Why does Microsoft want to buy TikTok?

 Why does Microsoft want to buy TikTok?

Microsoft has recently revealed that it is under process of buying TikTok US. TikTok is a Chinese video application that has become very famous around the world. But it has been under scrutiny from Indian and the US governments on the ground that it spies user data as part of Chinese government’s intelligence mission. India has already banned the application and Trump has signaled his administration would consider banning the company’s US operations. Amid these tensions, why does Microsoft want TikTok on its portfolio? Well, there are a few good reasons.

Digital advertising market share

The global digital advertising market is expected to be worth $384.96 billion in 2020, a 16% growth over the last year; while it is estimated to cross half a trillion mark by 2023 to comprise over 60% of the total advertising spending according to e-Marketer. Google takes the lion’s share (70% of Google’s revenue comes from advertising), followed by Facebook. Microsoft does own a video-calling platform, Skype. But it is far from competing Google’s YouTube, and Facebook’s Instagram to drive ad revenues into the company. Now, given that video advertising market is $26 billion in 2020 and estimated to reach 35 billion by 2024 while mobile video would overtake desktop video after 2021, Microsoft desperately wants such video platform as TikTok to foray into the lucrative digital advertising market.

Customer base for existing products

Although Microsoft has historically been focusing on enterprise software solutions (except for Windows Office), it may want to scale down to the lower segment with its products such Xbox gaming consoles—TikTok’s young audience is ideal for the purpose. TikTok will not only give it more understanding of the teenage customers but also provide a platform to reach the segment.

Access to user data

Data is more important now than ever before. Companies like Google and Facebook are building their competitive advantage around user data. It complements advertising function. If the allegations that TikTok ‘spies user data’ are any true, Microsoft wins the bet by buying TikTok. Collected data and user profiling improves user experience as well as operational efficiency by creating tailored products and advertisements.

Final thought

Microsoft’s quest to buy a video application which is on the verge of being banned seems to be driven by the benefits the acquisition is expected to bring: online advertising platform; user data; and a customer base for its existing products.

Is it a good sign that one after another (Huawei) tech company is getting banned in the US? What happens if the US based company buys TikTok? Share your thoughts in the comments below.