On Sunday, Microsoft
According to the Wall Street Journal, TikTok is instead seeking to take on IT enterprise solutions company Oracle as a “trusted tech partner” for its U.S. business—a move TikTok hopes will avoid an outright sale of its hugely popular app.
“ByteDance let us know today they would not be selling TikTok’s U.S. operations to Microsoft,” Microsoft’s statement said. Microsoft had been the front runner for a TikTok takeover. Speculation of an imminent deal spiked last month when TikTok CEO Kevin Mayer quit unexpectedly after just four months on the job.
Microsoft says it remains confident its proposal would have been “good for TikTok’s users, while protecting national security interests.” Evidently, TikTok sees a better option in Oracle; experts say it may be because of Oracle’s limited footprint in China.
President Donald Trump first floated the idea of banning TikTok in early July. Although Trump presented the action as retaliation for China “releasing” COVID-19 on the world, TikTok has faced suspicion from Washington for over a year. The White House characterizes the short-video app as a threat to national security (TikTok denies the allegations), and in 2019 the Federal Trade Commission fined TikTok for violating data privacy laws.
Following Trump’s threat in July, TikTok fell under review from the Committee on Foreign Investment in the U.S. (CFIUS)—an inter-agency review panel chaired by Treasury Secretary Steven Mnuchin that has been deployed before to roll back Chinese investment in the U.S.
The CFIUS investigation prompted TikTok to consider offloading its U.S. assets and Microsoft emerged as a possible buyer. Then in early August, Trump signed an executive order demanding TikTok sell its U.S. operations to a U.S. company or else be banned.
Bytedance, the app’s parent company, has sued the Trump Administration for threatening to ban it. Meanwhile, Beijing inserted itself into the narrative at the last minute, asserting last month that it has final say over any sale of “Chinese tech” to a foreign company—a potential roadblock to any deal.
“There have been a lot of extraordinary actions [in this] legal drama,” says Dan Wang, a technology analyst at Gavekal Research.
Ostensibly, the two governments—Washington and Beijing—want different things. Washington wants assurance that TikTok’s data collection practices aren’t a threat to national security. Beijing doesn’t want prize domestic software—namely the A.I.-driven algorithms that make TikTok so addictive—falling into the hands of a foreign firm.
By choosing Oracle as a “trusted tech partner” rather than a buyer, TikTok might have found an arrangement that satisfies the demands of both. According to , taking on Oracle as a “trusted tech partner” means that Oracle would have control over TikTok’s user data while Bytedance retains ownership of the app’s algorithms.
The reported deal is certainly a victory for Oracle, and it puts a spotlight on the friendly relationship between Oracle’s leadership and Trump. Founder and chairman Larry Ellison has raised money for Trump. Oracle CEO Safra Catz served on Trump’s transition team in 2016.
For Bytedance, Oracle’s relatively small presence in the Chinese market may made the company more attractive than Microsoft and Walmart, which had joined Microsoft’s bid.
Oracle does not report its revenues from China, but in the company’s most recent earnings report, it said roughly 17% of its revenue comes from the ‘Asia Pacific’ region. And Oracle appears to be downsizing in the Chinese market.
In May 2019, Oracle reportedly laid off 900 employees—about 60% of its total China research and development team—and considered shutting down all of its research and development operations, which would have affected an additional 1,600 employees. Employees complained the layoffs were political, as tensions between China and the U.S. were on the rise. Oracle has maintained the cuts were just part of the business “restructuring.”
Shaun Rein, founder of China Market Research in Shanghai, says that Oracle is a “second or third tier tech player” in China’s tech scene, which may have proven beneficial in the company’s negotiations with Bytedance.
“One of the problems with Microsoft and Walmart is they might ultimately become a competitor of Bytedance in China,” Rein said. Bytedance, he says, is looking to expand in areas like cloud computing and e-commerce and may one day hope to challenge Microsoft and Walmart in these areas in China, the U.S., or elsewhere.
Microsoft is deeply embedded in China, operating cloud computing centers and a Chinese version of LinkedIn, which has some 50 million users and remains one of the only Western social media platforms that isn’t banned outright in the Chinese market. Because LinkedIn generally hosts less sensitive content than social media groups like Facebook, the company has had less difficulty conforming to China’s censorship demands.
Walmart, on the other hand, is also planning to double its stores in China in the next five to seven years as it aggressively expands its e-commerce capabilities.
Bytedance is also looking to grow its e-commerce business. The company recently obtained a rare permit to sell goods online in China, which analysts believe will help Bytedance grab a foothold in China’s e-commerce market.
For its part, Oracle doesn’t have any consumer-facing businesses, its bread-and-butter is business-to-business software, meaning that it may be less likely to introduce services that eventually compete with Bytedance, says Rein.
If the Oracle deal goes through, experts say it won’t just dictate TikTok’s overseas growth plans, it also could establish a model for how other Chinese tech firms expand internationally in a world that’s wary of Beijing’s influence.
“This [Oracle deal] might actually be a good framework for how Chinese tech companies can still own their assets but still safeguard American security issues,” says Rein. “It’s a framework that I could easily see the U.K., Australia, and all different types of countries adopt specifically towards TikTok.”
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