As Microsoft and Walmart pursue a joint deal to buy TikTok's U.S. business from China's ByteDance, the giants each see fresh opportunities to expand into long-coveted markets — advertising in Microsoft's case and e-commerce for Walmart. But both companies have decidedly mixed track records in these realms.
By the numbers: Walmart currently makes less than 8% of its total revenue on e-commerce, despite pricey forays into the industry, like its $3.3 billion acquisition of the now-defunct Jet.com in 2016. Microsoft makes less than 5% of its revenue on digital ads, despite its $26.2 billion acquisition of LinkedIn in 2016 and numerous other forays into ad-supported businesses
Driving the news: A joint Microsoft and Walmart deal would allow TikTok to remain in the U.S., and would provide a platform for creators to sell goods via a social e-commerce infrastructure, sources tell Axios' Dan Primack.
- Be smart: The goal would be to build out a business similar to the one ByteDance operates with its Chinese-based TikTok app, called Douyin.
- Douyin makes most of its revenue from advertising, but has made big investments to increase its e-commerce revenue, mostly via partnerships with Chinese tech giants like Alibaba.
- The app boasts 400 million daily active users, making it one of China's biggest social video apps.
Microsoft has a long history of digital acquisitions and product development in ad-supported software, beginning with search and, more recently, with investments in other networks, like LinkedIn. But its ad business is still tiny compared to software rivals like Google and Facebook.
- A series of acquisitions and partnerships over the past 15 years has helped the company develop what it today calls Microsoft Audience Network, a pay-per-click advertising platform for search result ads.
- Microsoft makes most of its ad revenue on search ads via its search engine Bing, and network advertising from Bing, MSN, Outlook.com, the Microsoft Edge browser and LinkedIn. LinkedIn brings in about $2 billion of the company's roughly $6 billion in annual ad revenue, per estimates from eMarketer.
- Microsoft has experimented with all different kinds of advertising businesses over the past two decades, including trying to create rivals to YouTube and Twitch and to testing ad-funded versions of Office and Windows. None of those efforts were successful.
- Most recently, it's made several smaller ad tech acquisitions to help boost its advertising revenue, including advertising data company Drawbridge and retail ad tech company Promote IQ, both in 2019.
Walmart has pushed to expand its e-commerce business aggressively in the past few years, although it has faced some bumps along the way.
- In 2019, Walmart shut down Jet.com, an e-commerce company it bought for $3.3 billion. The deal helped Walmart jump-start its foray into e-commerce, but Jet's brand proved less attractive than Walmart's.
- Today, Walmart makes about $41 billion on e-commerce annually, and it's pushing aggressively to take on Amazon by expanding its online marketplace.
- In June, Walmart said it would open its online marketplace, which reaches 120 million monthly visitors, to Shopify's more than 1 million business clients in an effort to take on Amazon's e-commerce dominance.
- The company reportedly plans to launch a subscription delivery business to rival Amazon's this summer. A relationship with TikTok could help it market to millions of new customers.
Yes, but: It's still unclear at this point what a joint Microsoft-Walmart bid for TikTok would even look like or how it might be structured.
- Nor is it clear that this combo is guaranteed to win the bid. A handful of other tech giants, including Oracle and Softbank, have also reportedly expressed interest.
The big picture: TikTok has a lot of potential, but its business is still nascent.
- The company announced this year it hit 100 million active users in the U.S., up from around 26 million at the beginning of the year.
- While its ad business is growing, TikTok is still only beginning to experiment with in-app purchases and e-commerce.
- The app brought in $176 million in revenue last year, which is tiny compared to tech giants like Google and Facebook, but analysts see big potential for revenue and growth.
- Plus, any shift in ownership could risk diluting the secret sauce that has made TikTok a youth-market hit.