What does Microsoft gain by buying TikTok?

Microsoft is a risk taking visionary company more than anything else, when it makes bets, it makes big bets and has been doing that long before Jeff Bezos came on the scene and started making them. It has probably taken more risks than other tech companies in the history of tech companies, more than people would care to know or acknowledge.

This may be because it has a history of being an openly aggressive organization (and by extension a bully) in the past because of the image of Steve Ballmer jumping up and down on the stage, when such things were frowned upon,

and because of the never ending contention that Bill Gates copied Steve Jobs (which he did not because Apple itself copied Xerox’s UI and Pointing device — the mouse).

Microsoft is a far more aggressive and shrewd company than people give it credit for.

Since it faced the anti-trust case from 1992–2001, Microsoft seemed to have gone into a shell, or so it seemed as Bill Gates became reticent for a number of years and Microsoft seemed to have lost its aggression, all the while churning out money spinning products. People thought Microsoft has reformed and become docile and boring and is finished innovating.

Nothing could be farther from truth, Microsoft was, is, and will always remain an aggressive company which empowers its employees to make big bets, spend big amounts and win at all costs. It is willing to make big investments in future technologies and markets more than most of its peers, probably including Amazon. A small example of its long term investment thesis is the Project Shiksha (to which I contributed in a small way) — In mid-2000s Microsoft introduced a program in India called Project Shiksha through which Microsoft opened many Train the Teacher centers in India for State Governments. These centers were constructed at Microsoft’s expense and the operating expenses including salaries of trainers was funded by Microsoft. This entailed an investment of millions of dollars which Microsoft happily made, this was the time when Microsoft was fighting Linux everywhere, including on the desktop. The end result — Indian government included ICT in its syllabus for 10th and 12th standard curriculum and millions of PCs were bought running Microsoft Windows and Office, creating tens of millions of students familiar and adept in Windows from school level itself and continue doing that to this date.

Microsoft is more adaptable than people think it is

People think Microsoft’s peers are Amazon, Facebook, Google and Snapchat, as analysts would like you to believe you or a certain bald man on CNBC TV would pontificate about. The original Microsoft’s peers are IBM, Oracle, Adobe, HP, Dell, who have all lost their way or become specialized in a particular aspect of Enterprise Computing, barely floating as they undergo divestment, mergers, splits and so. That Microsoft is counted as a competitor to Amazon, Google, Facebook, Snapchat, Zoom and the likes shows the diversity of its products and services and the willingness to play in all segments, quite unlike its competitors. Microsoft is simultaneously fighting Google, Facebook, Slack, Zoom a scenario which no one believes is possible.

Microsoft would still be hugely profitable even if it does not participate in the Internet consumer business.

It is well documented that Microsoft missed the search engine and the internet browser buses, partly because of anti-trust cases and partly because it was making so much money that it couldn’t be bothered to find new sources of profit. While Microsoft stock has climbed to stratospheric heights recently giving an impression that Microsoft has suddenly become very profitable, you will see that Microsoft’s operating income has not changed dramatically, they have barely doubled from $27 billion in 2012 to $54 billion in 2020, while the stock has gone from $30 to $210.

Microsoft has made good on its recent acquisitions.

The reasons for the stock growth has been Microsoft’s renewed focus on the future and the exit of Steve Ballmer and his team. Microsoft after the disastrous buying of Nokia has changed its focus and has bought Mojang, LinkedIn, Github, seemingly diverse set of properties with no possible backward integration with Microsoft products and services as Microsoft still makes a majority of its money from Enterprise and small business. But look closely and you will find that these are immensely valuable acquisitions that enhances Microsoft’s understanding and learning of human actions in professional world, like no other company. This knowledge can dramatically increase Microsoft’s revenues and profits in the future.

For example with LinkedIn’s acquisition, Microsoft has a ringside view of what is happening in the professional world, what is the status of job markets, which skills are short, which skills are useless, what tools are being used and so on and so forth, with this information Microsoft can modify its product strategy and messaging much before competitors have time to realize what is happening.

With Github Microsoft now knows what developers are building on and exploring, much before any company in the world. This knowledge is extremely valuable for its Azure business, which can give it a head start against competition, and of course the potential integration of Github with Azure and direct deployment of your code to Azure would be cloud utopia that everybody has been waiting for.

So how can TikTok help Microsoft?

The interpretation of TikTok differs from person to person, some people think its competition to Facebook and Instagram, some see this as a new kind of video based entertainment and so on. My interpretation is TikTok is a competition to YouTube and a reinvention of video content as a source of entertainment. As YouTube grew it gave up on its small users as it focused on influencers and big YouTubers and studios, it shifted its focus to compete with Netflix and the likes. It moved away from spontaneous content to scripted content. This left open a gap for other players to get in and the likes of TikTok benefited from it in non-China part of the world. If you look closely TikTok is what YouTube started out as, before it decided it wanted to be something else.

By acquiring TikTok, Microsoft would gain access to a large and fast growing mobile consumer app giving it a toehold in an elusive market for it so far. This would also give Microsoft access to a large set of mobile content consumers for the first time, a demography missing from its set of products. This information along with the access to massive amount of video content would be invaluable for Microsoft in understanding user behavior and training its AI products for the future.

The TikTok user data and analytics can can also help Microsoft modify and build new products that help people consume and create content directly from mobile, an extremely valuable capability considering that the world now has more mobile devices than PCs. Overall a cost of $50 billion may be too small a price to pay for Microsoft to finally get a meaty part in the mobile phone app space.

You can find me on Twitter at Manish Sharma .