Power

What is Microsoft getting itself into?

Microsoft is exposing itself to a whole new world of regulatory and national security scrutiny if it buys TikTok.

The TikTok app

One issue Microsoft will face if it moves forward: figuring out how to retrieve all U.S. user data and transfer it to U.S.-based servers.

Photo: Kon Karampelas/Unsplash

It's easy to see what Microsoft stands to gain from acquiring TikTok. Microsoft, which has successfully invested enormous resources into its business technology products, could probably purchase TikTok at a real discount, catapulting itself overnight into the big leagues of social networks.

But Microsoft is also exposing itself to a whole new world of regulatory and national security scrutiny as it tries to buy the Chinese-owned app that has attracted a drawn-out national security investigation, fiery congressional hearings and countless letters and inquiries from Capitol Hill, just as antitrust scrutiny ramps up in the U.S.

Here are just some of the issues Microsoft will face if it moves forward.

Microsoft's ties to China

As soon as reports of Microsoft's interest in TikTok began trickling out, White House advisers — most prominently trade adviser Peter Navarro — began questioning whether Microsoft is the best American company to pluck off TikTok's U.S. business.

In an interview with CNN, Navarro claimed there is "suspicious stuff" between Microsoft and China. Trump himself has left the door open as to whether it will be Microsoft or another U.S. company that ultimately buys TikTok.

Microsoft does have a significant presence in China, and many of China's computers run on Microsoft Windows. Microsoft's products aren't banned in mainland China — unlike Facebook, Twitter and YouTube — and it maintains a large R&D presence there.

But Klon Kitchen, the head of the Heritage Foundation's center for technology policy, said the TikTok acquisition is "wholly separate from all of that." Kitchen, who spent more than 15 years working in U.S. intelligence, said, "Microsoft's presence in China doesn't give me specific concerns about TikTok." Microsoft is one of the largest partners to the U.S. government.

Kaiser Kuo, host of the weekly China affairs podcast Sinica Podcast, said Navarro's targeted criticism of Microsoft "lays bare the real motives behind what Navarro wants to do here: It's not about protecting American national security, it's about hobbling China."

How Microsoft will disentangle TikTok from ByteDance

Over the next 45 days, Microsoft will have to draw up a comprehensive plan for ensuring it cuts off all ties between Bytedance, TikTok's Chinese parent company, and the app itself. TikTok has said multiple times that it stores U.S. user data in the United States, with a backup in Singapore. But its systems are still intimately connected to ByteDance, and some parts of the app development continue to happen in China. So Microsoft will be tasked with figuring out how to retrieve all U.S. user data and transfer it to U.S.-based servers, a task that will very likely take enormous resources, time and brainpower.

In many ways, the task of dissecting TikTok from ByteDance mirrors the ongoing struggle around how to cut off Chinese telecom giants Huawei and ZTE from U.S. 5G networks, said Nathan Leamer, a former FCC policy official. It's much more complicated to pull Chinese companies out of U.S. telecommunications infrastructure, of course, but Leamer said the TikTok dilemma is the "platform version of that conversation."

Government officials and lawmakers on Capitol Hill will be watching closely to see if Microsoft's promises satisfy their concerns. A spokesperson for the House Energy and Commerce Committee told Protocol, "The committee has raised concerns about TikTok, their data practices, and their alleged ties to the CCP."

"We will continue to conduct oversight and look forward to taking an in-depth look at any formal announcement about the future of TikTok," the spokesperson said.

Antitrust scrutiny

A deal of this size will need approval from the relevant government regulators — namely, the Federal Trade Commission and Department of Justice. Antitrust experts told Protocol that the acquisition doesn't raise any immediate red flags. It doesn't appear to be a vertical merger, considering Microsoft does not compete directly with TikTok beyond LinkedIn, a dissimilar network with a very different target audience. And it's not really a horizontal merger, considering Microsoft doesn't have, say, a smartphone operating system.

"I guess you'd view this as a conglomerate merger," said John Newman, an associate professor of law at the University of Miami and former DOJ antitrust lawyer. And it's almost unheard of for the government to challenge conglomerate mergers, Newman said.

It's possible that an internal review could raise fresh antitrust concerns, Newman said — for instance, if documents reveal that Microsoft is hoping to move deeper into the smartphone business.

But even then, the agencies now find themselves in an odd position: The White House has essentially sanctioned the acquisition, making it harder for the FTC and DOJ to say no.

U.S.-China tensions

The entire process around Microsoft's potential acquisition of TikTok has been unusual; for instance, it's extremely rare for the White House to be actively negotiating over a private acquisition, and even rarer for the company to admit it publicly.

More than anything, Microsoft is diving headfirst into a nasty geopolitical conflict that is only set to intensify in the coming months and years: the U.S.-China "tech cold war," in Microsoft President Brad Smith's own words.

Kuo said he sees this as only the latest chapter in the U.S.' escalating war against China, which has recently seen the U.S. shut down its Peace Corps involvement in China, cancel Fulbright scholarships to China and Hong Kong, take drastic measures against Huawei and threaten Chinese students in the U.S. with deportation.

"It's been a true full-court press," Kuo said, "and anyone who imagines that you can look at TikTok in isolation from that, that's just insane."

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins