How Microsoft Will Incorporate Ads into Conversational AI

How Microsoft Will Incorporate Ads into Conversational AI

by Héctor Ariza Microsoft

How will search engines such as Google Search and Microsoft Bing generate advertising revenue via conversational AI? This question has been hotly debated ever since Google and Microsoft launched their own conversational chatbots in their search engines. After all, conversational AI tools succeed by giving searchers concise responses instead of links to other sites. Google’s ad model depends on people staying engaged on Google Search clicking on links. Microsoft’s ad business, though nowhere near the size of Google’s, also depends on clicks and engagement.

Microsoft recently provided some guidance on this question. According to Kya Sainsbury-Carter, corporate vice president of Microsoft Advertising, the method of purchasing advertisements on Bing remains unchanged from its inception. However, a new feature now allows ads to be integrated into interactions with an AI chatbot. Advertisers will not be required to request for their ads to be included in the chat format, and they won’t be notified if their ads were displayed in this manner when they get performance reports.

She noted that whenever the AI chatbot provides a response, it includes a reference that can be viewed by hovering over the response. This citation may occasionally contain an advertisement link. Furthermore, image-based ads can be displayed following the chatbot’s reply. Companies aren’t required to create new content that replicates the style of a chatbot response. Rather, all text advertisements and other creative resources uploaded on Bing will be displayed in the new chat formats.

Here is an example courtesy of Microsoft:

Microsoft Bing

Bing has expanded to 100 million+ daily active users, according to the company, with one third of them utilizing the AI chat feature every day. Since February and the roll-out of its AI-driven search, daily downloads of the Bing mobile app have quadrupled. Microsoft recently moved its AI-chat product from limited preview to open preview (thus eliminating the waitlist for trial). This should expand the product’s user base.

Microsoft also noted that:

  • The advertising products within Microsoft’s AI chat will function based on the same auction principles as Bing search auctions, indicating that advertisers may not necessarily experience an increase in cost per click.
  • Advertisers have told Microsoft they favor visually engaging, immersive advertising experiences, increased automation for real-time ad placement optimization, and formats that support shoppable experiences, such as visual comparison designs or shop-the-look formats. In fact, Microsoft intends to make chat more visually appealing.
  • With the updated Bing, users request more product information within a shorter duration compared to conventional search. This implies that the AI-driven tool could offer advertisers more insights about users and expedite their transformation into buyers.

These developments are intriguing. We recommend that advertisers be open to the way conversational AI is evolving. At the same time, advertisers:

  • Need to challenge Microsoft on issues such as accuracy of conversational AI and bias. It’s essential that users trust conversational AI in order for these tools to be adopted.
  • Should have control over ad placements and whether they choose to show ads in the chat. How can an advertiser judge success of an ad placement when it’s unclear whether an ad shows up in chat?
  • Deserve visibility into how the ad performs specifically when showed in the chat. Google (and Bing) have been reducing advertisers’ visibility into search queries, placements, and ad performance in general.

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At True Interactive, we advocate on behalf of our clients. We are monitoring these developments closely and assessing how to incorporate conversational AI. Contact us to learn how we can help you succeed in all forms of digital advertising.

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Is Search Ready for Conversational AI?

Is Search Ready for Conversational AI?

by Mark Smith Uncategorized

The brave new world of AI-powered search has hit a speed bump.

During the week of February 6, both Google and Microsoft announced they were developing new search capabilities that incorporate conversational AI, or chatbots that answer searchers’ queries with detailed, informative answers. This interface would provide an alternative to the search engines interface we are familiar with today, in which users need to click on to web links and read short snippets of content to find answers to their queries.

Microsoft said that its Bing search engine was using the same AI technology that powers the wildly popular ChatGPT chatbot created by OpenAI. (Microsoft has a multi-billion dollar investment in OpenAI.) Google said it was about to unveil Bard, a chatbot with similar AI-fueled capabilities. Bard was based on AI developed by Google for quite some time.

Both these Big Tech companies were responding to OpenAI releasing ChatGPT for public use on November 30, 2022. Since that date, ChatGPT had become the fastest-growing app in history.

Google didn’t outright release Bard – the company demo’d the product that week and said an independent party of reviewers was vetting the product before its ultimate public release. Microsoft started to make Bing’s chat interface available in limited preview mode.

At first, both companies received generally favorable attention for showing how rapidly two Big Tech companies could bring to market a new way to search. But then the problems began:

Definitely not a good look for conversational AI!

By February 16, things had gotten so bad that The Atlantic magazine was declaring “AI search is a disaster.”

In response, Microsoft said that these types of incidents are to be expected. Microsoft said, “The only way to improve a product like this, where the user experience is so much different than anything anyone has seen before, is to have people like you using the product and doing exactly what you all are doing. Your feedback about what you’re finding valuable and what you aren’t, and what your preferences are for how the product should behave, are so critical at this nascent stage of development.”

Microsoft also announced that it will begin limiting the number of conversations allowed per user with Bing’s new chatbot feature.

Meanwhile, Google has asked employees to improve Bard by rewriting answers for topics that employees know well – a human-in-the-loop approach in which people stay involved as supervisors of the development of AI products as well as the editing of AI-generated content.

So, what now?

Well, nothing really changes for businesses at the moment. Google has not rolled out Bard. Bing is still in preview mode. Clearly, there is work to be done. The bad press suffered by Google and Microsoft simply underscores how rapidly these companies are moving. From the standpoint of building public trust, it sure looks like they would have been better off taking more time before starting to take these products closer to market.

Conversational AI is coming to search. These products did not drop out of the sky. Sooner or later, this interface was coming. It happened too soon for Google and Microsoft to escape some reputational damage. But the big picture is that the industry is more aware now of how the search experience is evolving, warts and all.

As we’ve recommended in previous posts, we suggest that businesses watch the developments closely and experiment with conversational AI (as everyone is doing with ChatGPT right now). It is important to become familiar with the ways these tools function, including the way ChatGPT can generate content (known as generative AI). This is no time to ignore the phenomenon.

At True Interactive, we are staying in close contact with Google and Microsoft and will report developments as we learn about them.

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Photo by Om siva Prakash on Unsplash

Google and Microsoft Go All-In with AI-Powered Search

Google and Microsoft Go All-In with AI-Powered Search

by Mark Smith Bing Google Microsoft

On our blog, we speculated that Google would launch its own conversational AI assistant for search as a response to the popularity of ChatGPT. Well, within hours, we had our answer, and then some: not only did Google launch a new conversational AI tool for search — so did Microsoft.

What Google Announced

On February 6, Sundar Pichai, CEO of Google and its parent company Alphabet, announced the launch of Bard, which he characterized as an experimental conversational AI service. Importantly, though, Pichai was careful to qualify how Google is moving forward. Instead of dropping the tool publicly as OpenAI did, Google is making Bard available to a team of “trusted testers” before making the tool publicly available “in coming weeks.”

This is a big difference in approach from OpenAI. Essentially Pichai was signaling, “We’re Google. We’re not going to risk our brand’s reputation by rushing something to the market until it’s ready.” By contrast, OpenAI made it clear that the company was going to crowdsource feedback from the public and make ChatGPT better – the “get to the market fast with an imperfect solution and make it better” approach that typifies Silicon Valley start-ups.

Google left start-up mode a long, long time ago.

According to Search Engine Land, the “trusted testers” vetting Bard are a demographically and geographically diverse group of people external to Google — an important consideration clearly designed to mitigate against bias – and bias is a problem that has vexed ChatGPT.

Bard is going to function as ChatGPT does now: synthesizing information to provide more complete, contextual responses to queries the way voice search has always promised to do. In Pichai’s words:

Bard can be an outlet for creativity, and a launchpad for curiosity, helping you to explain new discoveries from NASA’s James Webb Space Telescope to a 9-year-old, or learn more about the best strikers in football right now, and then get drills to build your skills . . . When people think of Google, they often think of turning to us for quick factual answers, like “how many keys does a piano have?” But increasingly, people are turning to Google for deeper insights and understanding — like, “is the piano or guitar easier to learn, and how much practice does each need?” Learning about a topic like this can take a lot of effort to figure out what you really need to know, and people often want to explore a diverse range of opinions or perspective.

