Microsoft confirms it wants to buy U.S. TikTok operations

Microsoft CEO Satya Nadella delivers the keynote address of the Build Conference in San Francisco last year.

By Wendy LeeStaff Writer

Aug. 2, 2020 7:04 PM PT

Microsoft on Sunday said it is exploring buying TikTok in four markets including the U.S. after the Trump administration raised national security concerns regarding the app’s ties to China.

The disclosure comes as TikTok faces increasing pressure from the Trump administration, which has called the popular app a national security threat and announced plans to ban it.

Microsoft said it is in talks with the app’s Chinese parent company, ByteDance, to take control of TikTok in the U.S., Canada, New Zealand and Australia. If the deal is finalized, Microsoft plans to bring all American user data to U.S. servers and remove data backed up in foreign countries. Currently, TikTok stores U.S. user information in the U.S. and backs it up in Singapore.

Microsoft said it hopes to complete the discussions with ByteDance no later than Sept. 15. But it is possible that a deal may not go through.

“These discussions are preliminary and there can be no assurance that a transaction which involves Microsoft will proceed,” Microsoft said in a statement.

An acquisition by a U.S. company could help TikTok shed some of the scrutiny surrounding ByteDance. Some industry observers have raised concerns over whether the Chinese government could compel ByteDance to hand over information about U.S. users.

“This new structure would build on the experience TikTok users currently love, while adding world-class security, privacy, and digital safety protections,” Microsoft’s statement read. “The operating model for the service would be built to ensure transparency to users as well as appropriate security oversight by governments in these countries.”

TikTok says it has not and will not give U.S. user data to the Chinese government. The company said that later this year it will open a transparency and accountability center in Culver City where outside experts can examine its content moderation practices and see the code that powers its algorithms.

Analysts said it makes sense that Microsoft would be interested in buying TikTok because social media is a weak spot for the Washington company, which counts among its specialties workplace and personal software, cloud computing, consumer-facing devices and gaming.

“It sends a message to the world that they are not the Microsoft of old and we’re all about making big bets,” said Gene Munster, a managing partner for venture capital firm Loup Ventures.

TikTok has had exponential growth since it launched in the U.S. in 2018. The app, excluding Chinese version Douyin, has been installed nearly 2.1 billion times as of July 30, according to market research firm Sensor Tower. Young users love its short comedic videos and novel dance clips. It has also become a haven for celebrities and a key way musicians get their songs discovered. During the pandemic, TikTok became even more popular as people looked for ways to entertain themselves at home.

But Trump administration officials have warned that TikTok as well as other apps from Chinese software companies pose a national security threat.

“I hope that the American people will come to recognize these Chinese software companies doing business in the United States, whether it’s TikTok or [Chinese messaging app] WeChat … are feeding data directly to the Chinese Communist Party,” U.S. Secretary of State Michael R. Pompeo told Fox News on Sunday. “Those are the issues that President Trump’s made clear we’re going to take care of. These are true national security issues.”

The debate over TikTok is playing out amid a broader trade war between the U.S. and China. Also in the backdrop is the debate over Huawei, a Chinese technology firm similarly described as a national security threat by the White House. Huawei denies the allegation.

Microsoft in its statement said that it “fully appreciates the importance of addressing the president’s concerns” and will continue dialogue with Trump and the U.S. government.

Wedbush Securities analyst Daniel Ives places the prospects of Microsoft going through with the deal at 75% to 80%, “given the fluid situation and ByteDance’s back against the wall with [Microsoft CEO Satya] Nadella & Co. being the only possible white knight.”

On Saturday, TikTok U.S. General Manager Vanessa Pappas said TikTok isn’t planning on going anywhere.

“We’re building the safest app, because we know it’s the right thing to do,” Pappas said in a TikTok video. “We appreciate the support, we’re here for the long run and continue to share your voice here and let’s stand for TikTok.”

A TikTok spokeswoman did not immediately return a request for comment on Microsoft’s statement.