Oracle wins deal for TikTok’s US operations; whether it resolves Trump’s national security concerns remains unclear

Oracle wins deal for TikTok’s US operations; whether it resolves Trump’s national security concerns remains unclear
Source: Justin Sullivan
By pulling off a deal with Oracle in the nick of time, TikTok has managed to stay alive in the US after facing weeks of uncertain future

On Monday, September 14, Oracle Corp. won the bid to acquire the United States operations of the popular Chinese app TikTok after the app’s parent corporation Bytedance Ltd. rejected Microsoft’s acquisition offer.

The development took place less than two days before the expiry of President Donald Trump’s September 20 deadline to ban the video-sharing app if its American operations went unsold.

Treasury Secretary Steven Mnuchin announced on Monday that the deal had been confirmed and it would be presented to President Trump with a recommendation later 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,” Mnuchin said on CNBC.

Oracle later confirmed Mnuchin’s statement saying, “it is part of the proposal submitted by ByteDance to the Treasury Department over the weekend in which Oracle will serve as the trusted technology provider.”

TikTok released a statement saying, “We can confirm that we’ve submitted a proposal to the Treasury Department which we believe would resolve the Administration’s security concerns.”

However, it remains unclear whether Oracle, as TikTok’s technology provider in the US, would also take a majority ownership stake of the app because the exact nature and details of the deal are yet to be confirmed. But speculations are rife that the agreement may not be an outright sale.

Microsoft Corp., which was seen as the frontrunner to take over TikTok’s US operations owing to the company’s financial clout and supposedly greater ability to address national security concerns, announced that its proposal had been declined.

“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,” Microsoft said in a statement, adding that the company would have made significant changes to ensure the service met the “highest standards for security, privacy, online safety, and combatting disinformation.”

Microsoft’s bidding partner for the US operations of TikTok, Walmart said it “continues to have an interest in a TikTok investment and continues discussions with ByteDance leadership and other interested parties.”

TikTok has around 1,400 employees in the US and millions of users across the country.

Amid escalating tensions between China and the US, Trump signed an executive order on August 6, blocking all transactions with TikTok’s parent company Bytedance and giving it a 45-day window to reach a deal or else face closure in the country. This was after Secretary of State Mike Pompeo and top officials at the White House warned that TikTok posed a national security threat because of its Chinese ownership.

Following Trump’s decision, Microsoft informed Trump about potentially acquiring portions of TikTok based in the US, Canada, Australia and New Zealand but also stated that there could be no assurance that a transaction that involved Microsoft could proceed.

Later in August, Bytedance sued the Trump administration over the order to ban TikTok, maintaining that the decision was politically motivated and ignored due process.

China’s reaction to the deal

China’s Foreign Ministry accused Washington of abusing state power to reach a “typical-government forced deal.”

The Chinese state media said that Bytedance would not transfer the control of its source code to any US buyer.

Mei Xinyu, a researcher at a commerce ministry-affiliated think-tank, said that the deal should be able to clear the export control hurdle, which Beijing had imposed covering the algorithms that underpin services such as TikTok.

“If the co-operative agreement includes the transfer of an equity stake from ByteDance to Oracle, then it would possibly need to get reviewed on antitrust grounds by China and the US as well,” Mei added.

The Oracle-TikTok partnership

While the Oracle-TikTok deal has finally ended weeks of suspense on the app’s uncertain future in the US, it is difficult to conclude whether the partnership is meaningful or vague. What Oracle’s “trusted technology provider” status entails remains to be seen.

Many experts believe that Oracle will only have a limited role to play in TikTok’s US operations. At best, Oracle could only be doing source code audits and in the scenario of not having an involvement in writing the code, the Trump administration’s concern about TikTok owner Bytedance allegedly abusing the user data and sneaking in tracking malware stays unresolved. Those critical of the deal have also expressed worry that given how the deal appears on the surface, it makes Oracle susceptible to subterfuge.

Microsoft’s statement which added, “We look forward to seeing how the service evolves in the important areas of security, privacy, online safety, and combatting disinformation,” obliquely indicates that its bid could have been rejected because the company wanted to bring wholesale changes to TikTok to make it safe for American users while Bytedance arguably wanted a less authoritative partner. Moreover, the Oracle deal does not cut off US TikTok from Europe and Asia unlike what the Microsoft deal would have done.

Some of these factors have led critics to argue that the coming together of Oracle and TikTok is more of a hosting deal than a sale and it does not address the security concern, which Trump had raised in August when he vowed to ban TikTok if it did not find an American buyer within a stipulated time frame.

Former Facebook Chief Security Officer (CSO) Alex Stamos tweeted on Monday, “A deal where Oracle takes over hosting without source code and significant operational changes would not address any of the legitimate concerns about TikTok, and the White House accepting such a deal would demonstrate that this exercise was pure grift.”

Oracle Chairman Larry Ellison has been seen as a Trump supporter in the run-up to the November 3 presidential election.

In February, Ellison organized a fundraising event at his California estate for Trump two weeks before California’s primary election, which reportedly caused dissent among employees at the generally apolitical company. However, in his interview with Forbes in April, the Oracle owner clarified his position saying, ”Be absolutely precise. I said President Trump could use the property. I was not there.” He also said that he had never given money to Trump but would support any president holding the office. “We only have one president at a time. I support him and want him to do well,” he added.

Oracle, which is an American multinational cloud software and technology company, is not as big a player as other giants like Microsoft, which was believed to be the favorite to acquire TikTok’s US operations. Interestingly, Oracle has had a rockier relationship with China in the recent past than Microsoft. In 2019, the company fired around 900 employees from its R&D team in China.

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