Microsoft's big bid for Gen Z

(Image credit: Illustrated | iStock)

Microsoft is not a major fixture in the lives of most Gen Z-ers. They might know it as the company that makes their Xbox video game console, or the programs they use to draft their essays or create charts for assignments. But this demographic — generally estimated to have been born between 1995 and 2015 — are too young to have struggled with overflowing Outlook inboxes at work, or sit through hour-long conference calls on Teams. They likely never owned a Windows phone or a Zune. Indeed, Microsoft just isn't on their radar in the same way Facebook, Google, or Apple might be.

But that could be about to change.

In a blog post on Sunday, Microsoft announced it was in talks with ByteDance, the Chinese tech company that owns TikTok, the short-form video app primarily dominated by under-25 year olds, to explore a purchase. The move followed President Trump's threat last week to ban the app from the U.S. due to claims it could be used as an espionage tool by the Chinese government. The proposed deal would result in the Redmond-based software giant owning and operating TikTok in the United States, Canada, New Zealand, and Australia.

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TikTok, which emerged as an international spin-off of the Chinese short video app Douyin, has a unique culture of its own that resonates with those in their late teens and early 20s. It arrived in the U.S. in 2018, at a time when smartphone cameras were more ubiquitous than ever. It appealed to an entire generation that had grown up on the short-form video format thanks to the combined influences of Vine, Snapchat, and Instagram Stories. The app has given birth to a new crop of influencers around the world and offered them a way to monetize their success. It's shorter than YouTube, less ephemeral than Snapchat, more public than Instagram, and requires less of a time commitment than Twitch. It combines popular music, memes, comedy, and AR filters into one platform that still befuddles older people. In short, TikTok is everything a cohort who were practically born fluent in the internet could ever want.

At first glance, this may seem like an odd purchase for Microsoft. While it may not have the cultural panache enjoyed by some of its big tech rivals, Microsoft has quietly been doing pretty well for itself. In fact, it's enjoying a new golden era. The company blew past analyst expectations and posted record earnings for the end of its fiscal year. The pandemic and a global shift to working from home has only increased demand for Xbox and Surface products, as well as its cloud division. Businesses are going digital at an unprecedented pace, shifting to remote work and contactless pickup. In an earnings call, Microsoft CEO Satya Nadella estimated that the company had seen two years of digital transformation in two months.

Microsoft has also managed to shed the "evil empire" label it incurred in the '90s, and has emerged as a relatively benign figure in an otherwise fraught tech landscape. When House lawmakers last week interrogated the heads of the tech industry's biggest players — Apple, Amazon, Alphabet, and Facebook — in a marathon antitrust hearing, Nadella was absent. No one is accusing Microsoft of influencing elections or killing small businesses.

In contrast, TikTok has been accused of ignoring in-app harassment and censorship. The platform has faced scrutiny in the U.S. and U.K., Australia, South Korea, and other countries over data privacy and security. India, which made up the app's largest international user base, has banned the app altogether. So why is Microsoft rocking the boat by tethering itself to a highly volatile social network, and potentially stepping into the precarious role of content moderator?

The most obvious answer is that by purchasing TikTok, Microsoft will be able to tap into a new generation of consumers. "TikTok gives Microsoft a direct line to millions of youngsters using the app to watch videos and even those who use it to create content," noted Tom Warren at The Verge. The company's gaming business, including the upcoming release of Xbox Series X and XCloud game streaming services, could directly benefit from this. An estimated 90 percent of Gen Z-ers play videogames, compared to 59 percent of the population overall, according to a Brainly survey.

With TikTok under its wing, Microsoft could also gain a powerful new source of digital ad revenue. At present, Microsoft makes a tiny fraction of its revenue from online ads through the Bing search engine, LinkedIn, and online games. But TikTok could change that. Wall Street analysts have long described TikTok as an emerging player in digital advertising, with the potential to disrupt Facebook and Google.

The deal isn't final, though. Trump has said TikTok has until September 15 to find a U.S. buyer, and things could still fall apart. Meanwhile, the competition is closing in. Facebook just launched Reels — an obvious TikTok clone — as a new feature on Instagram in more than 50 countries. For places like India, where TikTok is banned, Reels will be a much-needed substitute for the real thing. But for nations where TikTok still exists, Microsoft must hope that TikTok's users will remain loyal, or post to both platforms instead of choosing one over the other.

Amrita Khalid is a freelance technology journalist based in Los Angeles. Her work has appeared in Quartz, Engadget, The Daily Dot, and other publications. She holds a bachelor's degree in political science from American University and a master's degree in international relations from the University of Leeds.