TikTok has chosen Oracle as U.S. ‘technology partner,’ rejecting Microsoft’s bid

It’s also unclear whether the Trump Administration will approve the deal with Oracle. President Trump previously issued an order that would ban the app in the U.S. beginning Sept. 20. He followed it with a second order that would essentially require TikTok’s Chinese parent company, ByteDance, to divest from its operations in the U.S.

Both Microsoft and Oracle were bidding for that business.

Microsoft said separately Sunday in a blog post that its offer to acquire TikTok‘s U.S. operations was rejected. Microsoft was the first to confirm it was courting TikTok this summer as President Trump threatened to ban the app over national security concerns.

“We are confident our proposal would have been good for TikTok’s users, while protecting national security interests,” Microsoft said in its post. “To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combating disinformation, and we made these principles clear in our August statement.“

Oracle and TikTok declined to comment. The White House did not have an immediate comment.

While Oracle never seemed like a logical acquirer of TikTok’s U.S. assets, it had one thing going for it during its pursuit: a close relationship with Trump. Oracle’s chief executive Safra Catz has dined at the White House with Trump, and served on the president’s transition team after his election in 2016. Oracle’s co-founder and chairman Larry Ellison hosted a fundraiser for Trump this year.

Earlier this year, Ellison helped convince Trump, after a series of conversations, that Chloroquine and hydroxychloroquine, two old anti-malarial drugs, may be game-changing treatments for covid-19. Ellison helped arrange a partnership between Oracle and the federal government to crowdsource that idea by collecting data in real time from doctors trying out those and other unproven drugs on covid-19 patients.

The TikTok deal has been facing a series of obstacles for more than a month and was thrown another hurdle in recent weeks when the Chinese government got involved, slowing the bidding process. Beijing established export rules that prevent the sale of some artificial-intelligence technology that likely includes TikTok’s personalized recommendation algorithm.

The algorithm is TikTok’s secret sauce, technology that makes the service so popular and addictive to its users. Without it, the company’s value to an acquirer is significantly diminished.

Had Microsoft been able to acquire TikTok’s U.S. business, Stifel, Nicolaus & Co. analyst Brad Reback said the company was well positioned to leverage its operations to make a deal pay off.

“It’s an extraordinary assets with all sorts of ways to make money,” Reback said.

Oracle, though, doesn’t have the operations, such as an online advertising business, to make an acquisition of TikTok’s U.S. operations pay off, he said.

“Oracle’s experience with consumer assets is zero,” Reback said.

While the phrase “technology partner” is vague, Reback said he thinks the agreement likely calls for Oracle to provide rudimentary cloud infrastructure services, essentially basic storage and computing functions.

TikTok previously filed a legal challenge against the government’s order to ban the video app.

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