’t like TikTok’s success in the United States. They all advocated that TikTok violated their users’ privacy. It is also related to Trump’s dislike of TikTok. In June of this year, a Trump campaign rally claimed that one million people had registered for event tickets. As a result, the gymnasium with 19,000 people was not full on the day of the event, and only 7,000 people showed up. The reason behind this was that someone initiated the event on TikTok.
TikTok Vs The World
APUS founder and CEO Li Tao believes that new short video alternatives will inevitably appear in the North American market. For example, Facebook released a short video product called Collab in May of this year. But they won’t become popular in a short period of time. The diverse culture and values can make users love, and American culture does not represent global culture.
‘It’s actually hard to beat TikTok for an ordinary American product.’ said Chen Jie, Asia partner of Celtic Ventures. Open TikTok in the United States and you can see a plum cut in China and South Korea, Japan, Russia, Hungary, etc.
It is obviously unreasonable to put it on Tiktok based on income. TikTok’s characteristic is that its revenue is not high, but its overseas success logic and product popularity are beyond the reach of other Chinese Internet companies. As long as TikTok stands firm, the valuation and revenue it generates are immeasurable.
Where is the next ‘market’?
For overseas companies, the US market has always been the most difficult bone to crack.
‘When our company makes ocean business, the United States is the last market that will be considered. Unless we have done very well in other markets, we will consider entering the United States,’ Guan Ning said. Because of the existence of CFIUS, the performance of Chinese companies in the US market is highly related to their maturity in handling government relations.
In contrast, the company is more optimistic about the European market. The European market has two major characteristics. First, it attaches great importance to the existing legal and regulatory system. Various industries have very subdivided regulatory organizations. The provisions are very clear. As long as companies meet relevant standards, they will basically not encounter problems. For example, CFIUS in the United States has some subjective explanations specifically for homeland security. Second, there are 26 countries in the European Union, and the EU’s legal system overrides state relations.
Even if there is an EU in Europe, language customs are not the same among countries. The Internet emphasizes community effect. This is also the reason why there are no strong Internet companies in Europe. Wang Chao is relatively optimistic about a unified big market. ‘The first foreign market opened by China Internet Corporation was Southeast Asia. But it has not been a huge success. Many people mistakenly believe that Southeast Asia is a unified market. But in fact, this region is divided into six countries and hundreds of languages. The market is very fragmented,‘ he said.
Americans Like TikTok, The World Likes TikTok
As early as July 6, US Secretary of State Mike Pompeo confirmed on the Fox News that he was considering blocking Chinese social apps including TikTok.
Immediately after that, US President Trump also made the same statement. ‘We are really paying attention to (blocking TikTok). This is a big company,’ Trump mentioned in a TV interview, and said that blocking TikTok would be one of the many options he considers to punish China.
But for TikTok American’s diehard users, no reason is acceptable.
Since the new coronavirus epidemic has spread globally, schools have closed, society has stopped, and people have been forced to stay at home. TikTok, which has already been popular, ushered in explosive growth. For young users represented by Gen-Z (post-00s) and millennials (post-90s), TikTok has become the standard.
A biannual survey conducted by investment bank Piper Sandler shows that TikTok is currently ranked third among the most popular social media platforms among American teenagers, second only to Instagram and Snapchat.
According to a survey conducted in the spring of 2020, more than 60% of American teenagers use TikTok at least once a month, while the proportions of using Twitter and Facebook are 41% and 36%, respectively.
The New York Times commented that in such an era of prolonged social isolation, TikTok has become an important platform for young people to express creatively and maintain interpersonal communication.
Because it belongs to the Chinese parent company, TikTok has been targeted by the US government for a long time. However, the vacancy incident in mid-June has directly forged young users behind Trump and TikTok.
On August 2, 9 well-known TikTok bloggers, whose fans totaled more than 54 million, published a letter addressed to Trump on the US media platform Medium. The open letter stated that TikTok has achieved interactions that would never be possible with social media such as Facebook and Instagram. They called for capital to solve TikTok’s problems instead of state intervention.
