You are using an older browser version. Please use a supported version for the best MSN experience.

Walmart wants to buy TikTok. Here's why

CNN logo CNN 8/28/2020 By Sherisse Pham, CNN Business
a car parked on a city street: Cars drive past a Walmart store in Washington, DC, on August 18, 2020. - Walmart saw its profits jump in latest quarter as e-commerce sales surged during the coronavirus pandemic and US government stimulus payments boosted spending, the company reported on August 18. (Photo by NICHOLAS KAMM / AFP) (Photo by NICHOLAS KAMM/AFP via Getty Images) © Nicholas Kamm/AFP/Getty Images Cars drive past a Walmart store in Washington, DC, on August 18, 2020. - Walmart saw its profits jump in latest quarter as e-commerce sales surged during the coronavirus pandemic and US government stimulus payments boosted spending, the company reported on August 18. (Photo by NICHOLAS KAMM / AFP) (Photo by NICHOLAS KAMM/AFP via Getty Images)

Walmart is a 58-year-old American company known for big box stores that sell everyday goods, casual clothing, groceries and TVs.

TikTok is a Chinese-owned app that in just a few years has captivated hundreds of millions of teens with its entertaining dance videos, lip syncing performances and comedy routines.

At first glance, the two couldn't be more different. That's why Walmart's announcement that it was joining Microsoft in its bid to buy TikTok's US operations came as a surprise to so many.

But analysts who have watched the meteoric rise of social commerce in China — a mash up of social media activity and frenzied online shopping — say Walmart's interest in TikTok makes perfect sense.

The Chinese version of TikTok, known as Douyin, is one of several apps in the country that have tapped into the rapidly growing number of Chinese shoppers who like to buy stuff on social media platforms.

Users of Douyin and Tencent-owned rival Kuaishou, for example, can buy goods after watching short videos about products. They tune into live streams of influencers peddling everything from makeup to furniture. Users can ask influencers about products and get responses in real time, or they can click on steep discounts that are offered only in the apps.

It's like a modern version of shopping via QVC or the Home Shopping Network, but a lot more social and shrunk down to busy screens on mobile devices.

"It's entertainment plus shopping," said Kitty Fok, managing director with market research firm IDC. "This is huge ... it's an extremely big market."

The feature is a big driver of revenue for Douyin and other apps, which make money off of advertising and commissions on products sold within the apps.

Social commerce is growing fast

Social commerce in China was worth $186 billion last year, more than 10 times the value of sales made in the United States, according to market research firm eMarketer. The Chinese market is expected to grow 30% this year to $242 billion.

Walmart has already acknowledged the value of e-commerce when it comes to TikTok. The company said Thursday that its interest in the app stems from the way it has "integrated e-commerce and advertising capabilities in other markets," and added that TikTok could bolster Walmart's access to consumers.

China's success with social commerce hinges on the early and widespread adoption of advanced, mobile-friendly payment systems that the United States is at least three years behind in implementing, said Eric Schiffer, CEO of the Patriarch Organization, a technology-focused private equity firm. For Walmart to create a runaway success with TikTok, it would likely need to replicate that payment technology and encourage TikTok's largely young audience to use it.

"The battleground of this decade for Gen Z will be where they spend time," Schiffer said, "and being able to integrate payments is a critical piece to maximizing the return on investment on TikTok."

The American retailer likely thinks it can replicate at least some of that runaway Chinese growth in the US market, and get "millions of sellers and advertisers fueling commissions and online commerce," said Greg Paull, principal at marketing research firm R3.

"More importantly, Walmart needs to attract Gen Z shoppers as its profile continues to age with the population," he added.

TikTok says it has about 100 million users in the United States. Worldwide, the app has about 690 million monthly active users, and nearly 70% of them are aged between 16 and 24, according to R3.

"On TikTok, Walmart has only 1.8 million followers, far less than [teenage influencer] Loren Gray's 46 million, so there is only room to grow here," said Paull.

And owning TikTok could help Walmart more effectively battle e-commerce giant Amazon, which it competes with not only for direct sales but also for third-party sellers on its online marketplace and for advertisers.

"To the extent that TikTok would add more eyeballs for Walmart's e-commerce platforms, that would make Walmart more attractive for third party sellers for both the Marketplace and as an advertising platform," DA Davidson senior research analyst Michael Baker said in an investor note Thursday.

To this end, Microsoft may be the perfect partner in the deal, because it, too, has a fierce rivalry with Amazon in the cloud business.

Political considerations

TikTok and its Chinese parent company ByteDance, which also owns Douyin, have come under enormous pressure in the United States.

President Donald Trump this month issued executive orders threatening to ban the app unless ByteDance sells it. The Trump administration says TikTok poses a national security threat because of its ties to China. TikTok denies those allegations and is suing the Trump administration over the order, which it calls "heavily politicized." TikTok and ByteDance did not respond to a request for comment for this story.

The Trump administration's concerns about TikTok's data security may be among the reasons why Walmart decided to partner with Microsoft, rather than pursuing a deal individually. Unlike Walmart, Microsoft has a cloud service for storing the app's data and the technical know-how to run a social media network.

If it wins the deal, Microsoft has committed to transferring all American TikTok users' data to the United States, and ensuring that any data that stored or backed-up in other countries is deleted.

By joining forces, Microsoft and Walmart's bid may be more compelling and more likely to receive Trump's approval, after he earlier said he would support enterprise tech firm Oracle buying TikTok. Oracle founder Larry Ellison is a vocal Trump supporter, and CEO Safra Catz has donated to the President's reelection campaign.

"I think it's helpful in the sense that there's strength in numbers — a combined bid of two very powerful, very American companies definitely helps," Global Data Retail managing director Neil Saunders said of the Microsoft-Walmart bid. "[Walmart is] seen as a great American company by the current administration and probably more widely as well. That certainly acts in their favor."

The Trump administration is unlikely to oppose a Microsoft-Walmart bid because of both companies' quiet efforts to build bridges with the current administration, said Schiffer.

Microsoft, in particular, "has done a savvy job in handling their public affairs relationship with the administration," Schiffer said, "such that Microsoft won't be excluded from this deal."

This week, Kevin Mayer — the ex-Disney executive who took on the roles of TikTok CEO and ByteDance chief operating officer less than four months ago — resigned. He noted that the "political environment has sharply changed" and with it the global role that he signed up for.

Walmart confirmed it was interested in buying TikTok just hours after Mayer's resignation.

— CNN Business' Clare Duffy and Brian Fung contributed reporting.

AdChoices
AdChoices

More From CNN

image beaconimage beaconimage beacon