Why Microsoft is in talks to buy ByteDance’s TikTok

• Over the weekend, US President Donald Trump cited national security risks posed by TikTok in motivations to ban the app in the US
• Microsoft and ByteDance were given 45 days to come to a deal to appease US regulators and potentially prevent a ban

Talks of tech giant Microsoft possible acquisition of TikTok have been brimming as ByteDance explores all possible options to resolve an intensifying confrontation with Washington.

The Chinese company that developed the popular social media app has not made a final decision on selling TikTok to Microsoft. Reports from SCMP revealed TikTok owners would prefer the app to become an “independent spin-off”.

In a blog post, Microsoft pledged to bring in more security, privacy, and digital safety protection to the video-sharing platform.

“Microsoft would ensure that all private data of TikTok’s American users are transferred to and remain in the United States. To the extent that any such data is currently stored or backed-up outside the United States, Microsoft would ensure that this data is deleted from servers outside the country after it is transferred,” the firm said.

As per the agreement on the table, Microsoft’s buyout of TikTok will see the tech giant owning and operating the social media platform in the US, Canada, Australia, and also New Zealand.

TikTok’s popularity surged across the globe as the pandemic set users of this video-sharing platform soaring. But this growing popularity raised scrutiny from Washington, with US officials calling for a national security investigation into the app.

US regulators have repeatedly expressed concerns around TikTok’s data collection and a potential links to the Chinese government. TikTok, whose CEO Kevin Mayer is the former executive behind the success of Disney+, has made a series of moves to distance itself from affiliation with the politics of its parent nation. That includes ceased operations in Hong Kong in light of stringent new security laws introduced from mainland China, and the hiring of thousands of US staff – but so far, those efforts seem to have fallen short in appeasing US regulators.

ByteDance CEO, Zhang Yiming, told employees in an internal memo: “The current geopolitical and public opinion environment is becoming more and more complex. We are facing great external pressure in some markets.

“Our team in response has been working around the clock and overtime in the past few weeks to strive for the best outcome.”

ByteDance is under pressure to sell TikTok and has a 45-day deadline to negotiate a deal. If it goes through, it would give Microsoft an upper hand in dominating the social media and online advertising landscape, and would provide the tech giant entry into the social media landscape alongside key players like Facebook and Snapchat.

Sources close to Reuters said TikTok could be worth $50 billion, but the forced sale of the US division and some other units alone will likely yield much less than that.

“A forced deal under Washington’s shotgun could open up for endless litigations if it should result (in) an unfavorable outcome to existing private shareholders,” said Fred Hu, chairman of Primavera Capital Group, an investor in ByteDance. While Microsoft was a credible buyer, he said, he questioned how the sale of such a large part of its operations could ever be a good deal for the parent company.

“It absolutely makes no sense. Bytedance is an innocent victim of the mad politics and mad geopolitics. It is a sad outcome for Bytedance, for entrepreneurial capitalism, and for the future of global commerce,” he said.

US President Donald Trump will take action “in the coming days” against Chinese-owned software that he believes pose a national security risk, Secretary of State Mike Pompeo said. Pompeo said popular video app TikTok was among those “feeding data directly to the Chinese Communist Party.”

Several Republican senators, including Senator Lindsey Graham, backed a plan by ByteDance to divest the US operations.

“What’s the right answer? Have an American company like Microsoft take over TikTok. Win-win. Keeps competition alive and data out of the hands of the Chinese Communist Party,” Lindsey wrote on Twitter.