At the beginning of the letter, it was written that the Z generation (post-00) spent their childhood on the Internet, ‘but the Internet that we have been exposed to when we were adolescents is different from the ones in the past growth stages. We sacrificed net neutrality and freedom of information. Facebook and Google have replaced hundreds of companies, and they have narrowed the world’s definition of the Internet.’ They said that TikTok is the first company to challenge those who end the open Internet.
On August 3, according to the British Sun newspaper quoted by Reuters, ByteDance will move TikTok’s headquarters from Beijing to London. Regarding the establishment of TikTok’s headquarters in London, the British government has made relevant statements earlier. A government spokesperson said: ‘Bytedance determines the location of its global headquarters is the company’s business decision. The UK is a fair and open investment market and supports economic growth and employment.’
Europe Won’t Follow Up The US
Although the United States wants to “hands” TikTok, Europe has no plans to follow up.
Bloomberg reported that ‘the United States has stepped up its efforts to suppress Chinese technology companies and Europe has boycotted TikTok bans.’ According to a report, French and German officials publicly stated that they currently do not intend to follow the steps of the United States to ban TikTok.
The French government spokesperson has made it clear that France currently has no plan to block TikTok in the country. A representative of the French Minister of Digital Affairs pointed out that the French government is now concerned about online hate speech and the protection of minors on the app.
A German government official said that Germany has not found any signs that the application will bring security risks, and there is no plan to block it. German News Television also bluntly stated in the program that day that the TikTok incident is just another symbol of American economic power. European multinational companies including Germany and France have also been subjected to various ‘investigations’ by the United States in the past.
In addition to France and Germany, the spokesperson of the British government also proves that there is no plan to block TikTok. British media also quoted anonymous sources as saying that the British government has given TikTok a ‘green light’ for the establishment of its headquarters in London.
So Europe Doesn’t Think Like Trump
In response to the US’s intimidation and force-buying behavior, Chinese Foreign Ministry spokesperson Wang Wenbin pointed out that the US has generalized the concept of national security and committed guilt against relevant companies without any evidence. Presumptions and threats are against the principles of market economy, exposing the hypocrisy and typical double standards of the US in maintaining fairness and freedom, and it also violates the WTO’s principles of openness, transparency, and non-discrimination.
Wang Wenbin said that China firmly opposes this. ‘We call on some people in the United States to listen carefully to the voice of the international community, provide an open, fair, just, and non-discriminatory business environment for market players in various countries to invest and operate in the United States, and to stop politicizing the problem, stop abusing the concept of national security, and pursue discriminatory and exclusive policies.
Microsoft May Benefit The Most
At noon on the same day, Zhang Yiming sent an internal letter stating: ‘We are trying to have a preliminary discussion on a cooperation plan with a technology company and formulate a plan to ensure that TikTok can continue to serve American users.’
Just today, Trump once again announced that TikTok’s critical time will be set on September 15 and unless it is acquired by Microsoft or another US company, ‘it will be stopped’. And Trump said that if TikTok successfully changes hands, the United States should get a part of the reward, ‘because we made this transaction possible’. He believes that a portion of the money in the acquisition transaction must go into the US fiscal account.
In this regard, Forbes published an article today saying that the negotiation of TikTok signifies that Microsoft will change its face again. In terms of acquisition, it will shift from corporate assets to consumer assets, reshaping the company’s future and transforming into a consumer-oriented enterprise. This article incorporates the opinions of other analysts.
A few days after the main competitor attended a US Congressional hearing due to issues such as the dominance of online advertising, Microsoft CEO Satya Nadella talked with the White House to discuss the purchase of the social media platform TikTok. This transaction may reshape Microsoft’s future and transform it into a consumer-oriented company.
Will Microsoft Succeed With TikTok Acquisition?
The possible acquisition of TikTok will be the most expensive and most risky. There is no official statement, but it is estimated to be $40 billion. Nadella changed Microsoft’s image of ‘fighting and failing’ in acquisitions. Previous acquisitions mainly referred to the corporate sector, such as the acquisition of LinkedIn and GitHub. Through the negotiation of TikTok, Nadella turned his attention to the field of online advertising.
