Oracle Deal With TikTok to Undergo U.S. National Security Review

TikTok has soared to around 100 million monthly users in the U.S., from about 11 million in early 2018.

Photo: tingshu wang/Reuters By
Aaron Tilley

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Aaron Tilley

Updated Sept.

14, 2020 7:36 pm ET

The Treasury Department said it would review an agreement for Oracle[4] Corp. ORCL 2.49% [5] and others to revamp TikTok’s U.S. operations with the aim of avoiding a ban of the popular video-sharing app because of its Chinese ownership. Business software provider Oracle said Monday that it was part of the proposal[6] submitted by TikTok’s Chinese parent ByteDance Ltd. to the U.S. government in which the American tech company would “serve as the trusted technology provider.” TikTok said Monday it believes its proposal submitted to the Treasury Department “would resolve the Administration’s security concerns.” Neither company disclosed details of the arrangement. Oracle beat out Microsoft[7] Corp. MSFT 1.64% [8] to work with TikTok to address Trump administration concerns that the app’s foreign ownership posed a national security risk, people familiar with the situation said Sunday.

President Trump was pushing for a sale of TikTok’s U.S. business and has said those operations would be shut down absent a deal[9].

He signed an executive order Aug.

6 [10]setting a 45-day deadline for an American company to purchase TikTok’s U.S. operations. Treasury Secretary Steven Mnuchin said Monday that his office received a bid proposal from Oracle for TikTok’s operations over the weekend and that the Treasury-led Committee on Foreign Investment in the U.S. would review it this week. “We will be reviewing that at the Cfius committee this week and then will be making a recommendation to the president and reviewing it with him,” Mr. Mnuchin said on CNBC.

Presidents have the power to overrule Cfius recommendations to either clear or block a deal. Oracle is expected to work with TikTok to move data on American users to Oracle’s cloud-computing infrastructure and house that information only in the U.S. Oracle is joining with some of ByteDance’s U.S. investors, and Walmart[11] Inc., which had been working with Microsoft, suggested late Sunday that it is considering joining the Oracle group, according to the people.

For Oracle, the arrangement could give a jolt to the Silicon Valley stalwart’s efforts to transform its staid database business into a major player in cloud computing–if the companies can secure government approval for the plan.

The principal attraction of a TikTok deal is adding a flagship customer to its cloud, people familiar with the arrangement said. TikTok is a globally recognized client and comes with a coveted user base for Chairman Larry Ellison as he seeks to accelerate the shift of the Redwood City, Calif.-based company he founded into a force in cloud computing, one of the most dynamic areas of tech. Oracle currently lags far behind cloud leaders including Amazon.com[12] Inc. and Microsoft.

It mainly provides enterprise customers software to help run their business.

Related Video

Video-sharing app TikTok has come to rival some of the world’s most popular social-media platforms in just a few years. WSJ looks at how Chinese startup ByteDance took TikTok to the masses and why it attracted regulatory scrutiny. Video/illustration: Jaden Urbi/WSJ

TikTok has soared to around 100 million monthly users in the U.S., from about 11 million in early 2018, and they are considered among the most lucrative in the app’s global user base of about 689 million.

Working with TikTok would burnish Oracle’s cloud credentials, in part because the video-heavy nature of the app makes it an especially demanding user, said Ray Wang, founder of the Silicon Valley-based advisory firm Constellation Research Inc. “Oracle is showing it can run the toughest workloads in the public cloud, and that’s what it’s going after,” said Mr. Wang. “Video requires a stable and massively elastic cloud.”

Oracle has worked for decades with the U.S. government, including the national security establishment, and it is well-connected politically. In its announcement Monday, Oracle said it “has a 40-year track record providing secure, highly performant technology solutions.”

Mr.

Ellison, also Oracle’s co-founder and largest shareholder, earlier this year threw a fundraiser at his home for the president[13]. Chief Executive Safra Catz also worked on the executive committee for the Trump transition team[14] in 2016 and has donated to his re-election campaign.

Mr. Trump voiced support in mid-August[15] for Oracle’s involvement in a TikTok deal. “I think Oracle is a great company, and I think its owner is a tremendous guy, a tremendous person.

I think that Oracle would be certainly somebody that could handle it,” he said when asked about Oracle’s potential interest.

More on TikTok

If it goes through, the TikTok deal would mark the second time during the pandemic that Oracle has landed a customer among the biggest winners from the sheltering-at-home period. Oracle became a cloud provider this year to Zoom Video Communications[24] Inc., when the videoconferencing app needed more capacity to handle surging demand among people working from home and students learning remotely.

Oracle’s effort to gain cloud market share[25] from Amazon and Microsoft has started to show results. Growth in its cloud business helped Oracle deliver earnings in the most recent quarter that beat Wall Street’s expectations. Oracle cited the Zoom business for fueling growth even as overall sales advanced modestly.

Soon after gaining Zoom as a customer, Oracle also won another videoconferencing provider, called 8×8[26] Inc., as a cloud customer.

