With President Trump’s ‘sale’ deadline coming up on September 20, ByteDance, TikTok’s parent company, rejected a bid from Microsoft in favor of Oracle (NYSE: ORCL) as the winner of a new partnership deal with TikTok.
The announcement of this partnership caused a collective sigh of relief from the short-form video app’s many users across the country as it means a stay of execution for TikTok. Other than removing the threat of being banned from the country due to security concerns, what else can Oracle bring to the table that TikTok will undoubtedly find beneficial?
1. A close relationship with the President
With speculation flying and conspiracies abound regarding the underlying influences behind this deal, the close, personal relationship between both Larry Ellison, co-founder of Oracle, and the POTUS is being highlighted for a number of reasons. Yet, there is no doubt that this could benefit TikTok greatly as it would now put them on the right side of Trump’s continued campaign against China.
CEO Katz served on the executive committee for Trump’s transition into the White House in 2016 and co-founder Ellison has hosted fundraising events for Trump in his own home. It seems that Oracle and its leaders are uniquely positioned to protect TikTok from any future issues that might arise regarding its relationship to China and any of the ‘techlash’ that has been seen over the last few years.
It also can’t hurt to have Trump on your side when his word is the one that will eventually approve the deal from the U.S. side. Additionally, Oracle currently has no antitrust battles — something Microsoft cannot say — providing a clean slate for TikTok to enter into the U.S. tech arena.
2. Lack of algorithm sale
The deal with Microsoft would have caused TikTok’s U.S. operations to be completely severed from the rest of the world as Microsoft would have taken over all important operations in the U.S. The deal with Oracle will instead allow TikTok to remain intact, with Oracle instead serving as a glorified babysitter in what is essentially a hosting deal rather than a sale.
With China having opposed any outright sale of TikTok, this hosting deal might be enough to gain the Chinese government’s approval needed for the deal to go through on their side.
The partnership, rather than ownership, will also make it easier for TikTok to remove its AI-powered algorithm from the deal. Indeed, as of late August, China released legislation which restricted the selling of certain technology to foreign corporations. It would be likely that ByteDance would need to apply for a permit to sell its core algorithm, thus a deal with Oracle would remove the algorithm from the table as an asset to sell whilst simultaneously keeping TikTok operating happily in the U.S. market.
President Trump has repeatedly expressed concern over the security threat which data from millions of U.S. users in the hands of a Chinese company presents. Whilst TikTok has reiterated that it would not hand over data to the Chinese government if asked, the ban order has forced the company to come up with a deal to protect itself.
This partnership is an attempt to allay concerns over the potential security threat TikTok presents. Oracle is well known in government circles with a history in intelligence and security, and this involvement with U.S. intelligence sectors is a major asset, showing that data will be kept secure and safe at the highest levels.
Microsoft claimed in its statement following its rejection: ‘‘We would have made significant changes to ensure the service met the highest standards for security, privacy, online safety and combating disinformation.’’ These ‘significant changes’ were perhaps the wrong idea for a TikTok takeover, instead, the company now has a way to securely store data without the need to change or sell its code.
Overall, these two companies might seem like strange partners, one is a boring B2B company, the other is a vibrant, youth-driven app. Yet, the choice in an Oracle partnership could have a maturing effect on TikTok and will provide security and allies for it whilst it continues to operate in the U.S. The next steps are to have both the U.S. government and the Chinese government approve of the partnership.
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Financial Writer at MyWallSt
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