Microsoft deal raises big questions about TikTok's future in Europe

Key Points
  • Microsoft announced Sunday it is in discussions to buy TikTok in the U.S., Canada, Australia, and New Zealand.
  • It's unclear what this means for TikTok in Europe. 
  • TikTok has been trying to distance itself from China to avoid a U.S. ban. 
A man holding a phone walks past a sign of Chinese company ByteDance's app TikTok, known locally as Douyin, at the International Artificial Products Expo in Hangzhou, Zhejiang province, China October 18, 2019.

Questions are being asked about TikTok's future in Europe after Microsoft confirmed Sunday it is in discussions to buy TikTok in the U.S., Canada, Australia, and New Zealand.

TikTok parent company ByteDance, which is headquartered in Beijing, is being forced to consider a sale after President Donald Trump said he intends to ban the video sharing app in the U.S. over fears that it could share data with the Chinese government. TikTok has repeatedly denied the allegations.

Microsoft said in a statement that it will keep working with the U.S. government on a deal and that it intends to conclude talks by September 15. It's unclear how much Microsoft is prepared to pay and TikTok declined to comment on the discussions.

If the deal were to go through, would ByteDance be able to continue operating TikTok across Europe? Michael Norris, a research and strategy manager at Shanghai-based consultancy AgencyChina, thinks so. "TikTok's business in Europe doesn't appear to be on the table," he told CNBC Monday. "At this stage, it looks like ByteDance is confident in TikTok's ability to operate in European markets."

If the deal goes through, Microsoft would operate TikTok in four countries while ByteDance would operate it in over 100 other countries. "The same product operated by different parties in different jurisdictions seems unprecedented," Norris said. "These considerations, including compliant operating models and relevant transfers of technology, infrastructure, and access, will complicate acquisition negotiations."

While European governments have raised some concerns, they haven't gone as far as saying they'll ban TikTok, which has become wildly popular in the last couple of years, racking up over 2 billion downloads worldwide, according to app tracker Sensor Tower.

A U.K. government spokesperson said: "We always take steps to ensure users are properly protected from attempts by companies to misuse or exploit their personal data."

"TikTok is subject to the data privacy rules set out under GDPR. This is the same for all mobile app providers that collect and process personal data."

"In relation to our wider online harms work, we are developing some of the most stringent laws in the world to make the U.K. a safer place to be online. These will put a duty of care on social media platforms to manage people's personal data, overseen by an independent regulator."

In a bid to distance itself from Beijing and reassure Western nations, TikTok withdrew from Hong Kong after China introduced new sweeping national security laws.

TikTok has also hired an American chief executive and set up local offices around the world. Last month, the company said it wanted to hire 10,000 staff in the U.S. over the next three years, and it has already hired several key executives from Google and Facebook.

ByteDance is also planning to set up a new international headquarters for TikTok outside of China. The question is, where will it be? Los Angeles, which is home to TikTok's biggest office, was the obvious front-runner but the impending U.S. ban and the potential Microsoft deal complicate matters.

International HQ in London?

According to a report from British tabloid newspaper The Sun, TikTok is now planning to make London the home of its international headquarters. The move could reportedly see ByteDance's founder Zhang Yiming and TikTok's creator Alex Zhu relocate to London.

Other possible alternatives outside the U.S. include Singapore and Dublin.

Late Sunday, ByteDance said that it is "committed to becoming a global company" but it has faced "all kinds of complex and unimaginable difficulties," according to a CNBC translation of a company statement.

U.S. tech giants like Facebook and Alphabet's YouTube compete directly with TikTok and tensions have been growing between the firms. On Monday, ByteDance accused Facebook of "plagiarism and smear" without elaborating.

Much of how TikTok works, from its data storage to its algorithms have been shrouded in mystery but the company pledged to become more transparent last week and it urged others to do the same.

TikTok is the international version of ByteDance's Douyin, which operates in China.