Microsoft + TikTok = nfw
5-min read
CNN: “Section4, the online education start-up founded by NYU professor Scott Galloway, is in discussions to acquire TikTok.”
It. Could. Happen.
Hey, why not? The probability that Section4 will absorb the social platform is only slightly less likely than Microsoft or Twitter, or anybody else acquiring it. Expect several other investor relations departments to leak to the WSJ/NYT that they are in discussions to acquire TikTok, as it’s easier to create billions in value by calling the WSJ and going on background than by, you know, actually creating value.
Microsoft added Boeing to its market cap ($95 billion) on the notion that the fastest-growing social platform in the world would be served up on a platter, under the specter of a national ban yielding Satya yuge leverage. After immigrating to the US on a student visa and putting himself in a place to shepherd the creation of hundreds of billions in shareholder value, being asked by a failed, silver-spoon bigot impersonating the chair of Microsoft’s board likely inspires one emotion in Mr. Nadella: the need to shower. The president telling Satya to acquire TikTok is similar to Joel Glazer calling Tom Brady from a Florida day spa and demanding he pass the ball more to Gronkowski. Yeah, thanks for the call.
Twitter’s stock rose 5% after news broke of its interest in the app, though shares closed lower as the market likely realized that Twitter doesn’t have the balance sheet or the leadership for a merger of this size. Initially, I loved this idea. Twitter needs a CEO, growth, and product innovation, and the Chinese would, in a man-bites-dog scenario, be effectively acquiring Twitter — they would own the majority of the shares in newco. Kind of a jiu-jitsu SPAC inversion kind of thing.
For a hot minute, I convinced myself Disney should acquire TikTok — US-Sino chops, the balance sheet, an ability to acquire and scale media, and a need to diversify from movie theaters and parks. However, the crowd’s wisdom reminded me they are still digesting 20th Century Fox, and likely can’t stomach the toxicity that is social media. Regardless, Disney should leak the rumor and use the additional $15 billion in market cap to acquire Viacom, as they need more vertical distribution. But I digress.
Yoga & Boxing
When I moved to NYC I was bored and depressed. I found stretching and hitting helped, and began practicing yoga and boxing. I would beat the sh*t out of that speed bag. My boxing trainer, Anthony, convinced me I had a “gift” as a pugilist. I knew he was lying, but that didn’t stop me from believing him. We decided I should participate in their quarterly boxing tournament.
A. Great. Idea.
I had been training like a maniac and felt good, confident even. So, in April 2004, Scott “Prof G” Galloway entered the ring. I was 6’2”, 188, and my opponent was 5’8”, 191. Facing each other, in the center of the ring, it looked as if Ichabod Crane was about to get it on with Mike Tyson’s big brother. No problem, I’ve got this … Anthony said I have a gift. My freakishly long arms would keep the elder Iron Mike at bay. The bell rang, and my first thought was how bright it was.
The brightness was a function of my being flat on my back just after the bell rang, approximately 17 seconds that I don’t remember and will never get back, and the temporary loss of function in the orbicularis oculi muscle and my facial nerve — the pathway that controls blinking. Sixteen years later, my nose still veers to the right. In sum, the most common mistake in strategy is believing your competitor/opponent is a speed bag and doesn’t observe, calculate, and hit back.
How Apple Could Lose 40% and the Nasdaq 20% in 7 days
What if CNN were to announce next week: President Xi Jinping said, “We believe consumers are using the iPhone to circumvent Chinese security protocols. We have informed Apple that it must sell its operations in China, including all factories and supply chain operations, to a Chinese firm within 45 days.”
Seventeen percent of Apple’s revenue comes from China. The world’s most robust supply chain, belonging to the world’s most valuable company, would be effectively disemboweled. The Chinese are more measured and disciplined than our administration, and will likely point their fire lance at smaller prey, like Starbucks or Qualcomm.
Swing State TikTok
Trump’s ban would also piss off 21 million TikTok users in 10 key swing states: Florida, Pennsylvania, Michigan, Wisconsin, Minnesota, New Hampshire, North Carolina, Maine, Arizona, and Ohio. Granted, most TikTok users (young people) don’t vote, but it would cement that whole “OK obese boomer” thing, which is never a good look, in anything.
Hard Thing About the Hard Things
Getting TikTok off Americans’ phones can be done easily, since the app store market is a duopoly, Apple and Google.
But the legal implications are much more complex. James Lewis, director of technology policy at the Center for Strategic and International Studies, said putting TikTok on the (banned) “entity list” would be extreme, unusual, and legally dubious. “They could sanction them, but usually the sanction is tied to trade violations or espionage or proliferation or intellectual property theft. You can’t just do it because you’re mad at a company.” The administration doesn’t need congressional approval to ban an entity, but it sets a dangerous precedent to do so without clear and extensive justification of wrongdoing, seemingly on a whim or as a personal bargaining chip.
Granted, what’s good for the Peking Duck, should be good for the gander, but our laws do not support the mercantile-like global commerce approach of China. Pretty sure the last sentence is racist.
US companies banned in China:
- Facebook, Instagram, Whatsapp
- Google (YouTube, Gmail, Google Play, Google Maps, Google Drive, Hangouts, Blogger)
- Snapchat
- Wikipedia
- Twitch
- Dropbox
So, what happens?
- Xi tells TikTok management and bankers to channel their inner Sheryl Sandberg: act sincere about doing something (selling) and do nothing.
