By Dr. Richard M. Smith

On the surface, Microsoft’s interest in the China-based social media app TikTok makes little sense.  Surely Microsoft is not expecting to drive TikTok’s laregely Gen-Z user base into its cloud-based Office suite of services.  A majority of TikTok users don’t even like Microsoft, let alone Donald Trump who has driven TikTok into the arms of Microsoft.  Sure, Microsoft may sell some extra Xbox systems to Gen-Z but nowhere near enough to justify the contemplated seventy-five billion dollar price tag for TikTok’s US operations.

Plenty has been and will be written about the economics of the TIkTok deal for Microsoft, but there is another, much less discussed side of the story that most people are overlooking.

So what does Microsoft’s interest in the China-based social media app TikTok really tell us about technology and markets today?  There are two big overlooked takeaways.  First and foremost is that the surveillance-capitalism economy is alive and well (more on that in a minute).  Second: big government and big tech are more deeply intertwined than ever.  Let’s start with point number one.

For those not familiar with the surveillance-capitalism thesis, let me quote the founder of this theory, Harvard professor Shoshana Zuboff:

I define surveillance capitalism as the unilateral claiming of private human experience as free raw material for translation into behavioral data. These data are then computed and packaged as prediction products and sold into behavioral futures markets — business customers with a commercial interest in knowing what we will do now, soon, and later.

In the case of TikTok, Microsoft is signing up to be both the packager of these raw materials of human experience into behavioral data as well as their ultimate consumer.  Microsoft isn’t particularly interested in selling its existing suite of products and services to the 40 million TikTok users.  What its really interested in is understanding what motivates and drives the next generation and how to best influence them.  In other words, Microsoft wants to learn to dance – both with the younger generation and in the surveillance-capitalism economy.  TikTok checks both boxes. 

The surveillance-capitalism economy got underway in the early part of the twenty-first century when Google first realized that the way that users interacted with Google’s search engine and associated ads was telling Google more than they ever dreamed they could know about people.  Google found that it could use this data, in conjunction with its unparalleled computing and storage power, to help Google’s real customers (the advertisers) better influence Google’s users.

Certainly this new technology raised serious privacy concerns, but the emergence of this new technology coincided with the 9-11 terrorists attacks and legislation such as The Patriot Act which was hastily passed just 45 days after the World Trade Center attacks.  The U.S. intelligence community needed to be able to find the proverbial needle in a haystack and Google’s technology was a powerful weapon in that fight.

The year 2001 was not a bright spot for individual privacy.

Fast-forward to today and the surveillance-capitalism economy plus nation-state surveillance needs have grown faster than nearly anyone imagined back in 2001 – Microsoft included.  They dominate our world, and Microsoft is playing catch up.

Microsoft has fully embraced surveillance-capitalism under CEO Satya Nadella.  It has continued to invest heavily in its search engine technology Bing which is slowly but surely gaining market share.  It purchased LinkedIn in 2016 for $26.2 billion and GitHub in 2018 for $7.5 billion.  Moreover, Microsoft has stopped fighting in court and in public with the likes of Google and Apple.  They all seem to have reached a gentleman’s agreement to play nice in the surveillance-capitalism sandbox.

Of course, big-tech isn’t the only “big” that is interested in this technology, which brings us to our second big takeaway from the prospect of Microsoft and TikTok joining up: big tech and big government are more inextricably intertwined today than ever.  It’s all about economies of scale in the surveillance-capitalism economy.  Big nation-states need big-tech and they aren’t shy these days about saying so.  One need look no further than the recent high profile U.S. House Judiciary committee hearings with the heads of Amazon, Apple, Facebook and Google.  

The bottom line is that the U.S. and China are locked in a technology arms race today, but this one isn’t about nuclear weapons or aircraft carriers.  It’s about surveillance and its associated psychological influence over people.  While it is certainly a less deadly form of the arms race, it is, nonetheless, a serious one and no major nation-state can afford to ignore it.

Just to be clear, President Trump wasn’t the first leader to ban Chinese social media apps from their country.  Back in June of this year, India banned nearly 60 Chinese mobile apps.  It’s instructive to read the Indian government’s concerns as recently reported by the New York Times:

The Chinese apps were “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India,” India’s Ministry of Electronics and Information Technology said in a statement Monday.

“The compilation of these data, its mining and profiling by elements hostile to national security and defense of India, which ultimately impinges upon the sovereignty and integrity of India, is a matter of very deep and immediate concern which requires emergency measures,” the statement added.

FBI Director Christopher Wray said back in January of this year, “It is public record that under Chinese cybersecurity law, Chinese companies like Huawei are required to provide, essentially, access upon demand with little to no process to challenge that.”

Nation-states have much to gain from influence over social media data, that of their own citizens as well as those of other countries.  They have much to lose as well.

Moreover, big governments are awarding massive contracts to big technology companies at unprecedented levels.  Microsoft itself recently won a contract from the Pentagon that is potentially worth up to $10 billion.  Even the US government is hard-pressed to match the technology prowess and infrastructure of today’s big tech companies and their economies of scale.

Investors have rewarded Microsoft for these strategic shifts towards the surveillance-capitalism economy under Nadella.  Since taking over in 2014 with a share price of roughly $40 per share, Nadella has overseen a steady march upwards in Microsoft’s share price to over $215 today.  That’s a gain of over 400%.

Investors are likely to continue to reward Microsoft for its ongoing pursuit of this strategy through its acquisition of TikTok.  Since announcing its interest in TikTok, Microsoft’s market capitalization has shot up approximately $80 billion.  Whether Microsoft succeeds in acquiring TikTok or not, and we believe they will, the very fact that Microsoft has so clearly signaled its intention to play in this most modern of economies is likely to sustain the upward march of its share price – at least as long as the surveillance-capitalism economy remains unexamined and unquestioned.

Which brings us to our final point.  The surveillance-capitalism economy is dependent on the consent of the surveilled – at least in countries where the rule-of-law still enjoys some political support.  What happens if and when enough consumers start to realize that rather than being consumers of valuable services, they’re “experiences” are actually being packaged up and “consumed” by large centralized institutions?

There is an increasing weariness and wariness in our world today about social media.  It’s intentionally addictive and it is built on models of randomized algorithms that seek to find what hooks us and then set those hooks again and again.  In short, it’s exhausting.

Before deciding whether or not to invest in Microsoft based on its renewed commitment to surveillance-capitalism, investors should spend an hour on TikTok and ask themselves if this is indeed a future that they want for themselves and/or their children.

Investing is about more than just betting on the horse we think will win the current race.  It’s also about creating the future we want for ourselves and others.

Dr. Richard Smith

Dr. Richard Smith – Berkeley Mathematician and PhD in System Science – is a fintech entrepreneur and the CEO of The Foundation of the Study of Cycles. Dr. Smith has built a reputation as “The Doctor of Uncertainty” amongst his academic peers and has helped government agencies and Fortune 500 companies (including Pfizer and Johnson & Johnson) alike make sense of complex sets of data. With his background in mathematical theories of uncertainty combined with his investing and trading experience, Dr. Smith is an expert in risk management with critical insights that can help empower investors of all levels. Some of Dr. Smith’s findings are stunning – like empirical data-driven proof that even the world’s best investors, from Warren Buffett to Carl Icahn to David Einhorn and many more, could see their results significantly improved through the use of technology that helps course-correct irrational tendencies and cognitive biases. Dr. Smith’s software, backed by proprietary algorithms and Nobel prize winning research, has served more than 25,000 investors and helps steward more than $20 billion in assets. Dr. Smith is a regular speaker and lecturer and particularly enjoys opportunities to share his knowledge and help others gain an edge in the market.

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