Not much is clear about the future of TikTok.
The Trump administration, which views the social video-sharing platform as a threat to national security interests due to its parent company's roots in China, late last week introduced an executive order that bans U.S. entities from transacting with the app starting Sept. 20 — an aggressive maneuver TikTok is likely to challenge in court as early as today, according to media reports.
As TikTok fights its way through a complex political web, a few scenarios appear concrete: Current owner ByteDance needs to divest TikTok's U.S. division by Sept. 15 — another Trump-imposed deadline — and Microsoft is the leading candidate to acquire it. The latter point has raised some eyebrows, with skeptics pointing to Microsoft's uneven track record in consumer-facing products and lack of experience with social media.
"As a potential acquirer, Microsoft is a head-scratcher," eMarketer Principal Analyst Debra Aho Williamson wrote in emailed analysis circulated to press. "Though it's been active in the consumer internet acquisition space for some time, with Minecraft and Mixer, for example, TikTok is a very different type of company."
Microsoft's bets on gaming, like Xbox and Minecraft, do carry some crossover with TikTok's youth-skewing audience, Williamson and other analysts noted. Perhaps more importantly, LinkedIn, the networking service Microsoft acquired in 2016, has emerged as a respectable advertising offering — one that has started to attract brand dollars outside of the business-to-business sector where it is centered.
"LinkedIn quietly has been something of a success story from an advertising revenue standpoint," Alex Brownsell, media editor at the advertising research firm WARC, said. "LinkedIn has become a very credible, but niche, B2B advertising platform."
If Microsoft can develop TikTok into a similarly sturdy standalone business, it could not only carve out a larger piece of the digital advertising pie dominated by Facebook and Google, but also develop a service that's distinct from those platforms, which marketers have found frustratingly opaque and insular already. Failing to do so could throw cold water on social media's lightning in a bottle and the most innovative app to emerge since Snapchat popularized the concept of disappearing video-sharing nearly a decade ago.
"I don't have any crystal ball, but I would suspect that [Microsoft] would resist the urge to try and integrate these businesses," Brownsell said. "Every time you try and build a walled garden it falls flat on its face … I think a credible model for Microsoft is to do something different with it."
A 'poisoned chalice' proposition
From a purely revenue-minded perspective, it's easy to see why Microsoft is drawn to TikTok.
EMarketer estimates Microsoft will command just 1.4% of the U.S. digital display market this year, but that figure could be shored up considerably in buying an app that's become a magnet for brands looking to reach a diverse Gen Z user base. Microsoft is in talks to acquire TikTok's operations in the U.S., Australia and New Zealand, regions that represent hundreds of millions of users.
"Although it's not fully formed, it's already got a really good foothold," Mary Keane-Dawson, group CEO at influencer marketing firm Takumi, said of TikTok. "That's very different from Microsoft's previous ventures into the consumer space, which I think is an important difference.
"TikTok has a really diverse audience and in a way that Instagram and YouTube would like to be," she added.
Previous Microsoft acquisitions like LinkedIn have also provided steady returns, with 40% of global marketers surveyed by WARC reporting plans to increase their spending on the platform.
"Basically the only platforms that had more people saying that were Instagram, YouTube and Google search," Brownsell said, adding that those figures put LinkedIn ahead of TikTok.
"TikTok is a really diverse audience and in a way that Instagram and YouTube would like to be."
Group CEO, Takumi
Yet, Microsoft has faced mounting skepticism since it confirmed plans to pursue a TikTok acquisition on Aug. 2 following weeks of discussions with ByteDance. EMarketer's Williamson argued that synergies in areas like gaming don't account for broader questions surrounding TikTok's long-term prospects.
"From an advertising business standpoint, the value of TikTok to Microsoft could potentially be very large, but I want to emphasize that it's just potential at this point," Williamson wrote in her note. "TikTok is very early in the development of its ad business, and there's no guarantee that it will attract a large share of ad dollars."
