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Breakingviews - Staid Microsoft gets a viral gift from TikTok

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SAN FRANCISCO (Reuters Breakingviews) - Microsoft may finally get its social-media breakthrough. The least cool technology giant is in talks to buy parts of TikTok, the wildly popular Chinese-owned video app. Owning it could finally bring buzz and more advertising dollars. But there are political risks, and buying only a portion of the ByteDance unit may be messy.

The maker of Office software has outperformed most of its tech rivals in recent years to reach a $1.6 trillion value. But with its emphasis on business customers, it's still an odd suitor for TikTok. The involvement of President Donald Trump in the process adds a surreal overlay. Trump has threatened to shut down the app. He said on Monday he wouldn’t mind if Microsoft acquired it, but added that the U.S. government should get a cut of any deal.

Chief Executive Satya Nadella may see a chance to reach a broader audience at last. While Microsoft has the LinkedIn professional network, it lacks a mainstream social-media platform and efforts to reach consumers, like streaming service Mixer, have flopped. Acquiring parts of TikTok could fill in some gaps. Microsoft's search advertising revenue, which fell by nearly 20% year-on-year in the quarter to June 30, was already mediocre before the pandemic. 

TikTok also complements Xbox, a rare consumer success for Microsoft, which reported an almost 65% year-on-year jump in gaming revenue in the last quarter. The app known for viral videos has 100 million users in the United States. That could boost Microsoft’s tiny share of the U.S. display ad market, which Facebook dominates.

There are political landmines beyond the public quasi-negotiation with Trump. Owning TikTok would raise concerns about privacy and inflammatory content. It could also draw attention to censorship in China by LinkedIn.

And it’s unclear how TikTok would be divided up. A deal envisions Microsoft owning the app only in the United States and a few other countries. It would still need ByteDance technology but U.S. authorities want a clean break, including in software. 

Other TikTok suitors could emerge, but Trump’s meddling is discouraging. If Microsoft can get through the unusually public dealmaking process, the potential financial gains may be worth its time in the spotlight.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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