By: Creating Future Us
September 02, 2020
There are far-ranging implications to Microsoft’s proposed hasty purchase of TikTok, intermediated – compelled even – by POTUS. It’s a deal fraught with commercial, geopolitical and ethical risks. CFU believes there are some key considerations that its investors and board should have front of mind, particularly relating to ESG.
A poisoned chalice?
From a governance, commercial and reputational perspective, the TikTok deal is problematic on a number of fronts (outlined below). If it is to reassure its investors that this is not simply a ‘poisoned chalice’, Microsoft’s board would do well to ask itself the following questions:
Strategic:
- Has the board fully considered the implications for Microsoft’s existing business in China – not just its revenue generation there, but its supply chain?
- Having avoided most of the issues facing consumer facing networks by focusing on enterprise business, and touting its privacy credentials, how does this acquisition add significant growth value, considering the resources that will be deployed, risks taken and potential strategic shift implied?
- While it’s clear what Walmart gains from partnering on this deal, it’s not as clear what Microsoft – which sits on $137Bn in cash alone – gains from the partnership?
Reputational & Ethical:
- While banning an app is not new (India banned TikTok in late June), by doing this deal, Microsoft would effectively be supporting the proliferation of a perilous, new playbook of ‘quasi-nationalisation’. Does a company, which has thus far portrayed itself as a wholesome, white knight tech firm, want to be seen as a partner to escalating – even condoning, this kind of activity?
- Last year, Microsoft spent $10.3 million on federal lobbying and currently has 100 in-house and outside federal lobbyists registered to work on its behalf. Is this deal where it wants to expend its political capital?
- With POTUS calling for a ‘cut of the deal’, and Larry Ellison’s Oracle – a significant contributor to Trump’s campaign–now having approval to enter the fray, has this become merely a toxic political play?
Authoritarianism by stealth?
At the broader societal level, this increasingly new tool in the arsenal of de-globalization has an Orwellian feel, with far-reaching implications that should be of concern to all. Some of these are noted below:
- History has shown us that it is not usually beneficial for societies when commercial enterprises become beholden to politics in this manner. The notion of government officials in the highest offices negotiating bilateral, backroom commercial business transactions with buyers, harks back to the highly interventionist strategies of communist/authoritarian regimes
- Governments in one country can now effectively ‘punish’another through forced sale of their local subsidiaries – perhaps even at discounted pricing, by setting unreasonable criteria for said sale. This playbook will only become more sophisticated with every iteration, escalating the painful impacts further. Already China is putting itself back in the driving seat by introducing export restrictions on artificial intelligence technology, meaning that TikTok owner Byte dance would need a license to sell this technology to a foreign company, e.g. Microsoft
- This smash and grab approach will undoubtedly affect global economies, as countries increasingly hoard their consumers, data and support local champions.Our concern should center on who would be the winners and losers of such a game and what the schisms mean in terms of social and economic inequality
- A tertiary effect might be that countries increasingly select and overtly support their own nation’s champions, rather than enabling the best global innovation to thrive. What would this mean for developments in medicine, biotech and agribusiness? How might workforce mobility and skill-building change? And what of price inflation?
At Creating Future Us, we believe this murky deal could herald the beginning of a precarious slippery slope. The past has demonstrated how these actions create a domino effect;initiated in one place, expanded upon in another, they become honed weapons over time. This is why globalization required non-proliferation treaties. Without such governance, tech is at risk of becoming weaponized in an ugly war that may become increasingly vitriolic, reversing decades of crowd sourcing the best ideas, innovation and collaboration globally.