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ProBeat: Microsoft wants TikTok for the same reason the U.S. fears China

It’s been a month since U.S. Secretary of State Mike Pompeo said the Trump administration was considering banning TikTok. Plenty has happened since, but the situation really accelerated last weekend. In the span of a couple hours, we learned that President Trump was planning to sign an order directing China’s ByteDance to divest its ownership of TikTok and that Microsoft and ByteDance had offered the White House a deal to keep TikTok in the U.S.

Chaos ensued. Trump gave Microsoft 45 days to seal a TikTok deal. Microsoft confirmed it was interested in TikTok’s U.S., Canada, Australia, and New Zealand operations. Trump issued a September 15 sell-by deadline for TikTok and declared he was fine with Microsoft buying TikTok, but that the U.S. government should get a “substantial amount of money” as part of the deal. Finally, yesterday we learned that Microsoft might be pursuing TikTok’s global operations, and Trump signed an executive order to block all U.S. transactions with ByteDance (and Tencent) starting September 20.

What is all this really about? It’s about AI, data, and power.

Why TikTok?

To truly understand what’s going on here, we have to look at what makes TikTok unique. There isn’t one single thing, of course — success in social requires many puzzle pieces, including content, momentum, and scale.

TikTok is surprisingly diverse — many have noticed that those who failed to break out on Instagram because they aren’t “photogenic white people” are finding success on TikTok (though it does have a racism problem) because the algorithm is more finely tuned to engaging content.

TikTok’s AI algorithm is the main differentiator here. Yes, other successful social networks use algorithms. But ByteDance’s entire business is built on a foundation of AI-powered apps. Plus, TikTok sets itself apart by not having a feed, instead relying on a swiping navigation system that puts content front and center. Facebook, Twitter, LinkedIn, Instagram, and so on all have feeds powered by algorithms. The exception, Snapchat, which is also popular with younger demographics, is testing TikTok-style navigation.

What this means in practice is that whatever TikTok’s algorithm serves you takes over your entire phone screen. To add to the immersion, TikTok only serves videos. Not only has video increasingly been dominating social media, as anyone could have predicted, the data signals for the AI algorithm are also much stronger. TikTok quickly learns your preferences based on what videos you like, what videos your friends watch, what videos attract your attention based on who you follow, and even whether you let the video play or not.

The AI algorithm drives everything in TikTok.

It’s so good, in fact, that in 2018, ByteDance had to add an addiction-reduction feature, first to Douyin (TikTok’s predecessor exclusive for the Chinese market) and then to TikTok. The feature uses some of the app’s top influencers to encourage users to take a break every 90 minutes.

What Microsoft wants

On its face, Microsoft’s interest in TikTok makes little sense. Microsoft is about productivity, not entertainment. Is access to mobile consumers really worth the headache of content moderation and other regulatory risks?

In July 2014, just a few months into his new role, CEO Satya Nadella penned a 3,187-word memo spelling out that Microsoft is a “productivity and platform company” in a “mobile-first and cloud-first world.” Over time, AI received more attention (certainly more than mobile), but the focus on productivity remained, helping fuel its return among the tech giants.

TikTok is no productivity app. And while Microsoft does continue to dabble in the consumer space (see Xbox), the company has increasingly focused on the enterprise. It’s possible Microsoft is looking at its lucrative LinkedIn acquisition (arguably the only “productivity” social network) and thinking that TikTok could be an even bigger boon. But I think that’s the icing on the cake.

The cake itself is the data powering that addictive AI algorithm. If this was just about a popular mobile app or a popular social app, Microsoft has plenty of headache-less options to choose from. No, this is about TikTok specifically, and what the data it brings to the table that no other mobile app or even social app does.

The other tech giants already have social data to train their AI algorithms on — Amazon has Twitch, Google has YouTube, and Facebook has multiple social apps where users post video content. Microsoft would be foolish not to at least try to scoop up the hottest social video app that happens to generate plenty of content from diverse communities. It could use TikTok content itself to, for example, spot the latest trends, train software to lip-read, and improve speech recognition.

What the U.S. wants

Where the U.S. distracter-in-chief is involved, we must be especially careful to examine the situation on its merits. Similar to the Huawei fracas, there is no evidence that ByteDance has been compromised by the Chinese government. But the mere possibility is enough for the damage to be done. And doing damage is the point.

In the days following Pompeo’s announcement, Amazon “accidentally” banned and then unbanned TikTok internally, Wells Fargo actually banned TikTok, the DNC and RNC warned their campaigns about using TikTok, and the U.S. House of Representatives voted to remove TikTok from federal devices.

Meanwhile, TikTok creators started to flee to YouTube, Byte, and Triller. Smelling blood, Facebook accelerated its own TikTok rival plans. Instagram offered popular TikTok creators monetary incentives, in some cases hundreds of thousands of dollars, to use Reels. Facebook expanded Instagram Reels from India, Brazil, France, and Germany to over 50 countries.

For its part, TikTok announced plans to hire 10,000 U.S. employees over three years and promised to pay U.S. creators over $ 1 billion, quintupling its previously announced $ 200 million figure.

This is exactly what the U.S., or at least the Trump administration, wants — trouble for TikTok, trouble for China, and frankly a diversion from its own problems.

What next? All we really know is that Trump has set a deadline. Which is to say, we know nothing. He can just as easily extend it or change his tune. There is precedent for both.

Speaking of precedent, that is the real danger here. Does the U.S. really want governments forcing foreign businesses to divest or sell, while taking a cut? Does the U.S. really want to build its own Great Firewall? We’re increasingly moving away from a single internet to multiple nets, all with their own regulations based on vague national security allegations.

What ByteDance wants

This one is the easiest to answer and the hardest to accept. Ideally, ByteDance wants to be in charge of its own destiny. That ship has long sailed. And so, ByteDance at the very least wants to be rewarded for building China’s most internationally successful internet product.

ByteDance is China’s first global software startup success story — many tech companies have thrived in China but struggled to take their business global. ByteDance stands out from all other Chinese internet giants because its growth potential isn’t limited to that country alone. Unfortunately for ByteDance, going global also means it has found itself in the middle of a U.S. and China power struggle. In the AI arms race, the U.S. is ahead and China is closing in.

ByteDance has the AI and the data. Microsoft wants that power for itself. The U.S. wants to take it away.

ProBeat is a column in which Emil rants about whatever crosses him that week.

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Entrepreneur – VentureBeat

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