Jai Das, co-founder and managing director of Sapphire Ventures, said, ‘The online advertising market is quite large and basically Google, Amazon, and Facebook have no equals. The acquisition of TikTok will allow Microsoft to enter this market. One way to do it.’
On Monday, Microsoft received the White House green light: it can negotiate the purchase of TikTok’s US business. The White House has been constantly putting pressure on Bytedance, threatening to forcibly shut down TikTok’s US operations on the grounds of national security. TikTok has more than 100 million registered users.
Microsoft’s negotiation of TikTok is considered by some observers to have commercial significance and is also recognized by investors. In regular trading on Monday, Microsoft’s stock price rose by $11.53. This is an increase of 5.62%, to close at $216.54. And its market value increased by about $87 billion, higher than the rumored TikTok acquisition price.
By Acquiring TikTok, Microsoft seizes the best opportunity for young people
Microsoft’s recent success is mainly related to cloud computing, servers and office software. And it cannot afford to lose the cost of its consumer business. After all, this business can also bring considerable revenue and profits. At present, Microsoft products that are attractive to young users are games, including Xbox and PC game products. Due to the smartphones, almost all young users prefer Apple and Google products. In addition, more and more schools are choosing to use Apple iPad and Google Chromebook to replace Windows laptops as teaching tools.
Microsoft needs to use every opportunity to increase the attractiveness of its products to young users to ensure the future vitality of its consumer business. And the acquisition of social media startups like TikTok with hundreds of millions of users is obviously the best opportunity.
Jefferies analyst Brent Thill predicts that Microsoft will integrate TikTok into the Xbox gaming platform.
Before Nadella took over, Microsoft had completed numerous large-scale acquisitions in the consumer sector. Among them, we can mention the acquisition of Skype for $8.5 billion in 2011. Plus, we should recall the acquisition of Nokia’s smartphone business for $7.6 billion in 2013. But the expected results were basically not achieved. Microsoft’s Bing platform has also been at a disadvantage in the competition with Google’s search engine.
After Nadella became CEO in 2014, Microsoft changed its approach and prioritized the acquisition of corporate-oriented assets. In 2016, Microsoft spent $26 billion to acquire LinkedIn, and in 2017 it spent $7.5 billion to acquire GitHub. These two acquisitions should help Microsoft’s cloud service Azure attract more users.
Microsoft may use TikTok to become the fourth largest online advertising company in the United States
TikTok may become a member of Microsoft’s consumer business camp, which is a new challenge for Nadella. Soma Somasegar, Managing Director of Madrona Venture Group and former Microsoft Vice President, said that similar to previously acquired enterprise-oriented companies, TikTok will be like an ‘island’ within Microsoft in the next few years.
Somasega said that TikTok will integrate with Microsoft’s other consumer-oriented businesses in the future. For example, the TikTok advertising business can be cross-promoted with Bing. And TikTok can provide live broadcast services for the Xbox platform.
If TikTok’s integration is successful, Microsoft will become the fourth largest online advertising company in the United States. Although different analysts have different expectations for TikTok’s growth, according to investment company Wedbush analyst Dan Ives predicts that the US business will reach $500 million in revenue this year and will grow to $1 billion in 2021. Based on this, Ives estimates that TikTok’s valuation will reach $200 billion in the next few years. Ives said that Microsoft’s current cash reserves are $136 billion. And it should generate $39 billion in free cash flow in 2020.
The acquisition of TikTok marks a new stage in Microsoft’s ambition. Once done, it can compete with rivals in more fields under Nadella’s administration. As Das said, ‘TikTok brings Microsoft the DNA to compete with rivals in multiple areas.’
The Bottom Line
We are not going to write long conclusions as you see everything on your own. But I remembered the words of an Armenian writer:
‘One should not be so sweet as to be swallowed, one should not be so bitter as to spit.’