By Aaron Tilley
For Microsoft Corp. Chief Executive Officer Satya Nadella,
buying TikTok would mark the boldest in a string of big deals and
could reshape a tech giant that has lately thrived by focusing on
Microsoft is in talks to potentially spend billions of dollars
to acquire the U.S. operations of TikTok, the Chinese-owned
video-sharing app, The Wall Street Journal and others reported
Friday. The discussions come as President Trump said that he was
considering steps that would effectively ban the app from the U.S.
A Microsoft spokesman declined to comment.
Mr. Nadella, chief executive since 2014, has already used
deal-making to bolster Microsoft's reach, but an acquisition of
TikTok would depart from the path he has steered toward more of a
focus on products and services for business.
The company that soared to dominance on the back of its Windows
operating system software has had a mixed experience with
consumer-facing businesses. Its Xbox gaming platform is successful,
and it has expanded its line of Surface computers, but its search
engine Bing has struggled to gain traction against Google. And
Microsoft largely abandoned the smartphone business after Mr.
Nadella took over.
Microsoft, in June, shut down its live-streaming service Mixer,
and it said it was working to move the service's community of
broadcasters and viewers over to Facebook Inc. Days later it said
it was permanently closing its retail stores that were already
shuttered during the pandemic. Microsoft's existing social network,
LinkedIn, is focused on professionals.
A TikTok deal "would be a big bet on the consumer social media
space, which the company has stayed away from over the last
decade," said Dan Ives, an analyst at Wedbush. "An aggressive
acquisition (or strategic investment) of TikTok would be Microsoft
throwing its hat in the ring and trying to compete with other tech
giants such as Facebook in a new avenue of growth for the next
decade for its consumer business," he said in a note Friday.
TikTok's large user base of young people does overlap with that
of Xbox, which is Microsoft's biggest business that is wholly
consumer-focused, enjoying 65% sales growth in the last quarter.
Xbox has become hugely popular during the pandemic with people
stuck at home, and it is expected to enjoy a further boost this
year when Microsoft launches a new gaming console. Videogames have
increasingly come to function as social-media networks of their
own, with players interacting and chatting in real-time over the
"For Microsoft, getting an audience like TikTok's would be very
positive, " said Brad Reback, an analyst at Stifel Financial Corp.
"I'm sure there are all kinds of ways to monetize and integrate
back into Xbox."
An acquisition could also bring risks, particularly when
regulators in the U.S. and abroad are growing wary of the broad
power of the biggest tech companies. It would also come as
social-media companies have drawn increased scrutiny over how they
moderate political speech on their platforms, an area of
controversy Microsoft has been able to avoid.
"I'm not sure what would be the huge value proposition to
Microsoft doing this given the regulatory environment we're in,"
said Bernstein Research analyst Mark Moerdler.
The CEOs of some of the biggest U.S. tech companies were grilled
in Congress this past week over their dominance and deal-making in
the midst of growing antitrust concerns in Washington. Microsoft,
which had its own run-in with regulators on antitrust matters two
decades ago, wasn't in the spotlight, though rivals have accused it
of unfair practices.
A deal would pull Microsoft into the increasingly tense
political dynamics between the U.S. and China, which have clashed
over technology, foreign policy and other issues. The White House
pushed for the sale of TikTok's U.S. business after expressing
concern it could pass on the data it collects from Americans
streaming videos to China's government, something the social-media
company said it wouldn't do. A TikTok deal, people familiar with
the matter said, would also involve TikTok's Beijing-based parent,
ByteDance Ltd., and the White House, signaling Microsoft may have
the Trump administration's blessing for a transaction.
A purchase of part of TikTok would deepen Microsoft's exposure
to consumers, an area where it has repeatedly stumbled. Under Mr.
Nadella's predecessor, Steve Ballmer, the company spent $7.2
billion on Nokia Corp.'s mobile- phone business, only to take a
$7.6 billion writeoff on the deal. Consumer efforts under Mr.
Ballmer, such as the Zune portable media player that was designed
to compete with Apple Inc.'s iPod, as well as the television and
movie studio Xbox Entertainment Studios, were scrapped.
Mr. Nadella, instead, focused on corporate businesses, including
the booming cloud-computing field, helping to revive Microsoft's
fortunes and restoring it to being one of America's most valuable
Microsoft's biggest acquisitions under Mr. Nadella have all
targeted corporate customers. It closed in 2016 its biggest deal
ever, the roughly $26 billion acquisition of LinkedIn. Its largest
deal since then was the $7.5 billion agreement two years ago to buy
the coding-collaboration site GitHub Inc., which underpinned Mr.
Nadella's effort to transform the software giant beyond its legacy
products and focus on fast-growing areas such as cloud
"Under Satya, they've really spent energy in doing more
enterprise-related acquisitions," said Ubaid Dhiyan, a director at
the venture capital firm Union Square Advisors LLC.
One notable exception came with Mr. Nadella only a few months in
the top job, when Microsoft spent $2.5 billion in 2014 on Mojang
AB, maker of the "Minecraft" videogame, in a bid to reach a younger
Microsoft has undertaken 21 transactions in the past 12 months
alone, according to FactSet, with a combined value of around $2.3
billion. Those have largely been smaller deals to strengthen the
company's cloud-computing offering.
A deal for TikTok would require Microsoft to diversify in a way
that it hasn't yet under Mr. Nadella, said S. Somasegar, a former
Microsoft corporate vice president who left in 2015 and is now a
managing director at the Seattle venture capital firm Madrona
Venture Group. But there is an element that is consistent with
previous acquisitions, he said.
"If you look at the major acquisitions over the last five years
or so," he said, "the common theme is to acquire a vibrant
community of customers that is both critical and net new add to the
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July 31, 2020 23:09 ET (03:09 GMT)
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