Clash of brands: Should Microsoft and Walmart purchase US TikTok?

In the wake of US President Trump’s announced impending ban on TikTok parent company ByteDance, the future of the app – and its 100 million US active users – has been the subject of high-stakes speculation. 

The latest entrants on the scene are Walmart and Microsoft, which are at the time of writing planning to join together to bid on the app. This makes sense from a pragmatic standpoint; Microsoft has teamed up with Walmart before, notably in 2018 to build Walmart’s online retail and with Walmart historically using Microsoft cloud solutions and software in its digital expansion. 

Microsoft’s return to growth has been powered in recent years by its Azure cloud hosting business which competes strongly against market leader Amazon’s web hosting services. Walmart is also competing directly against Amazon in the online retail and content space, now dominated by Bezos’ behemoth with boosted online sales during the pandemic, and additionally through failed attempts at direct-to-consumer media services such as video on-demand service Vudu, which Walmart sold to Fandango only back in April 2020.

Great on paper, sketchy in reality

However, the brand clash between Microsoft / Walmart and the edgy, fast-moving social media app TikTok is not seemingly being given the concern it deserves. ByteDance has set the valuation price for American TikTok holdings at $30 billion – widely considered too high by those bidding. Along with the hefty price tag, whoever wins the bid will have an additional operational cost to bear: maintaining user engagement post-acquisition. This will be essential in order to realise the long-term return on investment which bidders will be planning for. 

A cautionary tale is that of AT&T, which is now reported to be considering the sale of its ad-tech unit Xandr in a move partially reversing its previous bold strategic plan to create an integrated content distribution and ad deployment ecosystem. Xandr is the renamed ad-tech business AppNexus which AT&T acquired in June 2018, at the same time that the AT&T/ Time Warner acquisition closed. The $1.6 billion investment was meant to optimise the cost savings for advertisers seeking to buy ad space in a combined communications-media major ecosystem. The failure to effectively integrate a tech start-up into a slow-moving telco conglomerate is a reminder that buying in world-class innovative disruptive units does not guarantee ongoing operational success.

Clash of brands

AT&T, Microsoft and Walmart bear passing consumer sentiment similarities as mainstream established utility brands. The three are fundamentally more seemingly practical than passionate, which is a notable distinction in an era of fandom being the determinant of lasting success and consumer relationships. If a company of this ilk is not market indispensable in some sense – as Microsoft has found with its business niche, and as Amazon has managed in its gains of consumer wallet share in a pandemic and early recession – their propositions are unlikely to gain much ground. 

The determining question is what Microsoft and Walmart will do with TikTok, should they purchase it. Microsoft has an extensive portfolio of acquisitions which it has largely allowed to maintain their own branding. However, the list tends to the business and technological, with forays also into gaming; adding a trendy social video platform would be much more in the cultural limelight than most of its other assets, making this a riskier move. And it is likely Walmart will try to use the ad-bearing capacity of TikTok to advertise or even offer in-app purchases for its products – but as Walmart products are not exactly to be found on the high street, much less anyone’s Instagram profile, the placement of these ads in this context raises awkward questions as to brand compatibility. 

Should Microsoft and Walmart purchase TikTok for anything approaching the valuation that ByteDance is currently asking for it, they will need to be careful in how they approach any changes to the app. Otherwise consumers will flee somewhere else. This real risk is shown by Facebook-owned Instagram introducing Reels, which hopes to do to Tiktok what Stories did to Snapchat. Non socially-native businesses are inherently more prone to be out-manoeuvred by tech rivals laser-focused on winning the engagement wars – a risk that the proposed Microsoft / Walmart TikTok acquisition joint venture would do well to pay close attention to.