Microsoft has until Sept. 15 to resolve a lot of thorny questions if it wants to buy TikTok

• Microsoft must create a technological solution to keep TikTok running as one application in conjunction with ByteDance that meets U.S. government approval.
• Microsoft said it was open to outside U.S. investment on a deal. Could it look to large media companies for minority stakes?

In this photo illustration the logo of Chinese media app for creating and sharing short videos TikTok, also known as Douyin is displayed on the screen of an apple macbook pro computer on November 20, 2019 in Paris, France.

Chesnot | Getty Images

Microsoft and the U.S. government have agreed to a six-week time frame to wrap up deal discussions around buying TikTok's U.S., Canada, Australia and New Zealand operations.

That's not a lot of time to answer many questions that will be essential to getting a deal done.

While the companies have been talking about a deal for weeks already, according to people familiar with the matter, there are still complicated questions around about technology, privacy, leadership, valuation and ownership. 

These topics need to be worked out not only between TikTok parent ByteDance and Microsoft, but also with the U.S. government. Three-way talks are never easy, especially when the Trump administration seemingly has conflicting ideas about whether or not TikTok should be banned. White House trade adviser Peter Navarro said yesterday he supports a ban and wasn't satisfied with Microsoft's intervention. South Carolina Senator Lindsey Graham, a close confidant to Trump, defended the deal on Twitter. 

How will a split work, exactly?

TikTok will have to operate with two different owners to satisfy the U.S. government. TikTok is currently a global application. Americans can watch videos from around the world, and American creators can have global audiences. 

If Microsoft operates the service for the U.S., Canada, Australia and New Zealand only, what happens when an American watches a TikTok video from a user in Europe? Microsoft and ByteDance have discussed ways of keeping the application together so that users won't notice a difference.

"We will make every attempt to protect the platform's uniqueness, and hope that users can continue to have an uninterrupted experience," ByteDance said in a statement.

But there are complicated technical questions that all three parties will have to figure out. The idea of splitting the company is to prevent the Chinese government from collecting data about U.S. citizens through TikTok. So how will Microsoft separate and store data from the parts of TikTok it controls, and what data will it have to share with the rest of the organization to keep the service running smoothly? What about all the data that's already been collected -- will that have to be separated based on country, who will oversee that separation, and how will they do it? Will Microsoft have to move TikTok's technical infrastructure over to its cloud services, how long will that take, and how much will it cost?

Beyond data, what about the algorithms TikTok uses to decide which videos to promote to whom -- who will control those algorithms, and how will that control be split or negotiated?

"The same product operated by different parties in different jurisdictions seems unprecedented," Michael Norris, a research and strategy manager at Shanghai-based consultancy AgencyChina, told CNBC in an interview. "These considerations, including compliant operating models and relevant transfers of technology, infrastructure, and access, will complicate acquisition negotiations."

Making it even harder, the scope of the deal could continue shift based on regulatory concerns. Under current parameters, Microsoft would operate TikTok in four countries while ByteDance would operate it in more than 100 other countries. Given that the U.S. has agreed to the broad framework, it seems that at least some parties in the government are fine with this arrangement. But if attitudes shift, the deal could morph into a sale of all TikTok assets outside China.

We also don't know how eager ByteDance will be to negotiate a sale it never wanted. While the company acknowledges it's been forced into sale talks to avoid a U.S. ban, it won't be eager to sell off even more of the company. 

"ByteDance aspires to be a transformative global company," ByteDance said in a statement. "CFIUS determined that ByteDance must fully divest TikTok's US operations. We disagree with CFIUS's conclusion because we have always been committed to user safety, platform neutrality, and transparency. However, we understand their decision in the current macro environment. To help resolve these issues, we initiated preliminary discussions with a tech company to help clear the way for us to continue offering the TikTok app in the U.S."

Who will run TikTok at Microsoft?

TikTok named former Disney executive Kevin Mayer as its new chief executive officer in February. Now, months later, he faces a potential forced sale of a portion of the company.

Would Mayer continue to run the U.S.-plus portion of TikTok under Microsoft CEO Satya Nadella? Would he stay at ByteDance to run the remainder of the application? The latter seems unlikely given Mayer lives in southern California and was hired to improve content offerings and steward monetization opportunities in the U.S.

Microsoft's expertise is enterprise software. It's unclear the company has someone on staff that would be a clear fit to run the company. If Mayer departed ByteDance to move with the U.S. operations of TikTok, ByteDance would then need a new CEO to run operations in the rest of the world.

With Mayer so new to the job, Microsoft could bring in an external hand-picked CEO to run the assets.

What's the price going to be?

As the companies negotiate terms with the U.S. government, the structure of the deal will affect the price tag.

Projecting TikTok's value is highly speculative at this point. Most of the value simply hasn't been created because the company is just started to put advertising mechanisms in place to capture user value. The Wall Street Journal reported the company projects it will have $1 billion in revenue this year and $6 billion next year.

Shifting the U.S., Canada, Australia and New Zealand away from the rest of the company will lower the price. Still, the deal will likely be in the tens of billions, according to a person familiar with the matter. The app has about 100 million American users, TikTok said last week, and the majority of its most-followed accounts are American.

"It's an exciting proposition for Microsoft," said Steve Ballmer, Microsoft's largest shareholder and former CEO, in an interview with CNBC Monday. "Obviously it depends on the price as well as whatever restrictions come with it from a government perspective." 

Who else might invest?

Microsoft made a particular point to say it was open to inviting "other American investors to participate on a minority basis" in the TikTok deal.

Microsoft doesn't need the money. It's possible Microsoft is keeping the door open for current investors in ByteDance, such as SoftBank Group, Sequoia, General Atlantic, Tiger Global Management, KKR, and NEA to roll over their investments. The company could also be open to taking money from other strategic investors, such as big media companies, who may want a piece of TikTok and could provide expertise in other areas.

Owning a piece of TikTok would be enticing for a lot of companies. The video-sharing application is poised for a huge spike in valuation if it can pull off its advertising integration. 

Could another bidder swoop in?

Finally, Microsoft was close to ironing out a structure for a deal over the weekend. Now the deadline on a deal is Sept. 15. Could the framework ByteDance worked out with Microsoft lead to another buyer making an offer for TikTok? Would the U.S. government be amenable to any company other than Microsoft getting a deal done? 

There are only so many companies that could easily afford TikTok. And some of those companies -- such as Amazon, Apple and Google -- just testified in front of Congress Wednesday for potentially having too much power over American consumers. Nonetheless, it's rare that a consumer technology asset with as much upside as TikTok comes on the market, so other companies could certainly kick the tires. 

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