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Why Microsoft and Walmart Want TikTok

TikTok might seem like a strange fit for a discount retailer and an enterprise software firm. Yet digital has scrambled business models as instant connections create new opportunities.  Walmart wants a new sales channel. Microsoft sees a big client for its cloud business. This could work.

Walmart ( (WMT) - Get Walmart Inc. Report) is working with Microsoft ( (MSFT) - Get Microsoft Corporation Report) on a bid to buyout a smartphone app famous for lip-syncing and dance videos from teens and social media influencers.

Sounds like a match made in dystopia, but this is what it really means.

TikTok might seem like a strange fit for a discount retailer and a firm best known for productivity software. Yet digital has changed everything with instant connections and new business models.

Walmart wants a new sales channel. Microsoft sees a big client for its cloud business.

Don’t laugh. The strategy is could work.

TikTok is a deceptively big business. The Chinese-owned app was the fourth most popular download for iPhones in 2019, behind YouTube, Instagram and Snapchat ( (SNAP) - Get Snap, Inc. Class A Report). That means it beat out Facebook ( (FB) - Get Meta Platforms Inc. Class A Report), Messenger, Gmail and Netflix ( (NFLX) - Get Netflix, Inc. Report).

And if you combine downloads for Apple’s App Store and Google Play, the Android equivalent, TikTok was the second most popular app in all of mobile. Facebook’s WhatsApp ranked first.

TikTok users were also more engaged with influencers than any other platform, according to research from Influencer Marketing hub. Stick a pin in this.

Managers at Walmart see a huge opportunity.

Douyin, the Chinese version of TikTok, is an ecommerce destination that is making huge inroads into the $140 billion Chinese livestreaming marketplace. Influencers have been able to setup storefronts and hawk actual products to viewers. If this seems vaguely familiar to QVC, it is, with a strangely digital immediacy shoppers find intoxicating.

Two months ago, Walmart and Shopify ( (SHOP) - Get Shopify, Inc. Class A Report), a Canadian ecommerce platform geared toward small sellers, began working together. The goal was building a vibrant third party marketplace at the discount retailer. At the time, analyst speculated Walmart was building a me-too competitor to Amazon marketplace. That assessment now seems shorts-sighted.

If Walmart can get TikTok, the company will have an instant network of the most prolific influencers, and it will have the infrastructure for them to build real ecommerce businesses quickly.

The Microsoft angle is more mundane. The biggest business expense for successful online platforms is infrastructure. For example, Netflix spends billions with AWS, Amazon.com’s cloud computing business. Keeping everything running smoothly is surprising expensive. TikTok, in terms of downloads, is more popular, with greater upside potential. Winning that business could be worth billions.

The elephant in the room is politics.

TikTok is owned by ByteDance, a Chinese conglomerate. Managers in China say the businesses operate independently. Data for TikTok’s American members is stored in Singapore and the United States, not China. There is also no direct evidence any personal information has ever been shared with the Chinese government.

American lawmakers don’t want to take any chances. It is why President Trump singed an executive order demanding that the American-facing operations be sold.

If Microsoft can win the bidding war for TikTok, those concerns would be allayed. According to a Reuters report, all American data would be protected by Microsoft. And ByteDance would agree to divest its entire stake in TikTok’s American, Canadian, Australian and New Zealand operation’s.

The sticking point could be optics. Both Microsoft and Walmart have considerable Chinese operations. In the current political climate that might be a liability. Oracle ( (ORCL) - Get Oracle Corporation Report), the other reported bidder, is favored by President Trump, according to a Wall Street Journal report.

And TikTok on Monday filed a lawsuit challenging the president’s executive order.

Clearly, the situation is evolving but the major objectives should now be obvious. TikTok is more than a silly smartphone app. It’s a platform with the potential to become a new multibillion ecommerce platform in the West. These opportunities don’t come around frequently. It makes perfect sense why bidders are lining up.

Despite the optics, a Microsoft and Walmart bid could well be a winner for shareholders.