ByteDance, TikTok and Oracle seek to create an unlikely partnership that already is raising doubts about whether it will meet U.S. national security requirements set forth in an Aug. 14 executive order from President Trump.
A proposed partnership between ByteDance, TikTok and Oracle (NYSE:ORCL), of Redwood Shores, California, is seeking approval from the White House and the Treasury Department to accept their alliance. However, President Trump’s order called for ByteDance Ltd., of Beijing, China, to divest all interests and rights in any assets or property used to enable or support the operation of its TikTok video-sharing, social-media app in the United States within 45 days.
Technology solutions provider Oracle, at least for now, appears to have outmaneuvered Microsoft (NASDAQ:MSFT), the giant Redmond, Washington, computer software and systems company that reported reduced growth in its most recent quarterly results and expressed strong interest on Aug. 2 in buying parts of the TikTok app from ByteDance. Oracle confirmed a statement from Treasury Secretary Steve Mnuchin that it would take the role of a “technology partner” in the arrangement that reportedly would include it buying a minority ownership stake in TikTok but leave ByteDance with controlling interest as the majority owner.
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ByteDance, TikTok and Oracle Seek to Create an Unlikely Partnership Outside President’s Boundaries
The proposal, submitted to the U.S. Treasury Department during the weekend of Sept. 12-13, reportedly also came before the Committee on Foreign Investment in the United States (CFIUS) on Tuesday. The interagency committee, chaired by Treasury Secretary Munchin, also consists of the Secretaries of State, Defense, Commerce, Energy and Homeland Security, as well as the Attorney General, the Director of the White House Office of Science and Technology Policy and the U.S. Trade Representative. No announcements had been made by press time about whether CIFUS would approve, reject or require modifications to the proposal.
For Oracle, any role in a growing social media application such as TikTok would be a significant extension of its existing business and create buzz for the Silicon Valley stalwart. It might have seemed preposterous years ago to imagine a company called ByteDance, owning another known as TikTok, and partnering with venerable software behemoth Oracle, but it could happen if the companies can structure the deal in a way to satisfy U.S. and Chinese regulators.
The alliance, which would move TikTok’s headquarters to California from China, seems designed to profit from cloud computing that offers on-demand availability of data storage and other capabilities, without direct action from the user. Still unclear is whether the partnership would end the security threat to the United States that the data TikTok collects from U.S. consumers could be shared with the Chinese government.
ByteDance, TikTok and Oracle Seek to Create an Unlikely Partnership in the Cloud
“The deal is Oracle’s attempt to become a major player in providing cloud computing services,” said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets and head of the Retirement Watch investment newsletter. “Oracle missed the first phase of cloud computing growth. It preferred to continue its successful practice of selling database software to clients and having them buy the hardware to support it.
“Many businesses now want a lot of their operations to be on the cloud, and Oracle hasn’t established itself as a [top] provider of cloud services. If it acquires TikTok, Oracle plans to move TikTok’s operations onto Oracle’s cloud servers. If Oracle is able to provide the services for this high-volume client, that would give it the credibility to compete in that sector against Amazon.com, Google and Microsoft.”
Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz in an interview before social distancing became the norm after the outbreak of COVID-19.
Oracle ideally also would gain access to TikTok’s algorithms and gather some insight into how to improve its software offerings, Carlson continued. Since key details of the proposal have not been publicly disclosed, it is unclear exactly what control of the data and algorithms Oracle may obtain.
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“Big Tech’s size was a comfort in the early pandemic and now it’s dead weight,” said Hilary Kramer, host of a national radio program called “Millionaire Maker” and head of the GameChangers and Value Authority advisory services. “Microsoft, in particular, looks like it’s going to struggle to regain its recent peak, which is going to be a challenge for the entire sector when you’re dealing with a $1 trillion company. The TikTok deal would have given it the push it needed, but no deal means no push.”
Can ByteDance, TikTok and Oracle Gain Approval with Their Unlikely Partnership?
