Whoever started rolling the last snowball is US President Donald Trump and his administration, who are expressing concern that the short video app is hurting US national security. Within a week, Trump had announced that it would be banned from operating in the United States, halting negotiations on the sale of its domestic operations, and signing a presidential decree against Bigdance and Tencent (Tiktok and WeChat’s parent companies, respectively).
All this while the US administration is aware that at least two American companies – Microsoft and Twitter – are in talks to acquire Tiktok’s US operations. Microsoft released an official announcement of the contacts last week, stating that the contacts include additional ticketing activities in Canada, Australia, and New Zealand. Negotiations are expected to be completed by mid-September. Twitter did not issue an official statement, and a report on the matter was published in the Wall Street Journal. According to the report, Twitter has held initial talks about a potential merger with Tiktok’s operations in the US. Another option is to sell some of Tiktok’s operations to a group of investors.
Growing fast, revenues are still low
Tiktok was launched in China in 2016 under the name Douyin, and is owned by Chinese startup BiteDance by entrepreneur Zheng Yiming. Tiktok is one of the hottest names in the field of social networking in recent years, but despite its immense popularity among a young audience, it is still struggling to reach economic viability. According to The Information, its revenue in the US will reach only $ 500 million this year. For comparison, Facebook had revenues of over $ 36 billion in North America in the last four quarters. Twitter revenues during this period reached $ 2 billion.
If so, how did Tiktok, a four-year-old low-income social network, become a terror to the U.S. administration, and at the same time an attractive asset to purchase? The answer is not so complicated – data. The word of wonders commonly referred to as “21st Century Oil” is also relevant in the case of Tiktok. 800 million users and attractiveness among American teens (6 out of 10) is not something that can be taken lightly. The number of Tiktok users in the world is double that of Snap, the social network that until a few years ago thought it would be the one that would threaten Facebook’s undisputed status. Tiktok does not have data that does not exist in other social networks, but usually this information belongs to American and non-Chinese companies – and this is what worries the US administration.
In terms of potential buyers, her approach to the young audience is significant. Young people and teens are a tough audience for the tech giants, and they tend to move from app to app without loyalty to one place. That’s how they switched from Twitter to Facebook, then to Snap and Instagram. Tiktok also seems to have cracked what young people want – about a third of its users in the US are aged 10-19, and another 30% are aged 20-29. It has done so by focusing on short videos, with a “story” format that has already proven successful, And with an addictive algorithm.
For Facebook, whose growth among young people has been almost completely halted, the acquisition of Instagram is what has allowed it to continue to attract a young audience. Instagram copies features from other trendy social networks, such as Snapchat’s stories and filters, and Tiktok’s latest editing tools. This is how Instagram enables Facebook to be the data empire it is today, with up-to-date information on people from all demographic groups and all ages.
From Tiktok’s side, it may be considered a successful social network, but it still needs to prove itself on the business side. As with other networks, revenue comes from entities that advertise on the platform, but Tiktok has developed tools for advertisers at a relatively late stage and is now expanding its tool offering. There is a big difference between being able to be attractive to young people and offering attractive tools to advertisers. These should be convenient and accessible, but also based on quality ticketing data analysis so that advertising is as effective as possible.
As it is acquired by one of the major technology companies, they will be able to improve its advertising array in terms of tools for advertisers and data analytics. At the same time, Tiktok’s data on young people and youth will be able to improve its advertising systems and provide advertisers with continuity. Small social networks that put advertising on their platforms tend to drive away the young audience, and hurt their own popularity. This was the case with Snapchat, which in parallel with its past “commercialization” process lost users to Instagram. It will be interesting to see how a potential buyer manages to balance the commercial need with retaining the younger audience.
Why does Microsoft want Tiktok’s audience?
The picture varies from one potential buyer to another, which can derive additional benefits from ticketing that are not based solely on revenue. In general, behind purchase transactions may be the desire to achieve innovative technology, a customer base and quality data on them, operational synergies, stopping competitors, entering new markets and much more. So what fits Microsoft does not necessarily fit Twitter and vice versa.
On the face of it, Tiktok does not seem to be in the business of Microsoft , Which is traded at a value of $ 1.6 trillion and has $ 136 billion in cash. The company caters mainly to business customers, for example in the field of cloud, cyber, enterprise software and more. Even when the company caters to private customers, in office software or on the social network it owns, LinkedIn, the focus is on tools for those people. Tiktok comes from other worlds, of appealing to private individuals and more young people. This is where other Microsoft lines of action come in, its game console, Xbox, and its tablets. These are two activities that are B2C classic, meaning addressing end customers. But like LinkedIn, both can still be considered niche – ones that appeal to a specific audience – for example gamers.
Tiktok can bring Microsoft into the mainstream and thus serve as a marketing channel for the technology giant. Owning Tiktok will allow it to change its position among those young people, and be a springboard for increasing sales of those products. Microsoft is also trying to prevent competition from other social networks that compete for young people’s screen times and want to develop their own gaming platforms. Microsoft will be able to take its knowledge from the world of gaming to Tiktok.
And of course, she wants the data. Unlike technology giants like Facebook, Google and Amazon, Microsoft is not considered problematic in terms of data collection. This probably happened precisely because of its inability to access smartphones and the fact that the collection of information on personal computers is limited (e.g. of the user’s location). Today, Microsoft mainly knows its employees, including through LinkedIn. If the company can connect the information from Tiktok to LinkedIn, its familiarity with the user will be significantly higher – both regarding his private life and regarding his employment characteristics.
This connection is especially important when the labor market is changing rapidly, in part because Generation Z members are entering it. Understanding this generation and younger generations will allow these changes to be anticipated at an early stage and prepared for, and will actually improve the way LinkedIn works.
The lifeline of Twitter?
There is a certain contrast between the success of Twitter among opinion makers, politicians, journalists, businessmen, etc., and its limited success in the general public, and consequently its business success. It has 326 million users worldwide, less than all the leading social networks, even less than those of Pinterest. Twitter is also significantly smaller than Microsoft and is worth only about $ 30 billion. This means it will be more difficult for her to execute the deal.
The company currently has about $ 8 billion in coffers and unlike Microsoft, the deal will be more in terms of merger than acquisition. The options available to Twitter are a combination of stock trading and debt taking, as well as making a deal jointly with additional investors. Since Tiktuk is far from a cash lady, she will be unable to help with almost any debt service.
So why is Twitter even considering embarking on such an adventure? To a large extent, the glass ceiling of Twitter She’s not that tall. According to analysts, its revenue this year will stand at $ 3.3 billion, down 5% from last year. Even before the Corona crisis, the company’s growth rate in 2019 was 13% – not a high rate for a company of its size. Twitter wants to do with Tiktok what Facebook has done with Instagram – creating two social networks with a certain overlap, which will increase the age range of users of its networks, its familiarity with them and its power in front of advertisers. There are almost no users on Twitter under the age of 18, but there is an overlap between the two social networks in their twenties, which are present on both platforms.
What’s interesting about Twitter is its experience with a similar app, Vine, which it acquired in 2012 and closed four years later. Vine also had an app for sharing short videos but it did not gain enough momentum and apparently the connection between it and the character of Twitter was not successful. Unlike Vine which was small at the time of its acquisition, it can be assumed that Twitter will not merge with Tiktok, but can do some synergy or take successful elements from it. Either way, for Twitter such a deal is a very significant risk-taking – that could bounce the company, or bring it down.
This is how Tiktok works:
The Tiktok app is extremely simple to use: when registering, there is almost no need to enter personal details or answer questions. Random ● Each video has a link to the musical section used, with the click you can create a video using the same audio section