Source Code: Your daily look at what matters in tech.

source-codesource codeauthorEmily BirnbaumNoneWant your finger on the pulse of everything that's happening in tech? Sign up to get David Pierce's daily newsletter.64fd3cbe9f
×

Get access to Protocol

Your information will be used in accordance with our Privacy Policy

I’m already a subscriber
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."

The metaverse is coming, and Robinhood's IPO is here

Plus, what we learned from Big Tech's big quarter.

Image: Roblox

On this episode of the Source Code podcast: First, a few takeaways from another blockbuster quarter in the tech industry. Then, Janko Roettgers joins the show to discuss Big Tech's obsession with the metaverse and the platform war that seems inevitable. Finally, Ben Pimentel talks about Robinhood's IPO, and the company's crazy route to the public markets.

For more on the topics in this episode:

Keep Reading Show less
David Pierce

David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.

After a year and a half of living and working through a pandemic, it's no surprise that employees are sending out stress signals at record rates. According to a 2021 study by Indeed, 52% of employees today say they feel burnt out. Over half of employees report working longer hours, and a quarter say they're unable to unplug from work.

The continued swell of reported burnout is a concerning trend for employers everywhere. Not only does it harm mental health and well-being, but it can also impact absenteeism, employee retention and — between the drain on morale and high turnover — your company culture.

Crisis management is one thing, but how do you permanently lower the temperature so your teams can recover sustainably? Companies around the world are now taking larger steps to curb burnout, with industry leaders like LinkedIn, Hootsuite and Bumble shutting down their offices for a full week to allow all employees extra time off. The CEO of Okta, worried about burnout, asked all employees to email him their vacation plans in 2021.

Keep Reading Show less
Stella Garber
Stella Garber is Trello's Head of Marketing. Stella has led Marketing at Trello for the last seven years from early stage startup all the way through its acquisition by Atlassian in 2017 and beyond. Stella was an early champion of remote work, having led remote teams for the last decade plus.

Facebook wants to be like Snapchat

Facebook is looking to make posts disappear, Google wants to make traffic reports more accurate, and more patents from Big Tech.

Facebook has ephemeral posts on its mind.

Image: Protocol

Welcome to another week of Big Tech patents. Google wants to make traffic reports more accurate, Amazon wants to make voice assistants more intelligent, Microsoft wants to make scheduling meetings more convenient, and a ton more.

As always, remember that the big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future

Keep Reading Show less
Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

Protocol | China

China’s edtech crackdown isn’t what you think. Here’s why.

It's part of an attempt to fix education inequality and address a looming demographic crisis.

In the past decade, China's private tutoring market has expanded rapidly as it's been digitized and bolstered by capital.

Photo: Getty Images

Beijing's strike against the private tutoring and ed tech industry has rattled the market and led observers to try to answer one big question: What is Beijing trying to achieve?

Sweeping policy guidelines issued by the Central Committee of the Chinese Communist Party on July 24 and the State Council now mandate that existing private tutoring companies register as nonprofit organizations. Extracurricular tutoring companies will be banned from going public. Online tutoring agencies will be subject to regulatory approval.

Keep Reading Show less
Shen Lu

Shen Lu is a reporter with Protocol | China. She has spent six years covering China from inside and outside its borders. Previously, she was a fellow at Asia Society's ChinaFile and a Beijing-based producer for CNN. Her writing has appeared in Foreign Policy, The New York Times and POLITICO, among other publications. Shen Lu is a founding member of Chinese Storytellers, a community serving and elevating Chinese professionals in the global media industry.

It’s soul-destroying and it uses DRM, therefore Peloton is tech

"I mean, the pedals go around if you turn off all the tech, but Peloton isn't selling a pedaling product."

Is this tech? Or is it just a bike with a screen?

Image: Peloton and Protocol

One of the breakout hits from the pandemic, besides Taylor Swift's "Folklore," has been Peloton. With upwards of 5.4 million members as of March and nearly $1.3 billion in revenue that quarter, a lot of people are turning in their gym memberships for a bike or a treadmill and a slick-looking app.

But here at Protocol, it's that slick-looking app, plus all the tech that goes into it, that matters. And that's where things got really heated during our chat this week. Is Peloton tech? Or is it just a bike with a giant tablet on it? Can all bikes be tech with a little elbow grease?

Keep Reading Show less
Karyne Levy

Karyne Levy ( @karynelevy) is the West Coast editor at Protocol. Before joining Protocol, Karyne was a senior producer at Scribd, helping to create the original content program. Prior to that she was an assigning editor at NerdWallet, a senior tech editor at Business Insider, and the assistant managing editor at CNET, where she also hosted Rumor Has It for CNET TV. She lives outside San Francisco with her wife, son and lots of pets.

Latest Stories