And, he added that Bard will be incorporated into Google Search soon. Here’s a screen shot of how the interface might look, courtesy of Google:

This is quite an announcement, to be sure. As we blogged, it was known that Google had been developing conversational AI technology for quite some time – but the company was not ready to take it public. However, as a result, OpenAI was enjoying all the glory and credit for ChatGPT’s remarkable conversational abilities. On top of that, Microsoft invested billions of dollars into OpenAI and was reportedly incorporating ChatGPT into Bing Search.

Microsoft Drops an AI Bomb

And, speaking of Microsoft: on February 7, the company confirmed that indeed conversational AI was coming to Bing Search — not based on ChatGPT exactly, but a more powerful form of the tool. Microsoft shared a new version Bing, powered by an upgraded version of the same AI technology that underpins chatbot ChatGPT. The company is launching the product alongside an upgraded version of its Edge browser. This means that that the two will provide a new experience for browsing the web and finding information online.

The “new Bing” (in Microsoft’s words) offers a chat function, where users can ask questions and receive answers from the latest version AI language model built by OpenAI. Users can also create itineraries for trips. So, for example, you can ask it to “Plan a five-day trip to Mexico.” It’s available in preview mode at Bing.com.

Following the announcement, Yusuf Mehdi, Microsoft Corporate Vice President & Consumer Chief Marketing Officer, shared more detail on the Microsoft blog. Among other things, he elaborated on how Bing’s chat functionality can help with ideation, whether writing content or planning something:

There are times when you need more than an answer – you need inspiration. The new Bing can generate the content to help you. It can help you write an email, create a 5-day itinerary for a dream vacation to Hawaii, with links to book your travel and accommodations, prep for a job interview or create a quiz for trivia night. The new Bing also cites all its sources, so you’re able to see links to the web content it references.

Here is a depiction of the experience from the post:

He also elaborated on how the Edge browser is being improved with AI, via chat and compose. With the Edge Sidebar, you can ask for a summary of a lengthy financial report to get the key takeaways – and then use the chat function to ask for a comparison to a competing company’s financials and automatically put it in a table. You can also ask Edge to help you compose content, such as a LinkedIn post, by giving it a few prompts to get you started. After that, you can ask it to help you update the tone, format and length of the post. Edge can understand the web page you’re on and adapts accordingly.

As we learn more about Microsoft’s announcement, we’ll share more.

Many questions remain, such as:

  • Whether a conversational AI will actually improve the search experience given nagging problems with providing wrong answers and biased information. As The Verge noted, “AI language systems like ChatGPT have a well-documented propensity for presenting false information as fact.”
  • How Google and Microsoft will incorporate conversational AI into Search without harming their core advertising business. As noted, conversational AI tools flourish by giving searchers concise responses instead of links to other sites. Google’s ad model depends on people staying engaged on Google Search clicking on links. Microsoft’s ad business, though nowhere near the size of Google’s, also depends on clicks and engagement.

For now, we suggest that businesses watch the developments closely and experiment with conversational AI. No doubt Google and Microsoft will provide more context on how the interplay with their ads will work. At True Interactive, we are staying in close contact with Google and Microsoft and will report developments as we learn about them.

Don’t change your ad strategy. We’re in early days.

Contact True Interactive

To succeed with online advertising, contact True Interactive. Read about some of our client work here.

Would ChatGPT from OpenAI Help or Harm Bing Search?

Would ChatGPT from OpenAI Help or Harm Bing Search?

by Mark Smith Search

It looks like Microsoft is going all-in with ChatGPT, the generative artificial intelligence (AI) tool that is taking the business and technology world by storm. What are the implications?

