Oracle beats out Microsoft for TikTok, but did they really win?

Oracle beats out microsoft for tik tok but 2020

People are already questioning if the TikTok sale was worth it for Oracle after the Trump administration decided to step in to broker the deal, along with announcing that a cut for them would be ‘nice.’ Once Trump stepped in, it stopped being a traditional sale, and the ‘winning’ company may have some big regrets down the road.

Oracle was chosen over Microsoft as the American tech partner that could help keep the popular video-sharing app running in the U.S., according to a source familiar with the deal who was not authorized to speak publicly about it.

Microsoft announced Sunday that its bid to acquire TikTok’s U.S. operations was rejected, removing the tech giant from the running a week before President Donald Trump promises to follow through with a plan to ban the Chinese-owned app in the U.S. over spying concerns.

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 government worries about user data being funneled to Chinese authorities. TikTok denies it is a national security risk and is suing to stop the administration from enacting the threatened ban.

“ByteDance let us know today they would not be selling TikTok’s US operations to Microsoft. 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 combatting disinformation, and we made these principles clear in our August statement. We look forward to seeing how the service evolves in these important areas.”

TikTok and the White House declined to comment Sunday. Oracle didn’t return a request for comment but has previously declined comment.

Walmart, which had planned to partner with Microsoft on the acquisition, said Sunday it “continues to have an interest in a TikTok investment” and is talking about it with ByteDance and other parties.

Getting rejected from the deal by TikTok might be a huge ‘win’ for Microsoft for a few reasons.

For one, Microsoft can avoid putting a bulls-eye on itself, when it’s managed to keep a low profile and build strong relations in Washington even while continuing its long history of operating in China. But it’s quickly becoming clear that in certain businesses that there isn’t any way to stay on the good side of both governments. After all, Donald Trump’s trade adviser called Disney veteran Kevin Mayer, who was briefly TikTok’s CEO, an “American puppet,” while ByteDance has faced a wave of anger in China ever since it said it would accept a potential sale.

Secondly, managing a popular social media app amid fake news, disinformation campaigns backed by countries like Russia and China, and even just bouts of terrible judgment among its users, is another minefield. Even if Microsoft has more content moderation experience than Oracle, thanks to its platforms like LinkedIn, is it really ready for this?

Finally any deal will face sharp scrutiny from both Beijing and Washington, in the course offering the wooing company lots of opportunities to be penalized or just look excessively compliant with one government or the other (see how that’s worked out for Disney). China has already signaled it would rather see the app banned than allow a forced sale by issuing new tech export controls that cover the recommendation algorithms that drive TikTok’s success. ByteDance said it would abide by the new regulations. Beijing is now showing it could block even this far more limited arrangement, with the overseas arm of China’s state-run CCTV broadcaster reporting after the news of a possible Oracle deal that ByteDance “will also not sell TikTok’s U.S. operations to Oracle.”

Approval in the United States is not guaranteed, even though Trump is on good terms with Oracle founder Larry Ellison. If an arrangement is made that leaves TikTok’s inner foundation opaque or in ByteDance’s hands, this wouldn’t deal with the fear that Beijing could put pressure on the Chinese parent for access to all that app data. That would be one way it could work around the president.

“If Oracle merely acts as minority stakeholder and cloud provider, while ByteDance continues to run operations and share resources like moderation teams, it doesn’t really answer to any of the concerns of Chinese ownership and control,” said Daniel Sinclair, an independent social media researcher. “If the White House accepts bad terms, after igniting this chaotic process, [the administration] will surely face even more legislative scrutiny than an outright ban could face.”

The Trump administration has threatened to ban TikTok by Sept. 20 and ordered ByteDance to sell its U.S. business, claiming national-security risks due to its Chinese ownership. The government worries about user data being funneled to Chinese authorities. TikTok denies it is a national-security risk and is suing to stop the administration from the threatened ban.

It’s not clear if the proposed deal will only cover TikTok’s U.S. business, and, if so, how it will be split from the rest of TikTok’s social media platform, which is popular worldwide. ByteDance also owns a similar video app, Douyin, for the Chinese market.

Any deal must still be reviewed by the Committee on Foreign Investment in the United States, known as CFIUS, a U.S. government group chaired by the Treasury Secretary that studies mergers for national-security reasons. The president can approve or deny a transaction recommended by the panel, though Trump has already voiced support for Oracle as a “great company” that could handle the acquisition.

Microsoft said in a Sunday statement that ByteDance “let us know today they would not be selling TikTok’s US operations to Microsoft.”

Microsoft added it was “confident our proposal would have been good for TikTok’s users, while protecting national security interests.” The company said it “would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combating disinformation.”

TikTok, which says it has 100 million U.S. users and about 700 million globally, is known for its fun, goofy videos of dancing, lip-syncing, pranks and jokes. It’s recently become home to more political content such as the comedian Sarah Cooper, who drew a large audience by lip-syncing Trump’s own often-disjointed statements from public appearances.

But the app has also raised concerns because of its Chinese ownership. The White House has cracked down on a range of Chinese businesses, including telecom equipment makers Huawei and ZTE and messaging app WeChat, over worries that they would enable Chinese authorities to get U.S. user data. Republican and Democratic lawmakers have raised concerns about censorship and children’s privacy.

TikTok denies that it has shared user data with the Chinese government or that it would do so if asked. The company says it has not censored videos at the request of Chinese authorities and insists it is not a national-security threat.

TikTok has sued to stop the ban, but not the sale order. The negotiations have been complicated by several factors, including Trump’s repeated demands that the U.S. government should get a “cut” of any deal, a stipulation and role for the president that experts say is unprecedented.

In addition, the Chinese government in late August unveiled new regulations that restrict exports of technology, likely including the artificial intelligence system TikTok uses to choose which videos to spool up to its users. That means ByteDance would have to obtain a license from China to export such technology to a foreign company.

The deal had come together rapidly after the administration ramped up its threats against TikTok this summer, despite TikTok’s efforts to put distance between its app and its Chinese ownership. It installed former Disney executive Kevin Mayer as its American CEO, but he resigned in August after just a few months on the job, saying the “political environment has sharply changed.”

Both Microsoft and Oracle are known more for their business software offerings than for those intended for consumers.

Oracle primarily makes database software. It competes with tech giants such as Microsoft and Amazon that provide cloud services as well as business-software specialists like Salesforce.

Some analysts see Oracle’s interest in a consumer business as misguided. Oracle should focus on enterprise-market acquisitions and not invest in a consumer app like TikTok that doesn’t fit with the rest of its business, said Jefferies analyst Brent Thill, who compares the idea to Delta Airlines buying a motorcycle company. “It doesn’t make any sense,” he said.

Thill suggested that TikTok competitors like Facebook and Snapchat should be “cheering on Oracle” as a buyer, because Oracle wouldn’t “add a lot of value to the app.”

Oracle co-founder Larry Ellison is unusual among tech executives for his public support of President Donald Trump, hosting a fundraiser for him in February at his Rancho Mirage, California, estate. The company also hired a former top aide to Vice President Mike Pence; its CEO, Safra Catz, also served on Trump’s transition team.

The president said on Aug. 18 that Oracle was “a great company” that “could handle” buying TikTok. He declined to state his preference between Oracle and Microsoft as buyers.

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Jeffrey Lang joined Movie TV Tech Geeks for 2015 and has been providing his opinion on technology from his hometown London. Along with having many opinions on tech, gadgets, games, etc., he enjoys watching the Thames from our satellite office there.