Oracle issued a statement about its 40-year track record providing secure, high-performance technology solutions but one of the keys to its role in the partnership may be company Chairman Larry Ellison, who discussed the potential of the company’s Oracle Cloud Infrastructure (OCI) optimistically during a Sept. 10 earnings call. He stated that the company’s medium and large application customers would become, in the not-too-distant future, “infrastructure customers.”
Zoom Video Communications Inc. (NASDAQ:ZM) and 8×8, Inc. (NYSE:EGHT) are two high-growth video-conferencing businesses that have become significant Oracle Cloud Infrastructure customers, Ellison said during the call. Zoom turned to Oracle to handle its booming growth that was fueled by the work-from-home policies that became standard amid the COVID-19 crisis, while voice over IP services provider 8×8 chose it in a competition with industry leader Amazon.com and the latter’s web services unit.
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Plus, it does not hurt to be a supporter of President Trump, said Jim Woods, editor of Successful Investing and Intelligence Report investment newsletters, as well as the Bullseye Stock Trader advisory service. Ellison’s role with the partnership might help it negotiate an agreement with the administration, especially since the alliance does not meet the requirements of the Aug. 14 executive order, based on what has been reported thus far.
“Aside from politics, the deal is likely to be a win-win for both Oracle and TikTok, as it gives the former a hot new app and it gives the latter the tech pedigree in needs to operate in the United States,” Woods said.
Paul Dykewicz interviews Jim Woods before the COVID-19 crisis.
ByteDance, TikTok and Oracle Seeking to Create an Unlikely Partnership with Potential
“From a strategic standpoint, Oracle getting into the social media business makes sense in that their cloud division stands to gain from the deal as a minority partner,” said Bryan Perry, who leads the Cash Machine investment newsletter and the Premium Income, Quick Income Trader, Breakout Profits Alert and Hi-Tech Trader advisory services. “It stands to reason TikTok will provide a growth driver for Oracle at a time when the company needs to generate some new channels of growth.
“Oracle is a low-profile enterprise computing business that gets little if any headlines that move its stock. TikTok is a high-profile business that will keep the key word algorithms busy paying lots of attention to all things TikTok, and hence some things Oracle.”
The proposed partnership also is good publicity, even if TikTok is a “long way from monetizing” its business model through sponsored-advertising expenditures, Perry said. The announcement of the proposal with a trendy social media video service should only enhance the reputation of Oracle, he added.
Paul Dykewicz interviews Bryan Perry at a MoneyShow conference.
Will ByteDance, TikTok and Oracle Seeking to Create an Unlikely Partnership Solve Security Concerns?
President Trump’s executive order stated TikTok’s data collection allows the Chinese Communist Party access to Americans’ personal and proprietary information — potentially tracking the locations of federal employees and contractors and allowing U.S. adversaries to build dossiers of personal information for purposes of blackmail and corporate espionage. The Department of Homeland Security, Transportation Security Administration and the United States Armed Forces have already banned the use of TikTok on federal government phones.
“TikTok also reportedly censors content that the Chinese Communist Party deems politically sensitive… concerning protests in Hong Kong and China’s treatment of Uyghurs and other Muslim minorities,” according to President Trump’s executive order. “This mobile application also may be used for disinformation campaigns that benefit the Chinese Communist Party, such as when TikTok videos spread debunked conspiracy theories about the origins of the 2019 Novel Coronavirus.”
Plus, India’s government recently banned the use of TikTok and other Chinese mobile applications throughout its country. India’s Ministry of Electronics and Information Technology asserted that the Chinese were “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India.”
China’s lack of transparency of the severity of the COVID-19 crisis that originated there does not help the country’s interests in its relationship with the United States. The global COVID-19 pandemic’s immense human toll includes 29,477,183 cases and 933,490 deaths globally, along with 6,604,156 cases and 195,765 deaths in the United States, as of Sept. 15. America has amassed the most cases and deaths by far of any country.
President Trump gave ByteDance 45 days from his Aug. 14 order to remedy the problem with TikTok but conceding merely a minority stake without giving up controlling interest and providing assurances the data of Americans will be protected is expecting a huge concession from the administration. Nonetheless, the proposal shows a willingness to compromise, while still leaving a void that may well require further negotiations to bridge.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.