It seems hard to imagine a time when our aimless, morning scroll of social media did not involve TikTok. The entertainment application which showcases 15-second videos is addictive; which its monthly 800 million users can vouch for.
The entire world has watched the ever-growing tension between China and the US unfold in recent years. In an arguably unsurprising move, President Trump has threatened to ban the Chinese-owned app in the US. The mere fact that 85 million of the app’s monthly active users are from the US, means the ban will come as a catastrophic blow to ByteDance, the parent company of TikTok.
However, in a desperate attempt to save the existence of the app in the US market, Microsoft has emerged as a potential buyer…
What is the difference between a parent and subsidiary company?
We must understand the difference between the two in order to recognise TikTok’s relation to both China and the US, and how a parent company influences its subsidiary.
What is President Trump’s Problem?
In order to determine the logistics of a potential Microsoft acquirement of TikTok, let’s firstly examine the controversy against the app, and more significantly, why President Trump wants to ban it.
This is the run down. TikTok is a subsidiary of ByteDance, a Chinese internet technology company. The current relationship between the US and China is a turbulent one, in which the explanations for are unfortunately, not Covid-19 free.
Does Trump have the authority to do this?
Trump has been toying with the idea of a TikTok ban on all American devices for months, before eventually giving the deadline of the 15th September. If no US company successfully acquires the app before this deadline, it will be entirely banned. However, it can be a bit confusing to understand which statutory basis Trump could rely on if necessary, or even which legal obstacles he would face in potentially imposing a ban.
Trump has two options.
Option Number 1: Trump could pursue the TikTok ban on a pretence of national security, through the Committee on Foreign Investment in the United States (CFIUS). Here, the Committee can block and impose a compulsory ban on all investments of foreign acquisitions of US businesses. However, an issue is still yet to be declared by CFIUS.
Option Number 2 (which is the route Trump has actually gone with): Trump has relied on the International Emergency Economic Powers Act 1977 (IEEPA) which allows US presidents to respond to urgent national security concerns. IEEPA has broader jurisdiction and allows presidents to have extensive powers in interfering with the US economic market. Choosing the IEEPA route also means that the White House can compel not only divestment but block ByteDance in having any future transactions with the app in the US. Unfortunately, this could be bad news for American TikTok fans as it means President Trump has a legal basis for enforcing the ban. However, it does also allow some wiggle room for potential new American purchasers to acquire the app.
Is Microsoft the answer that we have all been waiting for?
Since then, discussions between Microsoft CEO Satya Nadella and President Trump have emerged, in talks of a potential purchase of TikTok’s North American operations. Microsoft have also agreed to a full security review and ensured that the US Treasury will also receive economic benefit from the transaction. This is another critical factor for President Trump, as he has previously acknowledged the sale will bring great economic benefit to the Chinese economy, which would not have occurred had it not been for his intervention in the sale.
Could this really be a win-win situation for all? After all, China are likely to get a boost in their economy from the sale, and Microsoft will gain an exciting new business venture and Trump can put to bed his latest concern. Or is this merely an over-simplistic way of looking at the circumstances, and is actually just Trump’s attempt to show the US in more favourable light?
It was also recently reported that the computer technology company Oracle has also entered preliminary talks with Byte-Dance to acquire TikTok operations in the US. Oracle is currently working with General Atlantic and Sequoia Capital, US investors who already own a stake in ByteDance. However, it is unclear whether President Trump has any preferences of the two companies in the race to acquire TikTok.
Although we hear the word ‘acquisition’ often, it is important to fully understand what this process actually entails and the impact this will have on TikTok. In summary, an acquisition is when one company purchases all or the majority of shares in another company. For more information on acquisitions and how they work, check out our previous article Acquisitions 101: Vice and Refinery29.
What will this mean for Microsoft?
This potential move is also very out of character for Microsoft. While we are all familiar with their enterprise software, Microsoft are hardly renowned for their contribution to social media platforms targeting younger generations, evident after they infamously dipped their toes in the sector when they acquired Skype.
So, what exactly will a Microsoft-owned TikTok look like? Could this be a grand opportunity for Microsoft to finally appeal to a younger generation? After all, their demographic tends to be more mature professionals, which their successful acquisition of LinkedIn in 2016 perfectly encompasses. It also cannot be forgotten that Microsoft actually created Xbox!
Therefore, Microsoft could potentially combine its past experiences with gaming to develop TikTok, as a video-sharing platform, in order to sustain its popularity with younger audiences. Or it could merely flounder under the pressure, in its first attempt at running an entertainment social media platform.
Other competitors such as Oracle also cannot be forgotten. While Oracle might not be able to rival Microsoft’s financial influence, Oracle’s CEO is a keen Trump supporter, leaving perhaps some room for some political influence in the transaction.
Only time will tell, but let’s hope for the sake of American TikTok fans, a solution is found before the dreaded September 15th.
If you are interested in reading more about this issue, please refer to the following articles:
- Trump Reverses Course on TikTok, Opening Door to Microsoft Bid
- Why Microsoft Wants to Buy TikTok
- Explainer: Microsoft’s TikTok bid spotlights
- Here’s what TikTok may look like if Microsoft buys it
- Why is the Trump administration banning TikTok and WeChat?
- Oracle enters race to buy TikTok’s US operations
This article was written by Emily Gordon. Emily is Content Writer for According To A Law Student (ATALS) and a final year LLB Law Student at Newcastle University. She is keen to pursue a career as a Solicitor.