Oracle beat Microsoft in the battle for the U.S. arm of TikTok with a deal structured as a partnership that could help keep the popular video-sharing app running in the U.S rather than an outright sale to try to navigate geopolitical tensions between Beijing and Washington, people familiar with the matter said.
ByteDance, TikTok’s Chinese owner, had been in talks to divest the U.S. business of its hugely popular short-video app to Oracle or a consortium led by Microsoft Corp after U.S. President Donald Trump ordered the sale last month and said he might otherwise shut it down. President Donald Trump’s administration has threatened to ban TikTok by Sept. 20 and ordered owner ByteDance to sell its U.S. business, claiming national security risks due to its Chinese ownership.
The U.S. officials are concerned that user information could be passed to China’s communist government through the app. TikTok which is best known for dancing videos that go viral among teenagers has as many as 100 million U.S. users, has said, it is not a national security risk and is suing to stop the administration from enacting the threatened ban. Although, TikTok and the White House declined to comment Sunday. Oracle didn’t return a request for comment but has previously declined comment.
“ByteDance let us know today they would not be selling TikTok’s U.S. operations to Microsoft,” Microsoft said in a statement. “We are confident our proposal would have been good for TikTok’s users while protecting national security interests.” “To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combating disinformation, and we made these principles clear in our August statement.”
Microsoft said the only way it could protect the privacy of TikTok users in the United States and prevent Beijing from using the app as a venue for disinformation was to take over that computer code, and the algorithms that determine what videos are seen by the 100 million Americans who use it each month, the NYT report said.
Although Microsoft was seen as the best American technology company to offer a huge price to buy TikTok’s U.S, its offer was declined. However, it is quite unclear if TikTok’s choice of Oracle as a technology partner would mean that Oracle would also take a majority ownership stake of the social media app, the people involved in the negotiations said.
According to our source, we gather that this deal could have been because China issued new regulations last month that would bar TikTok from transferring its technology to a foreign buyer without explicit permission from the Chinese government. Reuters also reported last week that China would rather see TikTok shut down in the United States than allow a forced sale.
On Monday, China’s state-run English television channel CGTN cited sources as saying ByteDance would not sell TikTok’s U.S. operations to Oracle or Microsoft, and would not give the source code for the platform to any U.S. firm.
However, according to ByteDance’s latest proposal, Oracle would be the firm’s technology partner and assume management of TikTok’s U.S. user data. Oracle is also negotiating to take a stake in TikTok’s U.S. operations Reuter report stated. The data is currently stored in Alphabet (NASDAQ:GOOGL) Inc’s cloud.
Although, this deal has been settled between Tiktok and Oracle, it is unclear whether Trump, who wants a US technology firm to own most of TikTok in the US, will approve the deal. The Committee on Foreign Investment in the United States (CFIUS), which reviews deals for national security risk, is overseeing the ByteDance-Oracle talks.
“Unlike many other technology companies, Oracle has cultivated close ties with the Trump administration. Its founder, Larry Ellison, hosted a fund-raiser for Mr Trump this year, and its chief executive, Safra Catz, served on the president’s transition team and has frequently visited the White House,” the NYT report said.
Last month, Mr. Trump had said he would support Oracle buying TikTok, calling Oracle a great company and said the firm, which specialises in enterprise software, could successfully run TikTok.
“I think that Oracle would certainly be somebody that could handle it,” Trump had said.
The rise of TikTok in the United States has been remarkably rapid; it has taken off in just the past two years. ByteDance, founded in 2012, has raised billions of dollars in funding, valuing it at $100 billion, according to PitchBook, which tracks private companies. Its investors include Tiger Global Management, KKR, NEA, SoftBank’s Vision Fund and GGV Capital.
Had Microsoft been able to acquire TikTok’s U.S. business, said Stifel, Nicolaus & Co. analyst Brad Reback, the company was well positioned to leverage its operations to make a deal pay off.
“It’s an extraordinary asset with all sorts of ways to make money,” Reback said.
Oracle, though, doesn’t have the operations, such as an online advertising business, to make an acquisition of TikTok’s U.S. operations pay off, he said. “Oracle’s experience with consumer assets is zero,” Reback said.
While the phrase “technology partner” is vague, Reback said the agreement could call for Oracle to merely provide rudimentary cloud infrastructure services, essentially basic storage and computing functions.
TikTok previously filed a legal challenge against the government’s order to ban the video app. If the ban proceeds, TikTok users in the United States would probably still be able to use the app if they had already downloaded it, but wouldn’t be able to get any updates. The parameters of the ban are still unclear, and it is up to the Commerce Department to define them.