- Trump announces he and Xi, due to his awesome negotiating skills, had productive talks, and he’s decided to delay the deadline for banning TikTok.
- Once we’re 50 days out from the election (9/13), a ban of TikTok will seem weak/weird.
- 11/3, a nation starts to count mail-in and in-person ballots.
- 11/4, Sarah Cooper’s impersonations go into decline, Maya Rudolph’s career finds new life.
- 11/5 on … Charli D’Amelio.
If you believe the Chinese will be bullied into selling a global internet asset on the cheap, you should take up boxing.
Life is so rich,
P.S. Back. To. School. Get back in the swing of things with our Brand Sprint, a 3-week online intensive version of my NYU Stern MBA course on brand strategy. Starts Oct 27, so sign up to join the waitlist and be first to hear about when enrollment opens. And this week on the Prof G Show, I spoke to Joel Stein, the Time magazine columnist, about his hilarious book In Defense of Elitism, about finding bridges along partisan divides.
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Would some sparring beforehand have helped?
Microsoft is where companies go to die: Nokia, Skype, LinkedIn, Slideshare … TikTok … Trump may be smarter than you think 🙂
In the first sentence after the first infographic “Microsoft added Boeing to its market cap ($95 billion) on the notion that the fastest-growing social platform” is wrongly put. Instead of Boeing it should be Tik Tok.
He Knows. It was done, intentional buddy.
Great points. Incorrect on Qualcomm though. When it comes to higher end mobile chips, it’s TINA. The Chinese smartphone brands (like Xiaomi, Oppo, Vivo) that sell a ton of volume overseas have no other alternative.
I think Prof is spot on. The Chinese have been restrained as they seems to be waiting to see Biden’s foreign policy if he wins. If Trumps wins, he may change course anyway since all that he did was to get re-elected. Regarding jobs lost if Apple is forced out, I think they will be filled by someone else, cause if Apple left a hole in the supply, someone else will fill the demand and the jobs will go to that someone else, most likely a local brand e.g. Huawei, Xiaomi, Oppo, etc… since patriotic sentiment is running high everywhere, like US, China and India.
If Disney acquires ViacomCBS, can they make a cross-over movie where Star Wars meets Star Trek?
Great insights. What a fantastic read!!!!
i dont see the correlation between swing states/ voting in general and tik tok users, they are not even legal voting age and the disinclination towards voting by people under 30 makes for a dubious correlation. i would imagine more voters being thrilled their kids cant waste any more time on tik tok and will have to waste their time on a home grown time-sink like IG/FB
Hilarious. As usual
Hilarious!
Yep, pretty much…
“a failed silver spoon bigot impersonating the chair of Microsoft’s board…” Gotta love Prof G, the pugilist – a far better counter puncher than the aforementioned impersonator – even if the good Prof did end up on his back in 17 seconds
Does all this TikTok banning BS go back to the blocking of seats at Trumps rally by K-Pop Fans via TikTok?
“CHANNEL Inner Sheryl Sandberg: act sincere about doing something (selling) and do nothing” You Sir, is a master act. Salute.
If a Disney ViacomCBS merger did happen would Disney have to divest from CBS because it already owns ABC, or do you think streaming has antiquated this regulation?
I would like to take you to lunch the next time that I am in The City.
How to sign up for a 3-week brand sprint. Is this different from strategy sprint? There is no link in the article. In the section 4 website, only 2-week strategy sprint is mentioned.
You’ve done it again. How can one guy stir up so much ‘stuff’ so often and be so good at it. Well gone.
Another excellent post! keep it coming Prof G!
Thanks for this.
I have to admit I have not been following the tik Tok news like some have. It seems like a classic “trump said something stupid, media overreacted, can the president really do that? Let’s look at the law because we don’t know either” Typical news cycle, followed by “that’s racist!” Big yawn. In short I do not like the idea of banning a company on a hunch or simply because it is Chinese. The government needs to do a better job of laying out all of China’s sins including any related to Tik Tok so we can know more and judge for ourselves. I do not think the Chinese government is fair and ethical and we should find another political avenue to punish them for coronavirus and 30 years of theft and malfeasance but that would require a lot of backbone from our political and elitist class who only care about making money and getting re-elected.
I believe that apple banned from China would do China more harm then apple. Of course both would be harmed but apple has already started moving some manufacturing away from China and obviously a ban would accelerate this transition. Seems to me Apple would have some sort of back up plan in place such as a back up deal with some Japanese manufacturer to take over production, albeit at 30% higher cost. Apple has been very actively pushing services and in October will reveal apple one, it’s prime competitor. The more revenue it pushes to services the better it can handle such a ban.
Jobs, and not Steve type. Jobs, lots of them, are what Apple means to the Chinese economy. Hurting Apple would be hurting the Chinese economy. China is smarter than that Scott. It’s a massively asymmetric tit for tat. Jobs jobs jobs.
@Vlad This was an illustration. Scott was not suggesting this will happen. He was using the parallel to show how ridiculous Trumps proposal is.
Seems like a compelling case with a misguided premise. I’m not so sure that a little personal animosity might have crept into your “objective” analysis.
That is a unique perspective from the position of the Chinese. Why couldn’t they do the same?
Becoz lots downstream suppliers of these companies are in China, and many people will lose jobs if Chinese government ban the sells.