Even if TikTok's meteoric ascent continues under Microsoft, there will be other issues to contend with. Speaking to Wired in a recent interview, Microsoft founder Bill Gates described a deal for TikTok as a "poisoned chalice" scenario, acknowledging the app has surface-level attractions but will come packaged with the obstacles typical to social platforms today, including the need for content moderation at scale.
"[TikTok] has become a meaningful platform for a younger generation and families to create fun content, bringing forward entertainment in a time when everyone really needed it," Jessica Richards, managing director of commerce at Havas Media, said over email, referencing the app's spike in downloads among homebound consumers during the coronavirus pandemic.
"Unfortunately, the company has also gotten a lot of bad press on safety and data issues that make it a red flag for many brands and agencies considering marketing," Richards added.
Some insiders at Microsoft believe an acquisition would also be "unethical," according to a report this week in Business Insider. Internally circulated documents obtained by the publication reveal some employees view a bid to acquire TikTok as the rare misstep by Microsoft CEO Satya Nadella, who otherwise has a sterling track record in turning the legacy software firm into a formidable enterprise technology player in categories like cloud computing.
Signs of unrest inside Microsoft over a potential TikTok deal signal that the companies might not make the best match given their cultural differences. The tension could imperil TikTok's viability, which is predicated on a smooth integration, experts said.
"The question is whether the Microsoft culture, which is traditionally corporate and enterprise-driven, can let these guys get on with it," Keane-Dawson said. "Corporate doesn't work in social media terms."
TikTok has made several moves to build up independence from its parent company and a larger degree of professionalism in recent months, including naming former Disney streaming executive Kevin Mayer as U.S. CEO in May. The app has also made its platform more accessible to advertisers, opening up a global marketing platform earlier this summer as part of its first presentation at the Digital Content Newfronts, a key venue for publishers and platforms to pitch advertisers.
"The question is whether the Microsoft culture, which is traditionally corporate and enterprise-driven, can let these guys get on with it."
Group CEO, Takumi
But TikTok at the same time retains an unpolished quality that's simultaneously riskier than established social media platforms like Instagram and a large reason why the app retains its sense of fun and discovery, according to Keane-Dawson.
"It's much more spontaneous, and with that spontaneity, you get variance in the quality — there's no question about that," Keane-Dawson said.
There are other uncertainties that pose problems for Microsoft, including what it would actually net in an acquisition.
TikTok's algorithm is incredibly valuable, and gels with the type of artificial intelligence-powered solutions Microsoft has invested in under Nadella's stewardship. But it's not immediately clear that Microsoft would get the algorithm as-is in a deal with ByteDance, among numerous other technological and geographical complexities associated with bifurcating the business.
"Where it probably gets interesting is the extent to which there would be any divergence between the potentially Microsoft-owned version of TikTok and the ByteDance-owned version of the app, and the extent to which those two products would remain in lockstep," WARC's Brownsell said.
The U.S. version of TikTok splintering too much from the ByteDance-owned one could cause headaches for marketers and developers alike. And if Microsoft can't easily link the businesses, it might diminish the app's foothold at a time when a slew of rivals, from established players like Facebook's Instagram and Google's YouTube to newer startups like Triller, are rolling out lookalike features and attempting to court the content creators that comprise a major TikTok selling point.
Plenty of cases exist where popular properties have been acquired, mismanaged and flared out only to be forgotten. Microsoft's most recent experiment in digital media, the would-be Twitch competitor Mixer, quickly foundered despite the company reportedly sinking millions into fostering a network of high-profile streaming influencers.
TikTok has the benefit of coming with a built-in creator community and audience. Preserving the freewheeling spirit that's helped TikTok achieve that status will be essential in ensuring the app's tens of millions of U.S. users — and the advertisers that covet them — don't drop out once ownership changes hands.
"Is Microsoft going to allow the people who are running TikTok at the moment to continue with this more open-door, diverse freedom policy?" Keane-Dawson said. "If they don't, they run the risk of going the way that Vine did."