Microsoft Said to Be in Talks to Acquire TikTok in the US as Ad Business Flattens Out

Without an entertainment service aimed at a broad audience, Microsoft has struggled to capture the increasingly lucrative videos flowing to YouTube, Facebook and more recently TikTok.

By Reuters | Updated: 1 August 2020 10:33 IST

Microsoft Said to Be in Talks to Acquire TikTok in the US as Ad Business Flattens Out

Microsoft is seen as a stronger contender against other potential TikTok buyers

Highlights

Microsoft's search ads sales grew just one one over the last year
Facebook and YouTube have seen their sales growth during the pandemic
Microsoft doesn't have an entertainment service to reach a broad audience

Microsoft could reenergise its advertising business with a huge supply of video if it follows through on acquiring TikTok's US operations from ByteDance. Reuters reported on Friday, citing a source familiar with the matter, that Microsoft is in exploratory deal talks as the US government prepares to force China-based ByteDance to divest its video app TikTok over data security concerns.

Microsoft generates the bulk of its $143 billion (roughly Rs. 10.71 lakh crores) in annual revenue by licensing software such as Windows and Office as well as cloud storage and computing tools through its Azure service.

The company, with advertising supported businesses including its Bing search engine, MSN news service, and LinkedIn business social network, disclosed this month that its search ads sales grew 1 percent to $7.7 billion (roughly Rs. 57,696 crores) over the last year. But that growth was flat when excluding fees it pays to partner websites and apps.

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The ad market research company eMarketer has estimated LinkedIn's ad revenue at about $2 billion annually in the United States alone. But Microsoft also said this month LinkedIn ads sales have fallen this year as the novel coronavirus pandemic prompted advertisers to pare spending.

Social media services, including Facebook and Alphabet's YouTube, have seen their sales growth continue during the pandemic as users spend more time entertaining themselves online - particularly with video - and advertisers follow them there.

Without an entertainment service aimed at a broad audience, Microsoft has struggled to capture the increasingly lucrative videos flowing to YouTube, Facebook, and more recently TikTok, which widely opened its ad tools this month.

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Increased US regulatory scrutiny of potentially anticompetitive behaviour by Facebook and YouTube have likely diminished their ability to purchase a major competitor soon, according to antitrust experts. Microsoft, though, faces fewer constraints.

"Its consumer strategy remains in flux and an aggressive acquisition (or strategic investment) of TikTok would be Microsoft throwing its hat in the ring and trying to compete with other tech giants in a new avenue of growth," Wedbush financial analyst Dan Ives said in a statement on Friday.

© Thomson Reuters 2020

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