Yahoo Finance Walmart's dream deal for TikTok looks like a fantasy
Who is the perfect buyer for the US operations of TikTok, the most exciting and fastest-growing social media app to come along in years?
A rival social network would certainly make sense. Maybe an entertainment industry giant looking for young viewers for its films and TV shows? Perhaps a smartphone brand seeking a killer app for its devices.
Yet the increasingly likely scenario that TikTok is purchased by a consortium of investors including Walmart, the 58-year-old chain of American supermarkets, perhaps not the most obvious outcome for TikTok’s mixture of viral dance videos and comedy skits.
Walmart has emerged as a leading partner in a consortium with Microsoft to purchase TikTok’s American operations following months of intense scrutiny by the US government over the business’s close links to its Chinese parent company.
Walmart hopes that the deal will give it easy access to a popular app which it could fill with cut-price adverts, encouraging a younger generation to shop at Walmart rather than its many rivals.
There’s already a template for this kind of relationship. TikTok’s sister app, Douyin, has become a major player in Chinese e-commerce, having introduced its own online shopping features in 2018. Now, many Chinese marketing agencies specialise in helping brands sell their products through the video app.
Some analysts have expressed support for Walmart’s underlying strategy. “The lines are blurring between traditional shopping, digital shopping, and social media,” wrote UBS analyst Michael Lasser. “Walmart needs more exposure to this trend.” Walmart shares climbed 5pc on the news.
Cowen’s Oliver Chen acknowledged that “many operating and political details remain unknown,” but said the deal could be “groundbreaking” and hand Walmart a key advantage in reaching younger shoppers.
But Walmart’s role in a potential $30bn (£22bn) deal to buy TikTok’s American app is an uncertain venture which doesn’t guarantee that the business will be able to hook in teenagers. And it certainly won’t help Walmart catch up with Amazon’s dominance of the internet.
Douyin may have become a major e-commerce player in China, but similar success in the West is a pipe dream at best.
Asian internet users are used to shopping within sprawling apps which include videos, messaging and also e-commerce. Picking up inspiration for your next grocery shop inside TikTok may be a bridge too far.
Walmart’s previous technology acquisitions do not inspire confidence, either. Its purchase of a majority stake in Indian online retailer Flipkart looked like a smart buy, but some investors remained unconvinced and its operation could be hit by Indian regulations over online sales. Its 2016 purchase of e-commerce site Jet.com failed to unseat Amazon as the king of online retail. The site was abruptly shut down earlier this year, a dismal outcome for Walmart’s $3bn purchase price.
Now, Walmart’s bid to purchase TikTok has already prompted sceptical reactions in the technology world.
Yuval Ben-Itzhak, the chief executive of social media marketing business Socialbakers, said “TikTok is better suited to operate independently.”
“Connecting TikTok with any slow-moving organisation whose day-to-day core function is not social will ultimately not be good news for its users,” he added.
The concern here is that being part of Microsoft and Walmart risks TikTok’s real asset: Its community of millions of users. There is no point having access to its clever recommendation algorithms and video editing technology if there are not any users left to make viral videos.
Walmart’s corporate, soulless statement about its negotiations to purchase TikTok is an initial warning sign that it has perhaps misjudged what the app’s millions of users want to hear from its potential new owner.
Instead of a statement expressing excitement about being part of the largest social media app ever to break out of China, Walmart instead said the deal could give the business “an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses.”
The statement was so surreal that Dom Hofmann, one of the co-founders of TikTok predecessor Vine, which was bought by Twitter before being shut down, simply tweeted the statement out verbatim on Thursday to highlight its absurdity.
Another app developer replied with a screenshot of a 2005 article about News Corp’s infamous $580m deal to buy MySpace at the peak of the social network’s growth.
Walmart executives would do well to read some post-mortems of what went wrong after that acquisition.
MySpace, trapped within the corporate giant of New Corp, failed to innovate and was swiftly overtaken by Facebook as the dominant social media website.
News Corp ended up selling MySpace for just $35m in 2011 after an exodus of users abandoned the service. Rupert Murdoch was open about his failure to keep the once-flourishing social network alive and called his purchase of MySpace a “huge mistake.”
Following its acquisition of MySpace, News Corp had “mismanaged it in every possible way,” Murdoch said in 2011.
If Walmart and Microsoft are set on owning TikTok, then they will face an uphill struggle in persuading its users that they’re not going to erode what made the app special.
For Walmart, the real battle will be trying to hook TikTok users on e-commerce without scaring them away. It’s a daunting task which will see the supermarket chain tread a careful line between being a hands-off owner and hoping to justify its multi-billion dollar purchase.