News about Microsoft

ChatGPT is a chatbot powered by AI. It can provide answers to complex questions with lightning speed conciseness, and creativity – and in a very conversational way. ChatGPT is the product of OpenAI, the company that produced Dall-E, which uses AI to create images. ChatGPT is one of many chatbots designed to respond to queries from people by providing richer, more detailed, and more human-sounding answers than their predecessors.

ChatGPT caused a huge stir after OpenAI released a beta version to the public on November 30, 2022, so that people would use it and give feedback to improve the product. It proved to be so slick and so intelligent that OpenAI CEO Sam Altman said ChatGPT achieved one million users in less than a week after its public launch.

As we have blogged, ChatGPT can answer queries so eloquently and completely that some industry watchers have speculated that it might disrupt online search – specifically the way search answers queries largely by linking to other sources of content rather than sharing answers directly to the query.

Google reportedly has issued a “code red” to improve its own AI capabilities as a result. But Microsoft has been celebrating. That’s because the company has been an investor (to the tune of $3 billion) in OpenAI since 2019. OpenAI’s success is Microsoft’s success.

The $3 billion has paid for the huge amounts of computing power that OpenAI needed to build the chatbot. The investment has also meant that Microsoft can rapidly build and deploy new products based on the technology. And, it sounds like Microsoft is ready to do just that. Microsoft is reportedly investing $10 billion in OpenAI to give the company even more computing power. In return, Microsoft is:

  • Exploring the use of ChatGPT in its Office software (including Word, PowerPoint, and Outlook) to improve efficiency and productivity.

This is pretty heady stuff!

Implications

Let’s take a closer look at why Microsoft might incorporate ChatGPT into Bing. Reasons include:

  • Making search easier. As I noted above, generative AI could potentially change the way search engines present answers in search. Requiring searchers to find answers to their questions by clicking on links is a more labor-intensive process than responding to search queries with a single answer that synthesizes information. And on top of that, a smart chatbot can answer more complex questions. Wouldn’t you love it if you could ask a search engine, “Please tell me the fastest way to drive to Chicago, and by the way what are the highest rated Airbnbs for under $200 a night and close to a great steakhouse that serves Kobe beef?” – and have a complete answer delivered to you in a few seconds? That’s what smart chatbots promise to do.
  • Competing with Google. Google is easily the most dominant search engine in the world, commanding 80 percent market share. The company has a generative AI app of its own. But Google isn’t going to release that for the public to toy with largely because Google doesn’t roll that way. LaMDA, the name of Google’s own chatbot,  is in R&D mode, and, as such, it makes mistakes. If Google were release a mistake-prone bot to the public, Google could undermine its own credibility. OpenAI does not have this problem. The company’s model is to test and learn publicly. OpenAI is willing to generate street cred by getting to market faster than Google. And Microsoft reaps the benefits as both an investor and early adopter, which is where Bing comes into play. As The Verge reported, “Both Google and Bing already surface relevant information from links at the top of many search queries, but Google’s knowledge panels are particularly widespread when it comes to searching for information about people, places, organizations, and things.  Microsoft’s use of ChatGPT-like functionality could help Bing rival Google’s Knowledge Graph, a knowledge base that Google uses to serve up instant answers that are regularly updated from crawling the web and user feedback. If Microsoft is ambitious, though, it could even go much further, offering many new types of AI-based functionality.”

But there are also potential downsides, such as:

  • A threat to Microsoft advertising. I recently discussed how ChatGPT could threaten Google’s search advertising business. Google needs people to click on ads that appear next to search results in order to make money – and those ads include sponsored results. What happens when someone’s search query is answered completely and perfectly without anyone needing to click on any links? This question also applies to Bing’s ad business. Bing generated almost as much advertising revenue as Twitter and Snap combined in 2021. It remains to be seen how Bing would incorporate ChatGPT while protecting its own moat.
Bing Advertising

