August 4, 2020
President Donald Trump confirmed Monday that he has given Microsoft the go-ahead to try to acquire popular social media app TikTok. Just days ago, the president was talking about an outright ban of the app that is so popular with young people due to security concerns.
If Microsoft's deal to purchase TikTok goes through, it would give the tech company quick access to a wide pool Gen Z users, a demographic that marketers anxiously try to appeal to, and bolster its position as a digital advertising company once again.
"Over the last several years, Microsoft has de-emphasized its advertising business in order to focus on the Azure/cloud business opportunity," said Jed Meyer, managing director of North America for media and marketing consultancy Ebiquity. "The potential acquisition of TikTok shows a renewed interest by Microsoft in the advertising business. This move would introduce Microsoft as a major player in the landscape, potentially threatening Facebook, Google, and Amazon down the line as its ad business grows."
While Microsoft isn't known as a top social media company, it has several brands that cater to younger consumers. Xbox has long been a stalwart in gaming, and Minecraft has become the best-selling video game of all time. Adding TikTok to its arsenal only strengthens its position.
Though initial projections are down, digital advertising is still expected to grow 1.7 percent this year according to eMarketer. It's likely Microsoft sees an opening there. TikTok's grip on its audience, combined with an effective algorithm, makes it a strong contender for advertising budgets as marketers begin to loosen purse strings following the height of the coronavirus-related shutdowns.
"TikTok's brilliance is in the algorithm," said video advertising platform VidMob CEO Alex Collmer. "It doesn't take long with just playing around with it to learn the content that it surfaces is really engaging. You have to give them credit for building a really compelling experience."
The Tale of TikTok
TikTok's popularity has boomed, reaching 800 million daily active users this year. App analytics company Sensor Tower estimated the app was installed 63.2 million times in July alone from Apple's App Store, and Google Play. Consumers in the U.S. made up just under 10 percent of the total figure.
Still, issues persist over the way TikTok handles user data and concerns it could end up in the hands of parent company ByteDance — and in turn, eventually, the Chinese government. TikTok said it has never given any user data to China, nor does it have any plans to do so. All U.S. user data is stored in servers near Washington, DC, and backups are in Singapore, according to the platform.
Meanwhile, TikTok's algorithm has given it mighty strength, enough to sway youth culture, Collmer points out. K-pop fans reportedly used TikTok to troll President Donald Trump's re-election campaign by encouraging others to sign up for tickets, but not show for the Tulsa, Oklahoma rally in June.
The company also used to block sensitive political content but changed its policies as Americans became more socially active on the platform. There were growing concerns the platform could be used for propaganda especially if tied to foreign governments, Collmer added.
"It could very legitimately actually control what a large part of the population, Americans 20 to 25 years old, will think," he said.
As a result, India banned TikTok on June 29, and Trump said the U.S. was mulling blocking the app as well. Advertising agencies told Cheddar some brands were wary that the company would share personally identifiable information with ByteDance for ad targeting, which could theoretically pass it onto the Chinese government.
Over the weekend, Microsoft announced it will attempt to buy TikTok's U.S., Canadian, Australian, and New Zealand operations. Trump confirmed that on Monday, telling reporters that Microsoft has until September 15 to get the deal done.
If the deal does not go through by then, the president says he will ban the app.
Trump also expressed a desire for TikTok's potential owners to provide payment to the U.S. Treasury from the sale, though it's not clear the government has the ability to demand more than what the tax code requires. If the deal with Microsoft goes through, it is likely the new parent company would create U.S.-based jobs or pay more in taxes rather than direct financial remuneration.
If Microsoft is able to use this opportunity to capitalize on its foothold in the youth market, much of it could come from digital advertising. And, at a time where attention is split between so many different platforms and devices, having something that Gen Z wants to use can be valuable for many marketers trying to build brand awareness and loyalty.
"TikTok shows strong potential as an ad platform," Ebiquity's Meyer said. "It needs to continue investing in its advertising offering and think ahead to avoid the brand safety blunders that we've seen on YouTube and Facebook. That said, the platform likely will continue to see more and more brands interested in investing given its critical mass of younger consumers, coupled with a new, fresh, and different offering."