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Trump’s TikTok Drama Was Just Another Empty Threat

Trump’s TikTok Drama Was Just Another Empty Threat

Sunday, 20 September, 2020 - 06:00

The TikTok saga is finally drawing to a messy conclusion, and it appears President Donald Trump may be content to backpedal and take a deal that is similar to something that was there all along.

On Saturday, Trump told reporters he has approved Oracle Corp.’s plan for TikTok “in concept” and has given the bid his “blessing.” The president said the new entity, called TikTok Global, would most likely establish a headquarters in Texas, hire “at least” 25,000 people and establish a $5 billion education fund for Americans. According to Bloomberg News, the proposal entails Oracle and Walmart Inc. taking a 20% stake in the new venture. In addition, US investment firms General Atlantic and Sequoia Capital, which are investors in TikTok-owner ByteDance Ltd., are expected to take stakes as well. Bloomberg News also reported that under the terms of the agreement from earlier this week, ByteDance will retain an ownership stake in the restructured company and have control over TikTok’s algorithms. Further, Oracle would have access to TikTok’s source code to assess any changes. After Trump’s announcement, the Commerce Department said it would delay the restrictions it had announced on Friday that would have forced US app stores to remove TikTok for new downloads on Sunday.

But this plan is a far cry from what the White House had been demanding for months. In August, Trump signed executive orders that gave deadlines for ByteDance to divest its American operations and prohibited US residents from doing business with the China-based company, citing national security concerns. In addition, Trump had repeatedly vowed to ban the app if there wasn’t a complete sale agreement for TikTok’s US operations to an American company by Sept. 15. Strangely, though, the momentum for a full sale morphed into Oracle serving as a “trusted technology partner” to ByteDance. Perhaps the move by China’s commerce ministry in late August to add artificial intelligence technology-related items to its export restriction list made the bigger transaction impossible, spurring ByteDance to reject the comprehensive bid from Microsoft Corp. last Sunday. And it is also possible Oracle co-founder Larry Ellison, one of the few technology executives who has supported President Trump politically, was able to leverage his warm relationship with the White House to win the deal as well.

Assuming this latest iteration of the deal stands, does it truly change anything? Somewhat. From the beginning, the White House had three basic goals: Total American ownership of the US-based TikTok; protections against the TikTok algorithm potentially spreading disinformation; and data security.

Obviously, Oracle’s and Walmart’s partial stake deal and ByteDance’s retention of its algorithm mean the first two requirements aren’t fully met. And while having Oracle act as the official data guardian may appear reassuring from a security standpoint, the situation won’t be drastically different from the current state of affairs. TikTok has always said American data is kept securely in the US with backups in Singapore. So replacing other American cloud-computing providers with Oracle won’t be a big change. Further, while Oracle will reportedly be able to monitor any changes in the software code, the technical challenge to make sure all modifications aren’t problematic is enormous.

Trump’s willingness to accept a water-downed deal indicates how this saga was as much about scoring political points than truly caring about TikTok’s national security risks. Oracle’s proposal is similar to what ByteDance was willing to do months ago — from the creation of an autonomous TikTok management structure to the designation of a new headquarters outside of China. Plus, the company had already vowed it would add 10,000 jobs in the US

But the political calculus for Trump is complicated. If he does follow through on a TikTok ban, it would risk annoying tens of millions of Americans who enjoy using the short-video app right before the presidential election. Moreover, a ban might spur China to retaliate against US businesses within its borders, which could hurt the US stock market. That’s a scenario he wants to avoid.

So that’s Trump predicament, but what’s in it for Oracle? At first blush, an Oracle-TikTok partnership seems strange. The enterprise database software company has no background in the consumer internet and social media markets. Yes, the app will be a marquee client for Oracle’s budding cloud-computing service, but it will not be enough to make it a significant player in the market against the leaders, Amazon Inc. and Microsoft.

That is not to say TikTok isn’t an attractive asset for Oracle. The social-media service has thrived by focusing on 15-to-60-second videos and its best-in-class ability to surface the most relevant entertaining content to each user. According to TikTok, 100 million Americans now use the app each quarter to go along with nearly 700 million monthly active users worldwide. Under proper cultivation, and if it can continue the current growth trajectory, TikTok could be worth a lot more in the ensuing years.

Moreover, Walmart’s participation in the buyout opens exciting new monetization opportunities for TikTok. The retailer has identified e-commerce innovations in international markets that can be imported domestically. TikTok creators with more than 1,000 followers can already start livestreams and receive monetary gifts. Adding Walmart’s e-commerce capabilities for these streaming creators is low-hanging fruit to generate new revenue streams.

But the goal for for Oracle and its other partners may primarily be financial. The US investment firms most likely wanted to participate in TikTok’s bright upside by maintaining their stakes. The group’s ownership may be a stopgap for an eventual initial public offering of an independent TikTok.

Overhanging everything is some political uncertainty. The Chinese government still needs to fully sign off on the deal, which is not guaranteed. Beijing could still find the terms are too onerous, it could become another trade war bargaining chip, or it may use an approval period to delay a decision. Then it will be up to Trump to decide again whether he wants to follow through on his threat to ban the app.

If the deal does go through, it is clear no one will get everything they wanted, but each party will walk away with something. Trump will get some political talking points about creating more US jobs and safeguarding Americans’ data, at least rhetorically. Oracle and the US investors get the possibility of a winning investment. And ByteDance won’t have to give up its precious algorithm. But the biggest winners of all? That would be TikTok’s users, who can breathe a sigh of relief that their favorite app won’t be going away.


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