TikTok was in discussions to sell its music-video app on the US market, with Microsoft Corp as the most plausible candidate, but they recently decided to build a partnership with Oracle instead. Reasons for this sudden change are still obscure.
What is TikTok again?
TikTok is a wildly popular sharing app with more than 100 million users in the US. The app allows users to post videos between 3 and 60 seconds, which can be slowed down, sped up, filtered and edited. They can also add music to their clip as well as various effects.
Many trends span the app, such as dances, lip-singing and comedy content. Although the content on the platform is mainly created by and for teenagers, it is slowly changing as companies and educational content creator are getting on the platform. For example, the hashtag #EduTok has recently reached 37 billion views.
ByteDance, TikTok’s parent company, had been in talks with several US companies to sell TikTok's US operations. Even though Microsoft seemed to be the preferred buyer, they recently announced in a blog post that their offer had been turned down. In the end, the Chinese company chose Oracle as a partner. Talks were intense and fast-paced, as Trump ordered a month ago the sale of the app’s US operations, threatening to ban it from the country otherwise.
According to sources, this is not to be seen as a sale but more like a corporate restructuring and a partnership in order to keep their position on the US market. Oracle would be TikTok’s “trusted tech partner” on US territory. They will manage TikTok’s US user data as well as potentially take a stake in its operations. We must also note that Oracle is backed by Sequoia Capital – a key ByteDance shareholder – and has a closer relationship to the US president than Microsoft.
Walmart was also bidding alongside Microsoft and thus lost the deal at the same time. However, they said they were still interested to invest and were getting ready for further discussions. According to Jeffrey Thompson, professor of investment at Peking University's Guanghua school of management, the success of such an investment would have been very interesting for the retail company. The combination of entertainment and user engagement with its e-commerce platform might have been one of its best shots to catch up with Amazon.
Trade war difficulties
What you should know as well is that there is a very important deadline to these negotiations. TikTok faces a September 20th deadline to sell its US operations, before being banned by the Trump administration. Trump signed two executive orders last month, targeting TikTok and ByteDance. The first bans US companies from trading with them, the second requires ByteDance to sell TikTok by the 12th of November. A poll showed that 69% of republicans supported the order while only 32% were familiar with the app.
The Trump administration claims that the app’s Chinese ownership causes a big problem, as American user’s data might be misused by the Chinese government. In response, TikTok said that they have never complied with such a request from the Chinese authorities.
The US government has become very hostile towards the Chinese, and especially with their digital apps, which officials would like to ban from the US national network. There was also an order prohibiting transactions by US companies with Tencent Holding Ltd.’s messenger app WeChat.
“If you look at Microsoft versus Oracle, the one thing that separates the two companies with respect to national security is that Microsoft has a large footprint in China,” said Navarro, Trump’s economic advisor. “Oracle on the other hand has a strong reputation of really putting a great firewall between its operations and China and that’s an important thing.”
The White House still needs to approve the Oracle deal before things can move forward. It remains unclear whether Trump will approve the deal or not, as he wants US companies to own most of TikTok in the country.
Reuters reported last week that the Chinese government might even prefer no sale at all, rather than a forced sale making their government seem week in the face of US pressure.
What is next?
This type of situation is not new. 2 years ago, China Oceanwide purchased Genworth Financial. They had agreed to use a US-based third-party service to manage the data of insurer Genworth Financials’ US policy holders. This could be of use as a case of success and argument for the incoming deal.
Oracle wishes to expand its cloud-computing and consumer data business. TikTok now holds a large amount of data, which makes it a great addition to Oracle’s portfolio.
Let us see what the White House will say.
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