What Businesses Should Do

  • Experiment with ChatGPT (or the chatbot of your choice). Understand how they work. Get comfortable with the conversational way that ChatGPT answers questions. If you’ve invested in voice search, you are probably doing this already. How might this conversational format affect your own approach to online advertising? A number of practitioners are publishing in-depth posts about using ChatGPT as a tool for search engine optimization. (Here’s an example.) Before you do, know the risks, including the ones we have discussed in this post.
  • Don’t change how you do business. ChatGPT is fraught with many other issues such as potential copyright infringement. It’s not ready for prime time by any stretch.
  • If you are a Microsoft advertising partner, watch events closely. (We are doing that for our clients.) If Microsoft does indeed roll out a version of Bing that includes ChatGPT, ask your account representative how they are managing against the downsides of this tool.

Contact True Interactive

To succeed with online advertising, contact True Interactive. Read about some of our client work here.

Netflix Chooses Microsoft As Its Ad Tech Partner

Netflix Chooses Microsoft As Its Ad Tech Partner

by Tim Colucci Advertising Microsoft

Netflix continues to roll out its previously announced plan to provide an ad-supported subscription tier. The streaming company has chosen Microsoft to be its global advertising technology and sales partner. This means Microsoft will supply technology to facilitate the placement of video ads on Netflix. All ads served on Netflix will be available exclusively through Microsoft’s platforms.

In a statement, Netflix Chief Operating Officer and Chief Product Officer Greg Peters said:

In April we announced that we will introduce a new lower priced ad-supported subscription plan for consumers, in addition to our existing ads-free basic, standard and premium plans. Today we are pleased to announce that we have selected Microsoft as our global advertising technology and sales partner.

Microsoft has the proven ability to support all our advertising needs as we work together to build a new ad-supported offering. More importantly, Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members.

It’s very early days and we have much to work through. But our long term goal is clear. More choice for consumers and a premium, better-than-linear TV brand experience for advertisers. We’re excited to work with Microsoft as we bring this new service to life.

The news comes weeks after Microsoft completed its acquisition of the Xandr ad-tech unit from AT&T, which had been involved in programmatic advertising. Xandr provides a data-enabled technology platform with tools that help power a diverse ecosystem connecting marketers and media owners through first-party, data-led advertising solutions across its network. The Wall Street Journal reported that the acquisition gave Microsoft the technology necessary to become a contender for the Netflix deal. The Wall Street Journal also noted that in pitching itself as a contender against rivals suchas Google, Microsoft “stressed one word: agnostic. Microsoft emphasized that it won’t compete in streaming with Netflix, the person said. Comcast’s NBCUniversal operates the Peacock streaming service while Google owns YouTube.”

It was widely known that Netflix would seek an ad tech partner to support its nascent ad-supported tier. The company, facing declining membership and sagging stock price, is under pressure to compensate for lost revenue by adopting ads. Rivals such as Disney+ are set to launch an ad-supported option, too.

But Microsoft is a surprising choice as a partner. Microsoft has not, historically, been known for video ads. Having said that, going with Microsoft likely means that Netflix will launch its ad-based platform as a reservation buy when it goes into beta, but that would be short-term. Long-term, I think this means that Netflix, as well as Microsoft, is looking to open up Netflix advertising in the same way that Google does on YouTube/YouTube TV.

That would mean that after Microsoft works out the kinks through reservation buys, the company would open up placements for all advertisers, regardless of budget, to run video ads on Netflix. Reservation buys would continue for any advertiser, but anytime those placements are not bought, they would go up for auction. I foresee, though, that big series like Stranger Things, The Crown, and The Witcher will require large reservation busy since demand will be high. The same goes for movies.

Disney+ recently announced that the cheaper D+ offering would have ads as well, but those would be done through The Trade Desk. TTD is a popular DSP (demand side platform), but typically they require a reasonably sized budget in order to run campaigns.

With the Netflix/Microsoft deal, it opens up “TV commercials” for the everyday advertiser.

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True Interactive can help you navigate the connected TV landscape. Our services range from media strategy and planning to automated performance reporting. Learn more about our services here, and contact us to learn more.

Is the Microsoft Multimedia Ads Format for You?

