ByteDance kicks ball into Trump’s court by rejecting Microsoft and picking Oracle to partner with TikTok in the US



a man standing in front of a building: The TikTok logo is displayed in front of the short video-sharing app operator’s office in Culver City, California, on August 27. Photo: Agence France-Presse


The TikTok logo is displayed in front of the short video-sharing app operator’s office in Culver City, California, on August 27. Photo: Agence France-Presse

Oracle Corp has won the race to secure TikTok’s American operations, according to multiple reports citing people familiar with the talks, after main rival Microsoft Corp said its offer for the video app had been rejected.

ByteDance’s reported acceptance of Oracle as the operator of TikTok in the US is the culmination of an intensive power play by a number of heavyweight technology companies and their investment backers, the White House and Beijing over the past few weeks.

But the future in the US for the video-sharing app, which has been a viral hit among youngsters globally, remains unclear until it is known for certain that the proposed ByteDance-Oracle partnership will persuade the Trump administration to drop its ban, according to analysts and experts.

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Microsoft, widely perceived as the front runner to take over the US business of TikTok, ended its bid on Sunday saying in a statement that it had been told by ByteDance that the US operations would not be sold to it – hours after the Post reported that ByteDance had made it clear that the proprietary algorithm that powers TikTok was not for sale.

ByteDance declined to comment on the Oracle deal on Monday. Oracle did not immediately respond to a request for comment.



a man standing in front of a sign: Zhang Yiming, founder and global chief executive of ByteDance. Photo: Bloomberg


© Provided by South China Morning Post
Zhang Yiming, founder and global chief executive of ByteDance. Photo: Bloomberg

The group led by Oracle, and backed by existing investors of ByteDance, has been chosen as a partner to shape the future of TikTok in the US, according to a Reuters news report. The deal will not involve a complete sale of TikTok’s US assets, but is a cooperation deal under which Oracle will take over the management of TikTok’s US operations, according to the report.

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At the same time, investors including General Atlantic and Sequoia Capital, will own minority stakes in the US operations of TikTok along with Oracle, Reuters reported, citing people familiar with the situation.

Chinese state broadcaster CGTN reported this as meaning no sale had been agreed, as ByteDance would not be giving its source code to any US buyers, citing sources.

“It makes more sense for Oracle to be a tech partner rather than completely buying TikTok in the US, otherwise Oracle’s culture will encumber TikTok’s development,” said Dong Jielin, a research fellow at Tsinghua University’s China Institute for Science and Technology Policy. “As an enterprise software developer, Oracle’s slow pace doesn’t match the fast pace required by the consumer market.”

ByteDance’s decision has kicked the ball into the court of US President Donald Trump, who had ordered the shutdown of TikTok in the country if it could not be sold to a US business, a person familiar with the talks told the Post, asking not to be identified as the information is not public.

Trump also said last week that he would not grant an extension to the September 15 deadline for a deal to be done.

“Now it’s getting interesting. ByteDance and its US investors have basically created an option for Trump,” the person said. “Trump can still go ahead with his old plan and insist to shut down the app, and TikTok will probably answer with more lawsuits and lobbying efforts against the decision; or Trump can take a small step back and give Oracle a try.”

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While investors wait to see if Oracle, General Atlantic and Sequoia will be influential enough to convince Trump to soften his stance on TikTok – what is known is that Larry Ellison, chairman of Oracle, is a supporter of Trump.

The US president said last month that “Oracle would be certainly somebody that could handle it” when he was asked whether he would support Oracle buying TikTok. In addition, Doug Leone, a managing partner at Sequoia Capital, has been one of Silicon Valley’s biggest Trump donors.

A partnership between Oracle, ByteDance and the venture capitalists could also bypass Beijing’s review and approval process as long as it does not involve the transfer of TikTok’s core algorithm.

For now, the Chinese government has not stepped directly into the US TikTok deal, although China’s foreign ministry has repeatedly attacked Washington’s practice of targeting a Chinese company.

China updated its tech export restrictions late last month, covering two key technologies used by TikTok, which are “personalised information push technologies based on data analysis” and “artificial intelligence interactive interfaces”. The move complicated the prospects for an outright sale.

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Douglas N Jacobson, an international trade law expert at Jacobson Burton Kelley, a Washington-based law firm, said that Trump’s executive order focuses on the security of US user data, and that the exclusion of algorithms in a partnership deal should not affect the review and approval process at the US Commerce Department and the Committee on Foreign Investment in the United States (CFIUS), the US government panel that reviews deals for potential national security risks.

“If Oracle or any other US buyer, determines that they can produce their own algorithm to replace the existing one that is not permitted to be exported to the US, that … will not be germane to the review and approval process by the Commerce Department and CFIUS,” Jacobson said.

At the same time though, even if the deal goes ahead, the jury will be out on whether Oracle, an enterprise solutions provider with no experience in consumer-facing businesses, will be able to generate synergies by buying TikTok.

For Oracle, buying TikTok means “entering a new area” whereas for Microsoft the TikTok deal would have been more like “adding a new function” to their existing consumer business, said Wong Kam-fai, a professor in engineering at the Chinese University of Hong Kong and one of the first batch of national experts appointed by the Chinese Association for Artificial Intelligence.

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“Oracle … might make adjustments to the (new) algorithm … It could add some features to make the algorithm more suitable for American users, meaning that TikTok in the US won’t be what it looks like now. But Oracle can accept the extra time,” said Wong.

The Oracle deal could fit ByteDance founder Zhang Yiming’s vision. In a letter to employees dated August 3, Zhang said the top three considerations in any deal were TikTok users (the app has over 100 million American users), the management team, and the existence of the company itself.

“TikTok won’t sell itself to a rival. Oracle’s businesses are in the upper stream in TikTok’s chain, such as cloud services. The pair’s core interests don’t collide with each other’s,” said Jeffrey Ren, a former investment banker with expertise in mergers and acquisitions.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.

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