Unless you’ve been living under a rock, you have probably heard of the social media app, TikTok. The Chinese video editing and sharing social network has become so popular, it has 100 million monthly users in the US alone. The app has been so successful, that tech giant Microsoft is in the process of buying its business in the US from its owner, Chinese startup ByteDance. However, it seems President Donald Trump has different plans for the app.
The US-China “Cold War”
China and the US have been at odds on a number of issues for decades. However, in recent years, the rivalry between the two superpowers has escalated, resulting in an all-out trade war, and some may say — a proper cold war.
Measures have been taken on both sides, including imposing hefty import tariffs and passing laws specifically to hinder each country’s business activity inside the other. And now, one of the most recent developments is directly linked to TikTok.
Trump’s TikTok Ban
President Trump is no stranger to the word “ban.” He has famously banned citizens of certain countries from entering the US, led an effort to remove Huawei’s activity from the US, and has taken measures to ban certain Chinese companies from being traded on Wall Street. So his most recent move is not exactly surprising.
Trump recently set his sights on Chinese social media giants TikTok and WeChat. A day after Secretary of State Mike Pompeo said these apps present a danger to the privacy of US citizens, Trump gave a 45-day notice to all US companies dealing with them, saying he will not allow any more business to be conducted with them.
A few days later, on Friday, August 14th, Trump went further, announcing an executive order to force ByteDance to sell or spin off its US business within 90 days. While this is an extension of the earlier deadline, it is a firmer, TikTok-specific measure.
The Microsoft Situation
Either inadvertently or on purpose, Trump set a timer on Microsoft’s purchase of TikTok’s US business. And this is not in favour of the tech giant. While acquisitions are always made after careful consideration, this specific play by Microsoft requires extra caution for several reasons.
First, the price tag. The bid is reportedly as high as $50 billion — a hefty price to pay, even for a trillion-dollar giant such as Microsoft. Second, while Microsoft already owns LinkedIn, meaning it is not a complete novice in the realm of social media, TikTok is still an entirely new endeavour. The audience is mainly teens, the content is videos and the viral, often silly vibe of its users is something never publicly embraced by the buttoned-down tech giant. Lastly, Trump’s recently added timer adds tremendous pressure to complete the deal in time.
The second point, in particular, could be Microsoft’s largest challenge. A social media platform comprising mostly underaged users requires significant moderation — and that takes a lot of effort, resources and manpower. Protecting users from scams, nudity, violence and fake news is already a challenge, but when it comes to ephemeral content produced by, and targeted at, tweens, it is an even bigger challenge.
At the same time, rumours that Facebook may also be interested in TikTok and may make a bid of its own, puts added pressure on Microsoft.
Taking all of the above into consideration, there are quite a few possible outcomes of the current situation. However, here are several worth discussing:
- The likely scenario: Microsoft went public with its bid a few days before Trump’s initial 45-day notice, which means it was already deep into the process with TikTok. Therefore, there is a high probability that the deal will be completed in time, and a separate, completely American TikTok entity will be created, enabling the social media app to continue its existence seamlessly in the US. This may prove to be very positive for Microsoft’s share price.
- The not-so-likely scenario: The deal falls through, leaving Microsoft empty-handed and the TikTok users in the US without their beloved platform. This scenario could benefit TikTok’s competitors, especially Facebook, which recently launched its rival Reels feature for Instagram.
- The Dark Horse scenario: Facebook sweeps in out of the blue and acquires TikTok, leaving Microsoft empty-handed and further tightening its grip on the world’s social media platforms.
Regardless of the outcome, the current situation has given us quite a few takeaways. First and foremost: Microsoft is not afraid to sink its teeth into new slices of market, even those dominated by giants such as Facebook. Second, Trump is still very much at war with China, and will most likely continue to pound his proverbial chest so long as he is in office. Lastly, try as they may, neither country can completely prevent their civilian population from using products, services and apps offered by companies from the other. For now, Microsoft’s clock is ticking: TikTok, TikTok.
This publication originates from the eToro (EU) Ltd. (regulated by Cyprus Securities and Exchange Commission) and has not been prepared in accordance with legal requirements designed to promote the independence of investment research, is not subject to any prohibition on dealing ahead of the dissemination of investment research, and as such is considered to be a marketing communication. eToro (EU) Ltd., its owners, subsidiaries, group entities, affiliates or employees of the same (collectively “eToro Group”) may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Past performance is not a reliable indicator of future performance. This publication may contain ‘forward-looking statements.’ Actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. None of the opinions that may be inferred from the contents of this website are intended to be relied upon as advice or recommendation of any action. All investments entail risks and may result in both profits and losses.
Notwithstanding the steps taken to manage conflicts, eToro (EU) Ltd. and any affiliated parties may have interests which conflict with your interests and may owe duties to other clients which would otherwise conflict with the duties owed by eToro (EU) Ltd. to you. eToro (EU) Ltd. may recommend to you as a client, trade ideas, financial instruments, or services, in which it or any affiliated company, or a person with whom it has an association, or one of its other clients, may have an interest, relationship or arrangement that is material in relation to the transaction concerned. eToro (EU) Ltd., or any affiliated parties, or a person with whom any of them has an association, may be dealing as principal for eToro (EU) Ltd. any affiliated parties or its own account.
Credit: Source link