Home / US / Microsoft’s bid for TikTok may hang on to its long history in China

Microsoft’s bid for TikTok may hang on to its long history in China

Microsoft (MSFT) has proven to be the leading candidate to save TikTok from President Donald Trump’s threat to ban the app unless it finds a US buyer. The app is owned by Beijing-based ByteDance. An agreement would give Microsoft ownership and operation of TikTok services in the United States, Canada, Australia and New Zealand.

Unlike other major US technology companies, Microsoft has some major efforts in China, and its products have a significant presence there.

It has been in China since 1992 and employs 6,000 people in the country. Microsoft’s software is used by the Chinese government and companies, LinkedIn is a popular social media platform for Chinese professionals, and Bing is the only foreign search engine with any market share in the country. The state-based company in Washington also has an A-list alumni network in China, thanks to the hugely influential Microsoft Research Lab Asia, or MSRA.

The Beijing-based laboratory ̵
1; a world-class computer science research hub – is widely regarded as a starting point for China’s technology sector. Many founders and senior executives in companies like Alibaba (BABA), smartphone maker Xiaomi and e-commerce in the first place Pinduoduo (PDD) started at Microsoft and trained at MSRA. Even Zhang Yiming, the founder and CEO of ByteDance, worked briefly at Microsoft before reportedly leaving boredom.
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Microsoft “is really well respected” in China’s technology community, according to Edith Yeung, who spent several years investing in Chinese companies with venture capital firm 500 Startups. She is a partner with Race Capital and invests primarily in American companies.

This respect is especially true when it comes to artificial intelligence, Yeung said. One of the most famous AI experts in the world, former head of Google China Kai-Fu Lee, helped establish the MSRA.

ByteDance has a host of addictive apps that all rely on AI algorithms. The apps learn from the users’ behavior and continuously feed them content that they want to see.

Many in China’s technology industry believe that Microsoft is “the best choice” to buy TikTok, because at least Microsoft has “AI hackers to understand what ByteDance is doing,” Yeung said.

A forced sale of TikTok to Microsoft would be “a win-win-win, in a pretty awful situation,” said Tony Verb, founder of GreaterBay Ventures & Advisors, which works with Chinese entrepreneurs.

It is likely to be a victory for Trump, it is good for Microsoft to have a fast-growing product like TikTok, and for ByteDance “it is a less horrible outcome”, according to Verb.

Microsoft and ByteDance did not respond to a request for comment on this story.

Challenges in China

Like other multinational companies, Microsoft has had a fair share of challenges in China.

Rampant piracy prevents the company from making significant inroads into the market. Microsoft President Brad Smith said in January that although Microsoft’s software is widely used in China, the country accounts for less than 2% of the company’s global revenue.
Last year, Microsoft’s search engine Bing in China was blocked. It was not clear what led to the shutdown, but it came when tensions between the United States and China exploded in the technology sector, with Washington increasing its campaign against the Chinese technology company Huawei.

Microsoft is also facing scrutiny by China’s state market regulator, which is investigating whether it has violated the country’s antitrust laws. The probe is focused on Windows and Office software.

And in a time of rising tensions between Washington and Beijing, Microsoft’s operations in China could prove to be a responsibility, as the world’s two largest economies broke off cooperation and are approaching technical decoupling.

Some Trump administrators are suspicious that Microsoft is too cozy with Beijing.

Microsoft-owned products such as Bing and Skype have enabled Chinese surveillance and censorship, White House Trade Advisor Peter Navarro said in an interview with CNN on Monday.

Bing can run its Chinese website, cn.bing.com, because it censors its search results. During a panel at the World Economic Forum in Davos, Switzerland, last year, Smith said that Microsoft has “days when there are either difficult negotiations or even disagreements” with Chinese authorities.

“There are some fishy things happening there,” Navarro said. “If people use Skype in China, the Chinese Communist Party is listening,” he added.

“The question is, will Microsoft be jeopardized?” Navarro sa. He also questioned whether Microsoft should be forced to “sell its Chinese holdings” if it buys TikTok.

China can still claim “a pretty good profit”

At the same time, Trump has tried the forced sale of TikTok as a profit and said that the US Treasury Department should get a cut in the deal if it goes through. Industry experts say the TikTok deal could cost Microsoft between $ 40 billion and $ 50 billion.

Trump’s comments sparked outcry in China. The state-run China Daily newspaper likened the sale of TikTok to a “smash and grab” raid organized by the US government.

But the sale of TikTok should also be seen as a huge gain for China’s technology industry and the innovation coming out of Beijing, according to Rich Robinson, a professor at Peking University and founder of Whip Wham, an investment practice focusing on China and Asia markets.

“Last time I checked, $ 50 billion is a pretty good profit,” Robinson said.

ByteDance was able to get hundreds of millions of users around the world connected to TikTok, the app brought in tens of billions of dollars in revenue last year and it was the first Chinese social media platform breakthrough in international markets, he points out.

“It’s all winning,” Robinson said. “Too bad it was politicized.”

– Laura He and Clare Duffy contributed to this report.

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