By Aaron Tilley
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 14, 2020).
For Microsoft Corp. Chief Executive Satya Nadella, completing an
acquisition of TikTok's U.S. business could pose a new challenge:
How to reshape a just-bought business quickly, without damaging its
Mr. Nadella typically has taken a light-touch approach in
Microsoft's biggest acquisitions. After the software giant shelled
out $26 billion on LinkedIn in 2016, it took years to integrate the
business, in part to avoid disrupting the culture that had made the
business-focused networking startup a success.
"This is not about changing the core of LinkedIn," Mr. Nadella
said at the time of the takeover. He largely repeated the strategy
two years later with Microsoft's $7.5 billion acquisition of
developer collaboration platform GitHub Inc.
Sticking to that script with TikTok could be harder, though, if
Microsoft prevails in its bid to buy parts of the video-sharing app
from Beijing-based parent ByteDance Ltd. amid pressure from the
Trump administration over security concerns.
President Trump last week signed an executive order that would
take effect in September and effectively bar American transactions
with TikTok's owner, including possibly downloads of the app,
unless the U.S. business is sold. The administration's position is
that TikTok poses an economic and national-security threat to U.S.
interests. TikTok disputes it poses such a risk and said it would
challenge the order.
Microsoft has promised the U.S. government it would address the
security concerns and ensure that data on the more than 100 million
American users would be held only in the U.S. That is a contrast to
Microsoft's typical take-it-slowly integration approach, said
Robert Majek, a research analyst at Raymond James &
"What I think Microsoft will do with TikTok is, at the
beginning, throw as much resources as it can [at the integration]
to get them on their feet, and then get out of the way," he
To address U.S. security concerns, industry officials have said
Microsoft, or any other buyer, would have to rewrite TikTok's
software to ensure people working on the app's legacy operations
couldn't access the U.S. data.
Republican Sen. Josh Hawley of Missouri has urged Microsoft not
to rely on ByteDance employees, who might be affiliated with the
China's Communist Party, in the transition, expressing concern they
could potentially add "back doors" for data access. TikTok has said
it would never share American user data with Chinese
Microsoft has set a mid-September deadline for the deal that
would also include TikTok operations in Australia, Canada and New
Zealand. It declined to comment on how it might integrate the
business. Mr. Trump has said a buyer also could acquire all of
TikTok. Microsoft hasn't said whether it would consider a complete
Changing its takeover approach may be uncomfortable for
Microsoft, given that it struggled with acquisitions before Mr.
Nadella became CEO in 2014. The company spent $7.2 billion on Nokia
Corp.'s mobile-phone business in 2013, only to take a $7.6 billion
write-off on the deal two years later. Similarly, after buying
advertising technology company aQuantive for $6.3 billion in 2007,
Microsoft wrote off almost the entire value five years later.
With LinkedIn, Mr. Nadella deployed a hands-off approach to
integrating the business. It was only last year that Microsoft
began moving LinkedIn onto its cloud, and LinkedIn's CEO still
reports directly to Mr. Nadella. The integration was so light that
LinkedIn's staff rarely noticed they were part of a tech giant, a
former employee who lived through the transition said.
LinkedIn and Microsoft initially integrated their systems mainly
on the surface, for example by allowing LinkedIn profile
information to show up in Microsoft Office 365 applications such as
email. Those features would have been possible even if Microsoft
hadn't bought LinkedIn, said Rob Helm, an analyst at Directions on
Microsoft, a consulting firm that helps companies integrate with
the software giant's products.
The hands-off takeover strategy has shown success. LinkedIn and
GitHub have registered strong user growth, although some analysts
have questioned whether Microsoft maximized the value of those
When Microsoft acquired LinkedIn, the network had 433 million
registered users with growth slowing. For the most recent quarter,
Microsoft said LinkedIn had more than 706 million users, and sales
have roughly doubled since the purchase.
GitHub, which now reports into Microsoft's cloud-computing
group, has increased user numbers to more than 50 million from 28
million at the time of its acquisition.
"An absolute key lesson from the LinkedIn and GitHub
acquisitions is to leave it alone," said Alex Zukin, an analyst at
RBC Capital Markets. "Keep the team together and give them support,
but let them run for at least a year or two. Don't do anything that
could jeopardize that."
The LinkedIn experience also has shown how Microsoft has been
able to navigate political issues with Beijing -- an area that is
again in the spotlight, as U.S. pressure to force a sale of TikTok
has been poorly received in China. Microsoft has allowed some
content on LinkedIn, as well as search engine Bing, to be censored
in China to address local concerns.
Still, to some, Mr. Nadella's approach has failed to make the
most of businesses he has bought.
"They haven't fully realized the value of LinkedIn," said Ray
Wang, founder of the Silicon Valley-based advisory firm
Constellation Research Inc. "LinkedIn on its own is awesome, but
Microsoft doesn't seem to know how to use it other than selling
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August 14, 2020 02:47 ET (06:47 GMT)
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