University of Miami business experts examine the implications—transactional, ethical, and legal—of the pending sale of the social networking site that shares short videos.
Microsoft is negotiating a possible purchase of TikTok, the wildly popular, short-form video app, in an unusual scenario in which the United States government intervened—first threatening a ban of the newest darling of the social media world and then inviting the U.S.-based tech giant to buy it.
The government set a deadline of Sept. 15 for the transaction to take place. Media reports indicated that TikTok plans to sue the Trump administration—as soon as this week—challenging his executive order banning the service from the U.S.
“This could be a good deal for Microsoft, depending on the price that they pay and what they intend to do with it,” said Tarek Sayed, a University of Miami alumnus and a business technology lecturer in the Miami Herbert Business School.
The names of other buyers have been circulated, but Microsoft is the leading contender for a host of reasons, not the least of which is that it appears to be the government’s hand-picked favorite. Yet the sale—and its potentially colossal price tag—carries an abundance of risk.
“I am not convinced that just because TikTok went viral, that any company should spend $50 billion on it. Why hand them the money?” asked Sayed, who is also associate director of software architecture at the School of Law. “It will be like many other apps that are forgotten after a time. But again, Microsoft has been looking for something sexy in the consumer space. This might be a way to attract youngsters and compete with Apple, Google, and Facebook, but at $50 billion?”
The announcement of a possible ban of the app in the United States prompted an uproar amid the TikTok faithful—the company claims 30 million monthly active U.S. users who spend an average 46 minutes a day on the app. Forty-two percent are ages 18 to 24, and 27 percent are ages 13 to 17.
The U.S. government alleges that ByteDance shares information with the Chinese government—a allegation it has denied—and charged in early July that the company had violated its agreement to protect children’s privacy. Media reports suggested that a ban of the immensely popular app could have repercussions politically.
The Committee on Foreign Investment in the United States (CFIUS), an interagency body chaired by the U.S. Secretary of the Treasury, confirmed that it launched an investigation of ByteDance in November 2019 for possible violations. The agency, which includes representatives of 16 agencies—including Defense, State, and Homeland Security—reviews transactions for national security risk.
Established in 1975 amid fears that wealthy Organization of Petroleum Exporting Countries companies would buy U.S. firms, CFIUS has seen its powers expanded over time. Legislation spurred by the current administration, the Foreign Investment Risk Review Modernization Act of 2018, further broadened the agency’s powers and those of the president to address security concerns, especially relating to Chinese firms investing in U.S. high-tech companies, as reported by the Congressional Research Service.
According to the Center for Strategic and International Studies, a U.S.-based think tank, CFIUS reviewed 552 transactions between 2015 and 2017 and more than 25 percent were China-based—the most by far of any country.
Joan Martinez-Evora, a lecturer in the Business Law Department, emphasized the ethical considerations of the unfolding scenario and drew attention to the two executive orders issued in early August that threaten to ban TikTok based on national security concerns relating to the International Emergency Powers Act and the National Emergencies Act.
“On one hand, arguments have been made that TikTok data collection practices are standard in the industry and that it is really a security and privacy concern for the few in the greater pool of TikTok clients, such as U.S. government officials, political dissidents, and U.S. military personnel, but not so much for ordinary U.S. citizens and youth,” Martinez-Evora pointed out.
Both in business and in law, Martinez-Evora has studied ethical considerations. He addressed the fact that business transactions—especially global ones of massive scale—often transcend the economic into the political arena.
“We have to be careful with those ‘greater good analysis in international business ethics’ because then we are forgetting the justice element,” he cautioned.
“It’s true that we are talking about millions of users of TikTok, and the monetary gains may be rewarding. But at what cost?” Martinez-Evora asked. He referred specifically to the Chinese government’s suppression of political dissidents in China and Hong Kong, the ethnic oppression of Uyghurs and other Muslim minorities, and the spreading of disinformation.
The ends do not justify the means, he noted.
“Some principles are just universal—humans and businesses have virtues, values, and freedoms,” said Martinez-Evora. “When state-owned businesses like TikTok and Huawei [also accused by the U.S. of aiding Chinese government spying efforts] are used as means to achieve the wrong goals—to become the next global economic superpower—other businesses, the country, and the world is certainly not better off.”
Sayed suggested that the threatened ban appears more a tactic than a potential reality.
“The ban or executive order doesn’t add much. It steps up the pressure on the company to finish the transaction, but there are consequential legal and constitutional issues that may arise,” he said. “The more likely scenario if negotiations fail is to add the company to the Commerce Department’s Entity List and prevent U.S. companies from doing business with them, including Apple and Google.”
The other major issue in the scenario pertains to data protection, Sayed stated.
“If we’re going to start down the road of data privacy, we will have to look at all the social media apps then,” he said “You can say that any device or app that is connected to the Internet is a national security threat. And, you can even extend that argument to some U.S. companies if they happen to share data access with employees who are foreign nationals working in an International subsidiary.”
By and large, data privacy has been left to the consumer—at least up until now.
“The U.S. doesn’t have an overarching privacy framework,” Sayed pointed out. “We put responsibility on the consumer instead of restricting or regulating businesses, with the exception of a few sectors—health, banking, and education. The idea is, let’s not overregulate, so we don’t choke industries and innovations.”
He also referred to the recent hearings where the big tech companies—Amazon, Apple, Facebook, and Google—were grilled by members of both parties of the House antitrust subcommittee regarding their market powers.
“Competition practices is one of the issues that Microsoft is going to have to worry about in this acquisition,” he said. “But they have stayed clear of any of those issues in recent times. They are probably the only company who could get in and make an offer on TikTok nicely and cleanly.’’
ByteDance spent $1 billion in November 2017 to acquire the Chinese-headquartered and U.S.-based social video app “Musical.ly.” The company merged the platform with TikTok in August 2018 to create the world’s largest short-video app.
TikTok stands to be a big winner if the sale progresses, Sayed suggested.
“This is a great opportunity for TikTok,” Sayed remarked. “Who gets a price like this and says no? Unless the Chinese government has other views, and we don’t know that yet.”