Report: Microsoft Calling TikTok a 'Security Risk' Ended Deal

According to a recent report, Microsoft’s reference to the Chinese-owned social media app TikTok as a “security risk” offended the company’s CEO, Yiming Zhang, resulting in the sale of TikTok to the tech giant falling through.

Reuters reports that Microsoft’s referral to the video-sharing app TikTok as a “security risk” may have played a major role in the U.S. tech giant losing a bidding war for the Chinese-owned app. Recent reports claim that TikTok will be entering a partnership of sorts with U.S. tech firm Oracle rather than Microsoft.

Reuters reports that concerns among major backers of TikTok’s parent company, ByteDance, including Sequoia Capital and General Atlantic, over the financial hit that the company may take from selling TikTok for less than it was worth led to TikTok CEO Yiming Zhang choosing to form a partnership in the company with Oracle rather than outright divestment.

The move is seen as risky as President Donald Trump has made it clear that he wants to see TikTok sold to a U.S. company outright due to national security concerns that U.S. user data could be transferred to China where it would be accessed by the Chinese government. President Trump has threatened to ban TikTok in the U.S. as early as September 20 if ByteDance does not comply.

Last month, the Chinese government updated its export control rules to give it a greater say over the transfer of technology, such as TikTok’s recommendation algorithm, to foreign buyers. Chinese government officials have stressed that ByteDance should not be forced by the United States into a deal.

Sources claim that Microsoft executives became frustrated with ByteDance over the course of the past week as the Chinese company became unresponsive to the U.S. tech giant’s $20 billion-plus bid for TikTok’s U.S. business. The offer reportedly fell short of ByteDance’s investors’ expectations according to sources.

Microsoft also reportedly upset Zhang by referring to TikTok as a security risk that it could fix, sources stated. ByteDance has repeatedly claimed that its ownership of TikTik does not present any form of security risk.

While Microsoft attempted to negotiate with TikTok, Sequoia and General Atlantic entered discussions with Oracle on an alternative deal that would prevent an outright sale. Microsoft reportedly asked the Chinese company whether it had lost out in the bid for TikTok’s U.S. businesses and asked if it could change the deal structure to match the stake purchasing deal that Oracle had negotiated.

ByteDance reportedly told Microsoft that it would choose Oracle even if Microsoft offered the same structure and terms. Oracle had been working on the potential deal with the ByteDance investors for several weeks and had made them and Zhang more comfortable about the partnership, sources said.