Hi All,
Of course by now you’ve all probably seen all the recent news around MSFT and TikTok. Plus the cryptic blog post from MSFT! This acquisition is a bit of a head scratcher since MSFT has a long list of consumer fails (some even recent!)
Gaming : Recent shutdown of Mixer
Music : Groove
Gaming : Kinect
Health : MSFT Band
Music : Zune (I wish I didn’t remember this)
Personal Assistant : Cortana for iOS and Android
Communications : Skype
The failed Nokia business
Bing, which has only a small % of search volume (2-3% v/s 90% for Google Search)
Given these failures this planned acquisition is interesting. What makes it even more crazy is that I’m not sure how TikTok will be split with MSFT buying operations in the US, Canada, Australia, and New Zealand. What about India? TikTok has 800M MAU’s of which ~100M are in the US and let's say the other countries together are 50M. Is MSFT going to buy ~1/5th of TikTok? Weird! (Edit 8/6 : They now plan to buy the whole enchilada)
When life gives you lemons? Goodwill among the young? (Strong)
MSFT missed the boat on Mobile, Social, Search, is this a chance to catch up and both own social as well as earn the mindshare of Gen Z and the millennials? After all, the next enterprise customer will be a Gen Z or millennial who is already spending ~50m/ day (it is addictive!)
This is a deal of a lifetime for MSFT and additionally Google and Facebook are subject to serious antitrust scrutiny. That leaves
Amazon, who can use it for sponsored product ads as well as augment Prime Video)
Netflix. This is an interesting acquirer since they have a media network (as defined by Josh Elman).
Apple : Cant see them hawking more phones and the ad’s business model is anathema for Apple.
At the end there are also geo-political issues and from that perspective it's a win. So truly a golden opportunity to swoop in as a savior, protect american “privacy” and win an audience. Win-Win-Win.
Data (Weak) & AI(Weak)
MSFT can use the data to tweak ad based products or to technically “sell” more cloud or use the data for research into next gen consumer and enterprise products though arguably they have all the insight needed for enterprise products. TikTok is unlikely able to influence MSFT’s next generation purchase of enterprise solutions
Cloud (Weak)
Just recently Tiktok purchased $800M in cloud services from Google Cloud. So sure Azure seems like a good idea and it will help Azure’s topline depending on how advantageous the transfer pricing is. But spending billions to acquire millions seems foolhardy and penny wise pound foolish no? MSFT has a large AI team and again acquiring TikTok’s expertise for AI also seems foolhardy
Gaming (Very Weak)
Direct access to TikTok users means that MSFT can improve their gaming offering is another option. Though their recent closure of Mixer makes this an unlikely choice.
Microsoft Advertising /Search : Ding ding ding (oh I mean Bing Bing Bing) (Medium)
TikTok is well suited to ads given the video format. Bing has a self service ad’s platform that can be leveraged to sell self service ad’s. This is similar to how Instagram leveraged Facebook's ad platform. This choice definitely seems interesting and given the format, this will be a HUGE ad’s business. This is in some ways better than feed ad’s. A well made video ad or influencer ad can be made to be virtually indistinguishable. MSFT’s search advertising revenue was also ~8B which is nothing to sneeze at.
This seems like there are a bunch of weak reasons to acquire TikTok but what is interesting about MSFT is that their revenue comes from multiple revenue streams so there are only two logical options for MSFT here:
The whole is greater than the sum of its parts.
Together all these strategies will likely make this acquisition more palatable. Successful? I am not so sure. There is a huge huge huge execution risk with splitting up the users and for an enterprise company to make the business model work. Bing has gone up against Google Search and Facebook Ads and come up short however one can say that they were too late to the game for search ads.
Buy to sell
MSFT is buying this to potentially garner political goodwill (though there are still those pesky “finders fee” that Trump wants). MSFT could buy, cultivate the business run it separately similar to how LNKD has been run separately.
Also keeping TikTok branding separate is a good idea since you don’t want enterprise customers to associate the serious side of MSFT with the goofy side of TikTok plus the brand is already well known and if MSFT does plan to divest TikTok in the future that will be easy. Besides, TikSoft is a horrible name and I don’t expect to see TikTok videos in Outlook or LNKD. That would be as annoying as seeing Clippy again!
Thank you for reading. Stay safe, be well!