TikTok’s parent company ByteDance has chosen Oracle over Microsoft as a new American technology partner to help keep the popular video-sharing app up and running in the US, according to a person familiar with the deal.
Microsoft, which had been vying for a deal, said in a statement Sunday that its offer to acquire TikTok’s US operations was rejected. That happened a week before the September 20 deadline for ByteDance to sell TikTok to a US company or risk being banned in the US over national security concerns.
Q. What is TikTok?
A. The app is a home for funny and silly videos that are easy to make and watch. That made him immensely popular, particularly among young people, and US tech giants like Facebook and Snapchat see him as a competitive threat. TikTok says it has 100 million users in the US and hundreds of millions worldwide. It has its own culture of influence, allowing people to earn a living by posting videos to the service and hosting ads from top American companies.
ByteDance Ltd., a Chinese company, launched TikTok in 2017, then bought Musical.ly, a popular video service among teens in the US and Europe, and combined the two. A twin service, Douyin, is available to Chinese users.
Q. What are US officials concerned about the application?
A. TikTok, like most other social networks, collects user data and moderates what is posted. Capture people’s locations and the messages they send to each other, for example, and keep track of what people are watching to discern what kinds of videos they like and how best to target them.
Similar concerns apply to American social media, but Chinese ownership adds an additional wrinkle because the Chinese government could order companies to help it gather intelligence. In the case of TikTok, that’s a hypothetical threat, said Samm Sacks, a researcher at the Paul Tsai China Center at Yale Law School.
TikTok says it does not store US user data in China and would not give user data to the government. But experts say that if the Chinese government wants information, it will get it.
There is also concern that TikTok will censor videos that criticize China, which TikTok denies, or push propaganda. Some critics say the company is violating children’s privacy laws.
The United States has given parent company ByteDance a September 20 deadline to complete the sale of TikTok’s US assets to a US company, or it risks being banned in the country.
Q: Is Oracle buying TikTok and what assets are involved?
Oracle was among the group of bidders, including Microsoft and Walmart, to buy TikTok’s US operations. Microsoft said Sunday that ByteDance will not sell TikTok’s US operations to the company. The person familiar with the deal, who was not authorized to speak publicly, said that Oracle will come out the winner, but TikTok US is unlikely to be sold directly.
However, it is not clear at this time which assets Oracle would buy.
TikTok has gained popularity around the world thanks in part to its content recommendation algorithm, which suggests videos to users based on their viewing history. But the Hong Kong newspaper South China Morning Post reported on Sunday, citing an anonymous person, said that ByteDance will not sell the algorithm. China has tightened its controls and requires companies to obtain permission to export such technologies.
“The Chinese government has hinted that it may block the export of TikTok’s artificial intelligence systems, so that could complicate a direct sale,” said Tiffany Li, a visiting professor at Boston University School of Law. “One of TikTok’s competitive advantages is its AI-backed video recommendation system.”
Q: What is Oracle’s likely relationship with TikTok?
Oracle is known for providing business software that includes cloud computing services. So you could provide cloud services such as storing TikTok data in the US or computing services for the app.
“Oracle could be a technology partner, but the sale or divestment of TikTok’s US operations remains the focus,” Wedbush Securities analysts Daniel Ives, Strecker Backe and Ahmad Khalil said in an analyst note.
Q: Will the Trump administration accept the deal, based on what we know so far?
A: A TikTok-Oracle deal must be approved by the Committee on Foreign Investment in the United States (CFIUS), which examines deals that may have national security implications.
CFIUS previously gave the green light to the Chinese PC maker Lenovo’s purchase of IBM’s computer server business in 2014, after concluding the deal it posed no significant security risks. It also authorized the acquisition of Sprint by SoftBank in 2013, but only after SoftBank agreed not to use equipment from Huawei Technologies and ZTE in the US.
If Oracle and TikTok can demonstrate that they can protect user data in the US, CFIUS and the Trump administration could agree to the deal.
An official at the Chinese Foreign Ministry said on Monday that he had no comment on Oracle, but described the situation as a “typical government-coerced transaction.”
Q: How much does Oracle’s closeness to management matter in this deal?
A: Trump did not say whether he preferred Oracle or Microsoft, but he described Oracle as “a great company” that could handle the sale.
Oracle co-founder Larry Ellison is unusual among tech executives for his public support for President Donald Trump.
“Oracle’s connections to the Trump administration are interesting. It is possible that they could negotiate an outcome that would allow TikTok to continue operating in the US without a full sale, with ByteDance still holding onto something, ”said Li from Boston University.
Q: What could this agreement mean for users?
If finalized and approved by CFIUS, TikTok could continue to operate in the US.
“Trump’s executive order that effectively banned TikTok business in the United States would likely no longer apply, as TikTok would no longer be owned by Bytedance,” Li said.
“Executive orders can be revoked or modified at any time,” he said.
However, Oracle’s plans remain unclear.
“I doubt we will see the creativity and consumer friendliness that we might expect with a different owner,” Li said.
Paul Haswell, a partner at the Pinsent Masons law firm, hopes Oracle will strive to keep TikTok users.
“If the application changes or the user experience changes, users could leave the platform, completely undermining the value of the acquisition of TikTok and Oracle,” he said.
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