Trump and Microsoft want a slice of TikTok

Abraham George Macro View

Last weekend President Trump showed the power of his muscles when he publicly objected to a Microsoft-led acquisition of TikTok. But within a few days he had a change of heart and said he wouldn’t stand in the way of the deal. Considering the businessman and the deal maker that he is, the President sensed that there is some money that the government can also make if he allowed the deal to happen.

He didn’t hide his intentions. After some consideration he said he will approve the deal, provided Microsoft give some money to the government actually “a lot of money”.

In a conversation with Microsoft CEO Satya Nadella, Trump said that “a very substantial portion of that price is going to have to come into the US Treasury because we’re making it possible for this deal to happen”.

Legal experts were completely flabbergasted as such a thing has never happened with any past Presidents. Just because it didn’t happen with past presidents doesn’t mean it cannot happen now.

But trust me when it comes to this, President Trump knows how to handle this much better than anyone in the United States. President Trump before becoming the President was a real estate developer and he knows how this should play out. You call it “key money, finder’s fee” whatever you want but the Treasury should get its fair share. In typical “Godfather” style President Trump’s words were as such, “It’s a great asset but it’s not a great asset in the United States unless they have the approval of the United States.”

The Chinese company ByteDance that owns TikTok is a privately held company and so there are no financials to value the company. All we know is that worldwide they have about 800 million customers and 165 million of them are in US. 40% of its users are teenagers. Among all the “stay at home” apps like TikTok must have been the biggest beneficiary. It beats Snapchat and Instagram the other two popular apps among youngsters. In this crisis the teenagers are the most difficult to be managed and entertained. So, it is no surprise if they found solace in an app like TikTok.

It’s actually a platform where users can post short video clips. One can easily add image effects and music to what you post. But that in itself is not a new idea.

The algorithms that drive the app makes it very addictive. The continuous stream of user content and how it is tracked in number of views and forcing other peoples to follow makes it go viral. It is one big virtual popularity contest. It’s always trying to figure out what interests hundreds of millions of viewers around the world.

A lot of the content centers around silly teenage dancing and comic acts. All of a sudden, these acts by teenagers have become the centerpiece in geopolitical tensions between the Chinese and US governments.

The Chinese state run media is hoping  mad and they are alluding to that the US act is equal to hijacking a Chinese company. The Chinese authorities have not made any public statements but think some retaliatory measures should be on the way.

The time limit given for ByteDance and Microsoft to conclude a deal is by Sep 15. Treasury secretary Mnuchin is the go between person. It was rumored that the price could be anything between 20 to 30 billion dollars but now the word is that Microsoft can pay 50 billion dollars. Whether it will make money or not for Microsoft we don’t know, what we know is Microsoft has the money.

The espionage threat that the TikTok app can create may be overblown but the fact that it is coming from a country that is very authoritarian, aggressive and untrustworthy forces the US to take these precautionary measures.

Anyway, companies like Google, Facebook and Twitter are already banned in China, So if US wants to ban some Chinese apps or some companies that is a fair deal.

Meanwhile, ByteDance swears by their scriptures that nothing nefarious is happening. They say all US based data is stored on US servers. None of these things matter. What matters is that President Trump and Secretary of State Mike Pompeo has already banned TikTok in US over this Weekend. Nonetheless, it is setting a new set of standards and measures for solutions in cross border commercial conflicts.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.