Microsoft nears big bet on TikTok after risky LinkedIn deal shows promise

TikTok

Microsoft Corp’s possible purchase of short-video app TikTok carries a myriad of dangers, thrusting it to the fraught social networking business and geopolitical conflict amid spiralling scrutiny of big tech businesses.

KEY POINTS:

  • Microsoft’s potential purchase of ByteDances short video app TikTok carries a myriad of dangers for the business
  • Their is however some synergy between Microsoft’s products and businesses and TikTok
  • The acquisition of the business-oriented LinkedIn social network is proving to be something of a success

However, the deal can help Microsoft build on its $27 billion purchase of LinkedIn to become a player in advertising now dominated by Facebook and Google.

Microsoft on Sunday said it aims to complete a deal by September the 15th for TikTok’s US, Canada, Australia and New Zealand operations. It is very likely to have an edge in pricing negotiations because the US is effectively forcing TikTok’s Chinese parent, ByteDance, to sell by threatening to prohibit the app for a security threat.

TikTok has taken teens around the globe by storm and emerged as a competitor to Facebook and Google’s YouTube. However, like rivals, TikTok faces new costs for content moderation as the spread of misinformation and allegations of political prejudice roil media.

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Higher oversight prices accounted for much of this fall in gross profit margins for Facebook and Alphabet over the past 3-1/2 decades, Refinitiv data revealed.

“Does Microsoft really want to own an app that breeds conspiracy theories in tweens?” Stated Hank Green, YouTube celebrity and leader of media company Complexly.

At $1.55 trillion, Microsoft is the world’s second-largest firm by market capitalisation following Apple however has lately faced less criticism than peers over antitrust, information security and China projects.

Microsoft has done several big deals since Satya Nadella became CEO back in 2014, with acquisitions such as match Minecraft and social network LinkedIn. They have fared better than those beneath predecessor Steve Ballmer, whose failed deals included Nokia Oyj’s mobile company.

The LinkedIn purchase for 50% over its share price, was Nadella’s largest and riskiest. Microsoft shares fell 3% when it was declared with analysts expressing concern about slowing earnings growth and an cap on usage.

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Some concerns may have been overblown. Microsoft has prevented evaluation with a careful approach to connecting LinkedIn to other products, for example Outlook, and the deal has been largely viewed by analysts .

Though the coronavirus pandemic has slowed sales, LinkedIn advertisement revenue was among Microsoft’s fastest-growing over 2017-2019 as the worldwide economy roared.

Overall, LinkedIn has created $14.3 billion in earnings for Microsoft through ads and subscriptions, though analysts estimate it remains unprofitable.

TikTok is a bigger bet because it caters to some less-affluent viewers than LinkedIn, where advertisers typically pay more to attract more affluent customers. TikTok’s advertising sales team and technology are far less mature than LinkedIn’s, and TikTok faces competition.

About 11% of US adults utilise TikTok at least once per week, versus 49% for YouTube and 62% for Facebook, revealed a poll last month by technology consultancy Vorhaus Advisors.

LinkedIn arrived at Microsoft at 13 years old with 105 million users and 11,000 employees worldwide. Six-year-old TikTok, by contrast, has approximately 1,000 American workers and has since been downloaded 226 million times from the four nations targeted at Microsoft’s deal, showed data from program tracker Sensor Tower.

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LinkedIn”was bought on domination of a sector, good revenue, and good margins,” said Mike Vorhaus, head of Vorhaus Advisors. “TikTok is going to be valued based on its incredible user growth and mobile advertising revenue opportunities.”

TikTok would make Microsoft relevant among the two engineers searching to work and advertisers clamouring for alternatives to Facebook and Google.

Green, the YouTube star, said that he doubted Microsoft ownership would hurt TikTok, noting he gathered 600,000 TikTok followers since he began posting.

“I don’t see anything at all standing in the way,” he explained.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our content partners at Thomson Reuters. Reporting by Paresh Dave. Editing by Jonathan Weber and Christopher Cushing.

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