Is the Microsoft Multimedia Ads Format for You?

by Morgan Reilly Advertising Bing Microsoft

Microsoft Advertising recently launched a beta version of a new ad format, Multimedia Ads, that seeks to make ads in search results more visually appealing. This could be a useful format for lifestyle brands (especially smaller ones) that rely on the power of images to make their products. It’s also important that Microsoft Advertising clients pay close attention to how Microsoft is rolling out the feature.

What Is the Multimedia Ads Format?

The Multimedia Ads format consists of image-rich ads that appear on search results pages. With this ad format, Microsoft uses machine learning to suggest to advertisers the optimal combination of their own images, body, copy, and headlines for searches occurring on Bing. If you lack visual assets, Microsoft will auto-create them. (This is an approach similar to Google’s.) As reported in Search Engine Land,

The recommendations will use AI to speed up the launch of Multimedia Ads for your brand. If you’re not interested, you’ll have seven days to apply or dismiss recommendations. If you don’t choose either, they’ll be automatically applied. “You can also opt out of the auto-apply functionality at the account level,” according to the announcement blog.

Here’s how Microsoft explains auto-apply on its campaigns dashboard:

Multimedia Ads scree

Considerations to Keep in Mind about Multimedia Ads

Now, this ad format could be appealing to a business that lacks the time and resources to create a campaign – say, a small mom-and-pop business. And the visual format could be really appealing for brands in industries such as travel and hospitality, where images are even more important. Multimedia Ads gives such a business the means to vary their ads so long as the business does not mind giving up control to Microsoft’s AI engine to do all the heavy lifting. But as Search Engine Land notes, “The auto-recommendations mean advertisers will have to be on the lookout to make sure any tests or ads they’re launching don’t end up going in a direction they don’t want.”

In other words, the feature could create more work for a business.

Here are some caveats we have noticed as well:

It’s important that Microsoft clients check their campaigns dashboards. We have discovered instances where Microsoft activated the ad format automatically for a given campaign. It’s up to the Microsoft Advertising client to proactively uncheck the “auto-apply recommendations” features boxes (see the bottom of the image below – and note that we unchecked auto-apply recommendations):

Multimedia Ads campaign screen

In fairness, we should note that Google has also used the approach of automatically applying features to its advertising products, thus putting the burden on the client to disable a feature.

You might not like the images that Microsoft suggests. Microsoft might suggest generic and uncompelling stock images with its AI. We much prefer manually uploading our own images, where we have more control over their quality.

You might not like the ad copy that Microsoft suggests. Microsoft’s AI engine draws from past copy of yours to create new copy. But what worked for a previous ad might not apply to the one you want to run. If you carefully manage the tone of your ad copy, then the AI-generated recommendations might not be for you.

The format could make it more difficult for you to do A/B testing, as well.

Bottom line:

  • Multimedia Ads is a step in the right direction because Microsoft Advertising is dialing up the power of images during the visual age.
  • Microsoft still has work to do with the quality of the images its AI engine suggests.
  • Microsoft Advertising clients should review their campaign dashboards and uncheck the “auto-apply recommendations” options if you are not ready to use the ad format.
  • Whether you use the ad format’s AI features depends on how much control you want to hand over to Microsoft Advertising.
  • Consider using the feature but without the AI-generated recommendations.

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Photo by Afif Kusuma on Unsplash

Why Microsoft Wants to Buy TikTok

Why Microsoft Wants to Buy TikTok

by Taylor Hart Microsoft

A couple of months ago, I mentioned on our blog that dark clouds were on the horizon for TikTok because of lingering concerns over the app’s security. Those dark clouds are here. On July 31, President Trump said he planned to ban the app in the United States because the U.S. government is concerned that TikTok poses a national security risk. TikTok’s detractors say that the popular app, owned by China-based Bytedance, could have personal data from its American users fall into the hands of the Communist Chinese government – a form of foreign espionage. But just as the issue reaching a crisis point, on August 2, Microsoft confirmed a rumor that it intends to buy the U.S. operations of TikTok. President Trump gave Microsoft and TikTok until September 15 to work out a deal, which would pave the way for TikTok to have a future in the United States. The drama is intriguing especially to the many businesses that have a presence on TikTok either through organic content or advertising. In addition, TikTok stakeholders are asking: What does Microsoft get out of buying TikTok and taking on the headaches of securing user data? Here are two reasons why:

