President Donald Trump's attempts to pull China’s internet money-spinner, TikTok, into an American portfolio has delivered a convoluted deal that is neither here nor there. With both parties claiming control over its U.S. operations, the situation remains at best fluid.
Oracle and Walmart are to buy a minority stake in a new American company that will operate TikTok, now called TikTok Global. With crucial questions over data security, national interest, and the structure still unanswered, the deal is yet to be finalised.
A GROWING TECH WAR
Mr. Trump had threatened a ban on national security grounds by the end of September unless an American company took control of its U.S. operations. With more than 100 million users in the States (its second-largest market), ByteDance owned TikTok, reluctantly agreed to negotiations despite assertions that user data was not being used by the Chinese Communist Party (CCP). It stated that TikTok's data is kept in the U.S. and Singapore, and is thereby not subject to Chinese law.
U.S. government departments have endorsed cutting off Beijing-controlled China Telecom from serving the U.S. market because of legal and security risks. Top departments, including Defence, State, and Homeland Security, said after a broad review, that the Federal Communications Commission should "revoke and terminate" all authorisations for the Chinese giant's U.S. subsidiary, China Telecom (Americas), to provide international telecommunications services to and from the United States.
To be fair to ByteDance, TikTok has never been available in China and instead houses a mainland app Douyin with 600 million daily users. TikTok and Douyin most likely have the same source code, but reportedly have no access to each other's content as their servers are each based in the market where the respective app is available.
However, there is a precedent in data control by the host government. Apple Inc., for example, has stored its mainland Chinese user data in centres operated by AIPO Cloud (Guizhou) Technology since 2018, which is a state-owned Chinese company. Microsoft and Amazon also have local Chinese partners that operate their cloud services independently in China.
THE DEVIL IS IN THE DETAILS
TikTok was first said to be working out a deal with Microsoft, but it fell through. Now, Oracle has stepped up to take over a major part of the 20% share in TikTok via TikTok Global, to handle the firm's U.S. operations, along with retail giant Walmart. Four of the new company's five board members would be Americans, with the fifth person likely to be ByteDance and TikTok founder Zhang Yiming.
While Mr. Trump said the deal “had his blessing”, it is now at a standstill, with neither the U.S. companies nor ByteDance budging from their stance. This is evident by the contradictory statements released by Oracle and ByteDance. "Americans will be the majority and ByteDance will have no ownership in TikTok Global," said executive vice-president of Oracle, Ken Glueck. On the other hand, ByteDance said it would retain an 80% stake in TikTok after selling the remaining to Oracle only as a "trusted technology partner" in the U.S., and Walmart would be its "commercial partner".
Citing an anonymous source, CNN reported that Oracle would be responsible for reviewing the app's source code and algorithm before passing it on to users. The algorithm itself poses challenges, especially after China added personalised content recommendation algorithms to its list of export-controlled items, which would make the deal not happen at all. Now, any recommendation algorithm will need government approval before it can be sold to a foreign company.
The ‘For You’ page is an important part of TikTok’s appeal that curates specifically based on the user's interest and allows one to scroll for hours, constantly finding new content. Without the algorithm, the app wouldn’t be worth much.
ORACLE AND TIKTOK
In a turnaround, now Mr. Trump is declaring that the deal’s approval was contingent to its control by the American companies. He said, "They’re (Oracle and Walmart) going to have total control over it. They’re going to own the controlling interest. And if we find that they don’t have total control, then we’re not going to approve the deal."
Politics are at play here with Oracle co-CEO Safra Catz gaining an edge. He is a major donor to the Trump campaign and was part of President Trump’s transition committee in 2016. Oracle, while still largely important, trails behind AWS, Alphabet* and Microsoft in its cloud infrastructure services. With the deal, Oracle gets a massive new cloud customer to boost its ailing business, and Walmart gets access to the young demographic.
Oracle has very strong ties with the U.S. government as well, making it perfect for Mr. Trump’s vision of a “very American” company handling operations. The billionaire founder, Larry Ellison, worked on a CIA project with the code name 'Oracle', and in 1977, he founded the company with Robert Miner and Edward Oates, naming it after the project. This isn’t to say that Oracle's work with the U.S. government should be frowned upon. Any large organisation needs a database manager. It, however, is pertinent to highlight just how dependent Oracle has been on government contracts since its inception.
- The only people who are really concerned with the outcome of the deal are TikTok’s 1,400 US employees and tens of millions of US users. Just like in India, Tik Tok is a popular and a benevolent employer in the U.S. and its services are extremely popular. But then politics are larger than the consumers themselves.
- The battle for control of TikTok in the U.S. goes beyond social media, security concerns, and who winds up in charge, as it is an extension of the larger U.S. - China trade war.
Technically, the deal will only be marginally addressing the much-pronounced security concerns. Even earlier, given the app’s U.S. headquarters, China could not directly siphon user data. Now Oracle can include code audits, but if ByteDance wants to play the game of China’s security services, it can still plant malware into the system to collect data or exploit other loopholes in the infrastructure designed by its engineers