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Microsoft Not Acquiring TikTok

Update: The Wall Street Journal is reporting that Microsoft is not acquiring TikTok and plans to announce Oracle as the winner.

Good news for your teenage kids: their favorite new app may soon undergo some big security improvements. Actually, they may not even be paying attention to the strengths or weaknesses behind this trendy video-sharing app. As with the conference-calling app Zoom, sometimes users jump on an application bandwagon without following up on its privacy and security reputation. But others definitely are paying attention to problems within TikTok—others like Microsoft, and Donald Trump. Discussions taking place for Microsoft to potentially take over TikTok operations in the United States, Canada, Australia, and New Zealand have ended without a deal. After allegations of the Chinese government’s inappropriate accessing of user data and censorship of certain accounts, Donald Trump has demanded that TikTok’s parent company ByteDance sell its U.S. operations to an American-based enterprise by September 15, or face a ban on the app in the United States. This leaves Oracle as the last remaining bidder.

Tech’s Largest Purchase Yet

Chart shows acquisition prices for various companies over the past several years.

Microsoft was considering becoming that American-based buyer, a move that Donald Trump approved. And, displaying his usual business confidence, he claimed that the U.S. Treasury would get a cut of the deal. “A very substantial portion of that price is going to have to come into the treasury of the United States because we are making it possible for this deal to happen,” Trump said—although it wasn’t clear whether or how such a payment would actually take place. In any case, this woudn’t be a small purchase. A price of roughly $50 billion would make this tech’s largest acquisition investment yet. Still, with TikTok’s wildly growing popularity, some are calling that a good deal.

TikTok’s Current Security Flaws

Image shows TikTok with the O as a banned symbol.

The sketchy data use practices ByteDance appears to be using are enough to make U.S. leaders across the political spectrum wary. Concerns about national security risks and election meddling give Americans good reason to question how its user data may be handled. Ironically, the app isn’t allowed in China. (There’s a separate domestic version that ByteDance also owns, called Douyin, that is used in China as an alternative.) How well does TikTok do with compliance? We like to look at Microsoft Cloud App Security (MCAS) assessments for a comprehensive visual summary of an app’s security, compliance, and legal fulfillments. Here’s a look at an MCAS evaluation of TikTok, where you can see that it scores a 5 out of 10 for security and a 1 out of 10 for compliance.

Screenshot of Microsoft Cloud App Security (MCAS) showing a compliance report for social media platform TikTok.

Microsoft Not Acquiring TikTok Leaves Questions About Security

The change in ownership here would be a big improvement for America and its TikTok users. Microsoft had stated that upon purchasing the app, it would transfer all private data of TikTok’s American users to the United States, ensuring that any back-up data stored elsewhere is deleted. However, Oracle hasn’t made it publicly clear what its plans for security improvements are.

With an Oracle purchase, the app’s business will likely be migrated over to its Microsoft Azure competitor, Oracle Cloud. If the deal does go through with Oracle, though, we can still expect those MCAS scores (or any other security assessments) to improve significantly compared to what we saw with Bytedance.

Would TikTok Have Been Good for Microsoft?

It’s pretty certain that Microsoft would be good for TikTok. But whether or not TikTok would have been good for Microsoft is up for more debate. On the one hand, owning such an up-and-coming app could make Microsoft more popular among consumers, as it’s spent much of its energy in recent years on enterprises. The youth that’s attracted to TikTok could have joined the gaming generation that Microsoft already reaches. Micrsoft’s purchase of the app and the accompanying attention that it would bring might even attract more new users. Financially, there’s a lot of profit potential in TikTok. But with the opportunity also comes risk. Through this acquisition, Microsoft would be straying a bit from its usual—and successful—operations in cloud services. “Microsoft needs to make sure that a potential acquisition of TikTok does not overshadow the Commercial Cloud narrative that has powered Microsoft shares higher over the past five years,” said Evercore research analyst Kirk Materne. And TikTok’s trendy popularity could turn out to be just that—a trend. If that happens, it could go the way of Nokia and Mixer.

TikTok’s Future: Time Will Tell

Image shows a phone screen with the TIkTok app.

Last quarter TikTok was nearly the number one most downloaded app worldwide. (It came out second only to WhatsApp, which is owned by Facebook.) The success of these apps isn’t surprising given the widespread social distancing, as well as social protesting, that has been central to people’s lives in recent months. Once COVID-19 is under better control and normal social interactions become more feasible, will the need for video communication subside? Perhaps the youth will lose interest in TikTok and start favoring the ability to dance, sing, and share their opinions in person with their friends. Only time will tell.

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