1 TikTok Gives Microsoft a Social Media Card to Play Against Big Tech

Google has YouTube. Facebook has Instagram (and many other cash cows). But Microsoft lacks a go-to social app on which to build an advertising business. And this is a major drawback especially in 2020 as social media usage surges. Facebook’s recent quarterly earnings announcement underscored this reality: with people turning online for safer ways to pass the time during the COVID-19 pandemic, Facebook’s monthly average users across all its apps has risen to 3 billion. Microsoft is missing out on a consumer-focused social app. True, Microsoft owns LinkedIn, but LinkedIn is not a business-to-consumer ad powerhouse. TikTok gives Microsoft an instant platform.

Granted, TikTok is still in the early stages of earning revenue from advertising and in-app purchases. And the app shows promise as well as challenges. According to the Financial Times, one 24-hour TikTok campaign ran by Guess logged a CTR of 16% compared to a 4% average. Kroger, which ran a #TransformUrDorm challenge, attracted close to 477 million views across hundreds of videos over the course of approximately one week. But in November 2019, The Verge said TikTok ads were the Wild West. Self-serve ads on the platform deliver CPM of $10 (compared negatively to Instagram’s $8).

TikTok has plenty of room to grow, and Microsoft sees the potential. If TikTok were fully developed as an advertising powerhouse, it’s possible the U.S. assets would have been too expensive to buy – so now is the right time to make a deal.

It’s all about Gen Z

Microsoft has been trying to build a presence with the surging Gen Z population for the past few years, and with good reason: Gen Z is set to overtake Millennials as the largest age cohort in the United States. Thus far, Microsoft has relied on gaming to connect with Gen Z, as witnessed by its development of Xbox, a Gen Z favorite. TikTok gives Microsoft another powerful way to connect with Gen Z: 60 percent of TikTok users are Gen Zers. TikTok also gives Microsoft a way to cross-promote Gen Z friendly products such as Xbox. As The Verge notes:

Microsoft could take advantage of that direct access to TikTok users with ads for Surface, Xbox, and other products, or even as another base for its game-streaming ambitions. Google is planning to leverage YouTube to integrate its Stadia streaming service, and TikTok would give Microsoft a response with xCloud game streaming. Microsoft had been planning to use Mixer for Xbox game streaming, but the service never gained enough traction, and the company was forced to strike a deal with Facebook for xCloud integration instead. It’s not hard to imagine watching a Call of Duty video on TikTok and then being able to click and instantly play the game as it streams to your phone via Microsoft’s xCloud service.

Microsoft, in addition, could reap the benefits of revenue gained when businesses tap into TikTok to advertise to Gen Z, as well – something that businesses might be reluctant to do while TikTok’s future remains in limbo.

What’s Next?

In addition to giving Microsoft and TikTok a deadline of September 15 to work out a deal, President Trump has said the U.S. government should get a financial cut of the transaction, which complicates an already tricky process. Microsoft is taking on a risk with this political hot potato, to be sure. The company has put its reputation on the line by stating that it will “ensure that all private data of TikTok’s American users is transferred to and remains in the United States.” But there is also potentially strong reward for Microsoft. With an American owner, TikTok may become a more attractive place for American businesses to build their brands with advertising and other forms of activity that would enrich Microsoft’s bottom line.

Meanwhile, as if to underline TikTok’s importance, Instagram launched on August 5 a feature, Instagram Reels, that competes directly with TikTok. Instagram Reels benefits from Instagram’s cachet and Facebook’s muscle. The pressure is on for Microsoft to land the TikTok deal.

To learn more about TikTok, check out this treasure trove of statistics.

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