Microsoft CEO Satya Nadella. (GeekWire Photo / Kevin Lisota)

Microsoft’s plan to acquire TikTok in the U.S. has created a paradox for the federal government as it seeks to crack down on consolidation of power among a handful of big tech companies with one hand, and reinforce that power with the other.

Microsoft confirms TikTok talks after Trump and Nadella speak, sets Sept. 15 deadline for deal

How we got here: President Trump has repeatedly expressed concern that TikTok represents a national security risk because it is owned by the Chinese firm ByteDance. Trump escalated things over the weekend, announcing his intention to ban TikTok in the U.S. Trump appeared to back off after speaking with Microsoft CEO Satya Nadella over the weekend about the software giant’s intentions to acquire TikTok, according to The New York Times.

Microsoft confirmed acquisition talks with ByteDance in a statement Sunday, saying it is prepared to continue exploring a deal after the conversation between Nadella and Trump.

An inconsistent line on antitrust: U.S. tech leaders have said TikTok more times than a ticking clock over the past few months as they field accusations of anti-competitive behavior. TikTok’s meteoric rise lends weight to the claim that there’s still plenty of room for competition in tech. If a challenger can swell to 800 million users in just a few years and threaten behemoths such as Facebook and Instagram, it obscures the need for antitrust regulation.

It’s an argument that Facebook CEO Mark Zuckerberg makes often, including during last week’s Congressional antitrust hearing where he testified alongside Amazon CEO Jeff Bezos, Apple CEO Tim Cook, and Google CEO Sundar Pichai. The hearing capped off a year-long investigation into the marketplace dominance of the tech industry and it was seen by some as the start of a new era in antitrust enforcement.

Many questions focused on the companies’ past acquisitions — including Facebook gobbling up Instagram — as examples of anti-competitive moves. But just a few days later, the federal government is forcing an acquisition that would bring a social media startup under one of the original American tech giants.

Yes, but: Proponents of the deal claim Microsoft will bolster TikTok as it competes against Facebook, ultimately leading to more market dynamism within U.S. borders.

High risk, high reward: Despite Microsoft’s size and influence, Nadella was conspicuously absent from the House subcommittee on antitrust last week. Microsoft has largely avoided the latest round of antitrust scrutiny on the tech industry, thanks in part to lessons learned from a previous antitrust battle 20 years ago and the company’s focus on enterprise customers over consumer-facing businesses. Microsoft President Brad Smith reportedly advised lawmakers on the antitrust subcommittee ahead of the hearing.

But the TikTok acquisition would change things. TikTok would bring Microsoft squarely in competition with Facebook and other social media apps and dramatically expand the company’s consumer-facing offerings. It could also put Microsoft back in the regulatory hot seat alongside its competitors. Former Microsoft CEO Steve Ballmer told CNBC’s SquawkBox that the company is prepared for regulatory scrutiny surrounding the deal.

“Even on the enterprise business, there’s always issues of national sovereignty, where do you store data and the like,” Ballmer, who is now leading government data hub USAFacts, said in the CNBC interview. “This would be a continuation of a theme and I think Microsoft’s got a real sophistication about that born of a history and a track record of having to work with governments and understanding that government is part of the fabric of everything.”

Details of the deal: Microsoft says it is negotiating the purchase of TikTok’s service in the U.S., Canada, Australia, and New Zealand, planning to own and operate the service in those markets if it can reach a deal with ByteDance. The company said it “may invite other American investors to participate on a minority basis in this purchase.”

Microsoft says it is committed to “addressing the president’s concerns” by migrating Americans’ user data to U.S. servers. Acquisition talks are expected to be complete by Sept. 15, according to Microsoft. As the terms of what would be a highly unusual deal are hammered out, some ByteDance investors are valuing TikTok at about $50 billion, Reuters reports. That would value TikTok at 50 times its projected 2020 revenue of approximately $1 billion.

What would Microsoft do with TikTok? Hit social video app goes against recent trend for tech giant

Bipartisan support: The belief that something should be done about Big Tech’s power is a rare issue that crosses the aisle in Congress these days, but for different reasons. While Democrats on the antitrust subcommittee grilled the executives on their competitive advantages, Republicans took them to task for alleged bias against conservatives, a much-touted but largely unsubstantiated claim.

Despite those concerns, a TikTok-Microsoft deal is also gaining swift bipartisan support from lawmakers who see it as the best possible path forward. Senators Lindsey Graham and Chuck Schumer tweeted their support for the acquisition.

Why Microsoft? Though TikTok would be a digression from Microsoft’s enterprise focus over the past few years, there are a few factors that make it the logical choice as a buyer. As noted, Microsoft is the only U.S. tech company of its scale that is not already under antitrust scrutiny. If Facebook were to pursue an acquisition of its competitor, regulators would be sounding alarm bells. Another possible fit is Amazon, as Axios Dan Primack noted Monday: “It’s the only other U.S. company with the cash, tech capacity, and lack of obvious antitrust issues that could get it done.” Microsoft is the third-most valuable company in the world, currently valued at $1.6 trillion. Shares of the company were up more than 4% in early trading Monday, increasing its market capitalization by more than $60 billion.

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