8×8 said it was able to cut its cloud costs significantly with the shift and saw improved performance. “It’s been a very fruitful partnership,” Mehdi Salour, senior vice president of 8×8’s global networks said in an interview.

Does Oracle’s Winning Bid Avert a Ban?[27]

A look at the state of play[28] for the video app’s ownership and the prospects for a deal. In its TikTok pursuit, Oracle joined forces with General Atlantic, Sequoia Capital and Coatue Management LLC, major investors in TikTok’s Chinese parent company, and all hold seats on ByteDance’s board. The firms urged Oracle to join the bidding for TikTok, people familiar with the matter have said, to find an alternative buyer to Microsoft, which was seen as front-runner for the purchase.

The TikTok deal isn’t without risk. In addition to the U.S. national security review, the arrangement could draw scrutiny in Beijing. Both governments have disrupted negotiations over TikTok’s fate in recent weeks, including a decision by China late last month to impose export restrictions[29] on the kind of artificial intelligence algorithms that underpin TikTok.

Some Trump administration officials and members of Congress have expressed concerns about allowing the app to continue to operate in the U.S. as long as it has ties to China.


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Sen.

Josh Hawley (R., Mo.) sent a letter Monday to Mr. Mnuchin asking for the committee reviewing Oracle’s proposed partnership around TikTok to block it. “An ongoing ‘partnership’ that allows for anything other than the full emancipation of the TikTok software from potential Chinese Communist Party control is completely unacceptable, and flatly inconsistent with the President’s Executive Order of August 6,” Mr. Hawley wrote, adding he was open to a sale of TikTok and its software to a U.S. company.

The Chinese government on Monday reiterated its opposition to the U.S. pressure on TikTok. “Without any evidence, they have been abusing national power under the pretext of national security to suppress and coerce non-American companies that have a cutting edge of a particular field,” said Wang Wenbin, a spokesman for the Chinese Foreign Ministry. He wouldn’t spell out Beijing’s view on TikTok’s arrangement with Oracle. A person close to the TikTok talks said a deal that doesn’t involve buying the suggestion algorithms that are considered the app’s secret sauce would be hard to sell to U.S. national security officials.

Mr.

Ellison and Ms. Catz are also plunging Oracle into a social-media market that is increasingly contested. Earlier this month Facebook[30] Inc.’s Instagram launched Reels, its own version of a TikTok-like short video-feature[31].

–Liza Lin, Katy Stech Ferek and Lindsay Wise contributed to this article.

Write to Aaron Tilley at [email protected][32]

Copyright (C)2020 Dow Jones & Company, Inc.

All Rights Reserved.

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References

  1. ^ (www.wsj.com)
  2. ^ @aatilley (twitter.com)
  3. ^ [email protected] (www.wsj.com)
  4. ^ Oracle (www.wsj.com)
  5. ^ ORCL 2.49% (www.wsj.com)
  6. ^ Oracle said Monday that it was part of the proposal (www.wsj.com)
  7. ^ Microsoft (www.wsj.com)
  8. ^ MSFT 1.64% (www.wsj.com)
  9. ^ operations would be shut down absent a deal (www.wsj.com)
  10. ^ an executive order Aug.

    6 (www.wsj.com)

  11. ^ Walmart (www.wsj.com)
  12. ^ Amazon.com (www.wsj.com)
  13. ^ fundraiser at his home for the president (www.wsj.com)
  14. ^ worked on the executive committee for the Trump transition team (www.wsj.com)
  15. ^ Mr.

    Trump voiced support in mid-August (www.wsj.com)

  16. ^ Oracle Wins Bid for TikTok in U.S. (www.wsj.com)
  17. ^ Does Oracle’s Winning Bid Avert a Ban? (www.wsj.com)
  18. ^ Data Privacy Increasingly a Focus of National Security Reviews (www.wsj.com)
  19. ^ Heard on the Street: Oracle’s Spoiler Play for TikTok Won’t Bring the Spoils (www.wsj.com)
  20. ^ TikTok Deal Talks Are Slowed Over New China Rules (www.wsj.com)
  21. ^ Founder of TikTok Wonders What Hit Him (www.wsj.com)
  22. ^ TikTok Files Suit Challenging U.S.

    Ban (www.wsj.com)

  23. ^ Zuckerberg Stoked Washington’s TikTok Fears (www.wsj.com)
  24. ^ Zoom Video Communications (www.wsj.com)
  25. ^ effort to gain cloud market share (www.wsj.com)
  26. ^ 8×8 (www.wsj.com)
  27. ^ Does Oracle’s Winning Bid Avert a Ban? (www.wsj.com)
  28. ^ state of play (www.wsj.com)
  29. ^ a decision by China late last month to impose export restrictions (www.wsj.com)
  30. ^ Facebook (www.wsj.com)
  31. ^ its own version of a TikTok-like short video-feature (www.wsj.com)
  32. ^ [email protected] (www.wsj.com)

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