By Aaron Tilley
Merger deals are rarely simple. But Microsoft Corp. Chief
Executive Satya Nadella now is attempting to ink a takeover
agreement that satisfies not only both the companies and their
shareholders, but two governments in bitter competition for
If it pans out, the acquisition of TikTok's U.S. operations from
Chinese parent ByteDance Ltd. could be a boon to Microsoft's
business, giving it 100 million mostly young users to bolster its
consumer-facing operations. But the pursuit of TikTok has put the
software giant at the center of the U.S.-China firestorm.
Already, Mr. Nadella has been in an unconventional posture for
CEO, having talked with President Trump on the phone about the deal
on Sunday. Then, in a statement, the CEO took the unusual step of
thanking the president for his personal involvement in the
negotiations. On Monday, Mr. Trump insisted that part of the
purchase price for the deal go to the U.S. Treasury -- a term some
observers called inappropriate.
The stakes are high for Microsoft. The company has big business
with the U.S. government and last year won a potentially
decadelong, $10 billion cloud-computing contract with the Pentagon,
which losing bidder Amazon.com Inc. is contesting. Its China
business, Microsoft President Brad Smith in January said,
represented 1.8% of total revenue, or more than $2 billion a year.
The company doesn't break out China sales in its financial
In China, talk of a TikTok sale has gone down badly. The Global
Times, a Communist Party tabloid, derided the situation as "the
hunting and looting of TikTok by the U.S. government in conjunction
with U.S. high-tech companies." One risk for Microsoft is that the
Chinese government retaliates over the company's role in a TikTok
deal, political analysts have suggested, such as by targeting the
Chinese versions of its Bing search engine or LinkedIn, the
business-focused social-media platform that Microsoft bought in
Microsoft has been able to keep those services running in China
even as other tech giants have scaled back, in part by agreeing to
abide by the Chinese government's censorship requirements. Facebook
Inc.'s service is banned in China. Google pulled its search engine
out of the country over the censoring of search results.
What has aided Microsoft's relative success in China has been
its concentration under Mr. Nadella on selling to business
customers rather than trying to tap consumers. "Because Microsoft
has been focused on the enterprise, it's been a lot easier for them
to operate in China," said Arun Sundararajan, a professor at New
York University's Stern School of Business. "The conflict of
interest between Microsoft products and what the Chinese government
is interested in controlling are minimal."
Microsoft for years has managed to maintain good relations with
political leaders in Washington and Beijing. Mr. Nadella hosted
Chinese President Xi Jinping at the company's headquarters in
Redmond, Wash., in 2015. A year later, the CEO visited Beijing and
met political leaders there. Later in 2016, Mr. Nadella and Mr.
Smith, who plays a major role assisting the CEO in dealing with
Washington, both joined other top executives for a tech summit
called by Mr. Trump, then president-elect, making Microsoft one of
only two companies, along with Google parent Alphabet Inc., to send
Since Mr. Trump has taken office, Microsoft has criticized the
administration's immigration policies and sought exceptions. But
the company also defended its work with U.S. Immigration and
Customs Enforcement tasked with implementing those policies, and
with the Pentagon after rival Google walked away from bidding on a
cloud-computing deal with the military.
Even with its successes, the China market has long posed
challenges for Microsoft. Rampant piracy of its Windows operating
system and Office productivity apps made it difficult to grow the
Microsoft more recently has made progress, convincing the
Chinese government to crack down on pirated software, said Paul
Triolo, head of the global technology policy practice at Eurasia
Group, a political risk consultancy. It also has partnered with
China's 21Vianet Group to sell its booming cloud services
In 2017, Microsoft introduced a version of its Windows 10
software specifically for Chinese government use. The customized
version included a different type of encryption and other changes.
"We have designed Windows to enable the use of local encryption for
large public sector customers," the company said, adding it worked
with government customers elsewhere to address "issues that matter
During the pandemic, the company trumpeted growth in China of
Teams, its new product for videoconferencing and collaboration that
Microsoft views as its next blockbuster. Between the end of January
and early March, Microsoft said it had seen a 500% increase in
meetings, calls and conferences taking place via Teams in
Microsoft's potential deal for TikTok's U.S. business has drawn
heat from some corners in the U.S., too. "Microsoft helped China
build its great firewall that is used to surveil and monitor and
censor and imprison sometimes the Chinese people." Peter Navarro,
the president's economic adviser, said in a Fox News interview over
the weekend. "We've got to be really careful about this."
Republican Sen. Marco Rubio of Florida, a long-time China
critic, in a tweet, called TikTok's purchase by a U.S. company that
secured the data "a positive & acceptable outcome."
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Write to Aaron Tilley at firstname.lastname@example.org
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