Buying TikTok Is One Challenge for Microsoft. Making It Work Is Another

By Aaron Tilley and Euirim Choi 

For Microsoft Corp., navigating the political and strategic hurdles in its pursuit of TikTok's U.S. business might just be the easy part -- figuring out how to carve out a chunk of a global app and adopt its code and data may prove a far tougher task.

Splitting TikTok's U.S. operations from those of Beijing-based parent ByteDance Ltd. presents myriad technical challenges, industry officials say. Any buyer would have to rewrite software to ensure those working on the hugely popular video-sharing app's legacy operations couldn't access the U.S. data. Making sure that trove of data is stored, processed and backed up entirely in the U.S. would be another hurdle to overcome, these experts said.

Some of the most popular creators on TikTok worry the breakup could diminish their ability to reach audiences around the globe. Kyle Thomas, a 15-year-old TikTok user based in the U.K. with over 16 million followers, said he might leave the platform altogether if U.S. viewers couldn't watch his content on it. Even though only 23% of his audience is in the U.S., Kyle, who makes money on TikTok, said that a decline in viewers overall would "affect me a lot. It could possibly knock me off the platform."

The White House had been pushing for a sale to U.S. owners, citing the national-security risk that the Chinese government could exploit the personal data the app collects. TikTok has said it protects American users' data.

President Trump added urgency to any deal talks late Thursday when he signed an executive order that would ban TikTok in the U.S. within 45 days unless it is sold to an American buyer. The president earlier in the week told Fox News he was open to an American business buying all of TikTok and not just the U.S. operation.

Microsoft, which previously set a mid-September deadline for a potential deal, on Friday declined to comment on how the executive order might impact negotiations. TikTok also declined to comment.

Deal talks remain fluid, people familiar with the discussions said, and it is unclear whether any potential buyer would want to buy all of TikTok or that ByteDance would part with the entirety of the app. Microsoft on Sunday said it was pursuing talks around buying TikTok's U.S. operations, along with those in Australia, Canada and New Zealand. Many details of the proposed deal remain uncertain, including technical aspects and cost, and the company has said there is no guarantee it can agree to terms with ByteDance.

Buying all of TikTok would drive up the purchase price and add other risks, including the possibility of further angering China, where U.S. pressure to force a sale has gone over badly. But such a move could placate TikTok users anxious about the platform being split in half and eliminate some of the technical challenges associated with hiving off a part of the business to a new owner.

Microsoft has said that TikTok, under its ownership, would build on the popular user experience while adding privacy and security protections, though the company hasn't provided further details. Microsoft and TikTok are working to assure users that the app would still function as one entity globally -- a U.S.-based user could still view all content, including videos from those based in Korea or Japan -- even if data were handled differently behind the scenes, a person close to the deal said.

Microsoft has promised the White House it would ensure that all private data from U.S.-based TikTok users would be transferred to the U.S. and deleted elsewhere. Hosting TikTok's U.S. service on Microsoft's systems could take nine months to a year or even longer, the experts estimate.

The mid-September deal deadline makes sorting out many of the technical details tricky, said Murli Thirumale, chief executive of Portworx Inc., a cloud data management company. "If you didn't have the timeline, I'd say it probably would take two years to accomplish," he said. "You want to test everything."

TikTok has been expanding data centers in Virginia and worked with Alphabet Inc.'s Google Cloud to store customer information in the U.S., even though some information is still backed up abroad.

Microsoft would gain around 100 million or so mostly young users with TikTok's U.S. business, bolstering its consumer-facing operations. But the engineering challenge associated with taking over TikTok is a point of concern for Microsoft, along with financial and political issues, a person close to the deal talks said. Microsoft is widely expected to host its TikTok operation in its Azure cloud.

Many of TikTok's engineers are in China and the app shares resources with other ByteDance units, a person familiar with its systems said, and that could complicate splitting off the U.S. operation. The two companies haven't said what, if any, TikTok staff would transfer to Microsoft. TikTok had previously said it would add as many as 10,000 jobs in the U.S. over the next three years.

Republican Sen. Josh Hawley of Missouri on Wednesday sent Microsoft Chief Executive Satya Nadella a letter asking if the company would allow ByteDance employees who might be affiliated with the China's Communist Party to be involved in the transition, expressing concern they could potentially add "backdoors" for data access.

He also has asked for assurances that Microsoft won't use TikTok-derived artificial intelligence software in a way that user data could find its way to Beijing.

Reshaping the platform -- moving the data and engineering needed changes -- could cost into the tens of millions of dollars, industry officials said. Microsoft, with more than $136 billion in cash, can afford the tab.

Microsoft has firsthand experience with how complicated and protracted these kinds of migrations can be. Its $26 billion acquisition of professional net working site LinkedIn in 2016 has been a yearslong integration process, and Microsoft waited until last year to begin shifting LinkedIn onto its cloud. It had let LinkedIn remain on its own data centers to give the group a sense of independence, a person familiar with the unit's operations said.

--Georgia Wells and Michael C. Bender contributed to this article.

Write to Aaron Tilley at [e-mail]

(END) Dow Jones Newswires

August 07, 2020 13:38 ET (17:38 GMT)

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