The TikTok train wreck – US rejects Oracle’s bid, could Microsoft be back in play?

Tiktok On Phone 2
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Email Twitter: @kipkniskern Sep 18th, 2020 inOpinion

(Quick update: TikTok has vowed to fight the ban)

Even though Microsoft’s bid for the popular short video sharing service TikTok was rejected last week, news has been churning on the fate of TikTok’s US operations. Yesterday, it seemed as though there may be a resolution in hand, as a proposal to partner with Oracle and Walmart, with ByteDance Ltd, the Chinese owners of the app to retain a majority stake in worldwide operations, but transfer all data storage etc. to Oracle servers. Even though ByteDance apparently sought out Oracle in an attempt to mollify President Trump (Oracle co-founder Larry Ellison and CEO Safra Catz are big Trump supporters financially), the US Commerce Department didn’t bite, announcing today that as of Sunday September 20th, US companies would be prohibited from allowing downloads or updates of TikTok and WeChat apps, and would then on November 12th (September 20th for WeChat), ISPs and CDNs would be banned from distributing the service, meaning a complete shutdown in the US.

The September 20th deadline for TikTok only bans app stores from allowing new downloads or updates to the apps, which on the surface seems like a security issue of it’s own. ByteDance would be prohibited from applying security patches, etc. However, that only lasts until November 12th, where the app will be banned completely.

This seems especially bad for WeChat, and the mostly Chinese people in the US that depend on the service to communicate with friends and family in their homeland. As there’s no proposal on the table for a buyout of WeChat, and as most communications apps like Facebook Messaging and Twitter are banned in China, these people will be suddenly cut off from a method of communicating they’ve come to depend on.

It must be noted, however, that there does remain some basis for US concern about the dangers of these apps continuing to operate in the US, as today’s Commerce Department announcement outlines:

While the threats posed by WeChat and TikTok are not identical, they are similar. Each collects vast swaths of data from users, including network activity, location data, and browsing and search histories. Each is an active participant in China’s civil-military fusion and is subject to mandatory cooperation with the intelligence services of the CCP. This combination results in the use of WeChat and TikTok creating unacceptable risks to our national security.

In unraveling what’s becoming a giant mess, there are a number of things to remember:

  • While much has been made of Oracle’s connection to Donald Trump, it’s also worth noting that ByteDance attempted to use that connection to get a deal that would result in less than a complete sale. ByteDance was hoping that a connection to Trump-friendly Oracle, along with a promise of 20-25,000 new US jobs as TikTok’s global operations moved here. That apparently hasn’t worked, however.
  • Resistance to a sale is coming not only from ByteDance itself, who sought in the Oracle proposal to maintain a majority share, but also for TikToks venture capitalist investors. A sale now would mean VCs would lose out on a lot of potential earnings as rapidly growing TikTok becomes more and more valuable. In the Oracle bid, the VCs retained their stake, while in a Microsoft bid it didn’t look like they would.
  • A ban could actually add to the mess, not clean it up. Oracle, Venture Capitalists, and even TikTok creators could sue over lost income from this ban. US would have to prove there is really a threat, not just election year posturing. (note: I am not a lawyer, but financial damages from the ban seem clear).

As this is a Microsoft-centric blog, what does this have to do with Microsoft, as their bid was rejected and they’re out of the running? Well, first of course, Oracle hasn’t actually won anything. ByteDance took a gamble that the Trump Administration would look the other way in order to reward their friend Larry Ellison, but that hasn’t happened.

One interesting twist, Mary Jo Foley reported the other day on Microsoft’s efforts with MetaOS, a new initiative at Microsoft that reportedly seeks to gather all of the company’s business and consumer interests in a more easily accessible bundle. In Foley’s telling, TikTok might fit right in, making more sense of the company’s interest in the consumer oriented video platform:

Under CEO Satya Nadella, Microsoft has refocused on its core business constituency from a strategy and product perspective. But the company has not given up on the idea that it can build on the “pockets of strength” it believes it has in the consumer space by focusing first on productivity-minded consumers and gamers. (An aside: When looking at this MetaOS strategy, it’s relatively easy to see how/why Microsoft might have tried to slot TikTok in here to help it push its message that its products aren’t just for businesses, but instead focused on the whole life experience.)

In announcing their rejection, Microsoft made clear that their bid was much more in keeping with Trump’s original executive order:

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. To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation, and we made these principles clear in our August statement. We look forward to seeing how the service evolves in these important areas.

The last sentence does not sound like Microsoft has completely given up, or that it expected ByteDance’s gambit with Oracle to work. Of course there’s still a lot in play here, and Oracle could still come back with a more acceptable bid, but don’t count Microsoft out quite yet.

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