Why Oracle's TikTok deal is a hollow victory

Larry Ellison's deal to become a "partner" with TikTok seems much less severe than the crackdown threatened by Trump

When Oracle first emerged as a bidder for TikTok's US operations, it raised more than a few eyebrows. 

Larry Ellison's $175bn (£136bn) software giant only has a few consumer-facing products. How can a viral video streaming app, used by millions of young people, fit into Oracle's enterprise software business model?

We may soon find out. On Sunday, Oracle edged out rival Microsoft in negotiations for the US operations of TikTok  just days before a deadline to make a deal set by President Donald Trump.

If approved, Oracle will become TikTok’s “trusted tech partner.”  Any such deal between Oracle and TikTok parent Bytedance is likely to look more like a corporate restructuring than the outright sale Microsoft had proposed.

Ultimately, however, it may be a hollow victory for Ellison. “If it goes through, it will be a fudge,” says Michael Hewson, chief markets analyst at CMC Markets. “The Chinese have to agree to it, and Trump has to agree to it, which are two significant barriers.”

To appease Beijing, the highly sought-after recommendations algorithm which is at heart of TikTok's success in the West may be taken off the table.

The original talks involved an outright sale of all of TikTok's operations in the US, Canada, Australia and New Zealand, including its algorithm.  But China has clamped down on the sale of its intellectual property, making any transfer of TikTok’s algorithm incredibly tricky.

“The whole point of TikTok’s attraction is the algorithm, yet you could find that while Oracle has won the race, it may not have the benefits of the algorithm,” Hewson adds.

“As long as Trump can dress up as a victory I think that's all he'll care about. I think it kicks it into the long grass after the election, and he can dress it up as a win.”

If Oracle did want the algorithm as part of the deal, it would need to get approval from China. Regulators in Beijing, however, are likely to delay any decision until after the US Presidential election in November. 

Another sticking point are the security concerns. US officials fear user information on TikTok could be passed to China's Communist Party government. TikTok, which has as many as 100 million US users and 2 billion downloads globally, has said it would never share such data with Chinese authorities.

One possible outcome might be that Oracle takes a stake in TikTok's newly-configured American business while housing its US user data on its servers.

Steven Mnuchin, the US Treasury Secretary  said on Monday the administration would review the deal this week.

"I will just say from our standpoint, we'll need to make sure that the code is, one, secure, Americans' data is secure, that the phones are secure and we'll be looking to have discussions with Oracle over the next few days with our technical teams," he said.


Despite the confidence among Oracle and TikTok, it may still not be enough to satisfy the US president as he looks for wins in the run up to November’s election.

“The deal may not satisfy the concerns of the US administration, meaning that the service ends up being blocked presenting an open goal to both Snap and Facebook,” says Richard Windsor, founder of research group RadioFreeMobile.

Windsor says the agreement with Oracle is “peak fudge” and that it was “clearly not” the full sale called for by Trump.

“It’s not clear whether Oracle will have source code access to the algorithm because if it does not it will merely be the custodian of a locked box,” he says.

“This is unlikely to satisfy the concerns of the administration as Oracle will have no visibility on data and what is happening to it. It may even be difficult to know for sure whether it is being exported to China.”

Both China and ByteDance have gone to great lengths to keep American hands off its algorithm. Indeed it may have been the very issue that scuppered Microsoft’s chances.

Microsoft claimed that its offer would have been good for TikTok’s users while also protecting national security interests.

The tech giant watching to see how Oracle manages to square that circle while just being a partner.

“We would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation,” the tech giant said.

“We look forward to seeing how the service evolves in these important areas.”