President Donald Trump said Saturday that he has in-principle approval a deal where enterprise software maker Oracle and retail giant Walmart will partner TikTok in the U.S. Shortly after the president’s comments, Oracle said it was chosen as TikTok’s secure cloud provider and will become a minority investor with a 12.5% stake in the company.
The deal “is somewhere between a new vendor agreement in the cloud and a joint venture, all with the goal of satisfying the U.S. and creating value for the owners,” Jason Davis, associate professor of entrepreneurship and family enterprise at INSEAD, said on “Capital Connection.”
He said the deal was “interesting” for Oracle, and that he thinks TikTok Global would likely strip out Google’s cloud infrastructure on its platform in favor of Oracle.
For its part, Oracle has struggled to compete against the likes of Amazon, Microsoft, and Google in cloud services. A report from research firm Gartner indicated in 2019, the latter three companies all picked up more cloud revenue than Oracle. Microsoft appeared to be the front runner in the race to buy TikTok’s U.S. operations until Sept. 13, when it announced that TikTok’s Beijing-based parent company ByteDance had rejected its bid.
TikTok said in a statement Saturday that Oracle will be responsible for “hosting all US user data and securing associated computer systems to ensure US national security requirements are fully satisfied.”
“Now, Oracle can actually claim to be hosting what might be the two most important sites of our generation — both TikTok and Zoom. And, they take away a good chunk of equity in TikTok in the process,” Davis said. “For them, it’s quite an interesting deal.”
Earlier this year, Zoom selected Oracle to expand its cloud infrastructure and passed upon industry leaders Amazon Web Services, Alphabet’s Google Cloud Platform, and Microsoft’s Azure Cloud. The video conferencing platform saw its popularity soar due to the coronavirus pandemic that forced many people to work and learn remotely.
Alongside Oracle’s 12.5% stake, Walmart said it tentatively agreed to purchase a 7.5% stake in TikTok, and CEO Doug McMillon would serve as a board member of a newly created U.S.-headquartered company, TikTok Global.
ByteDance, which owns TikTok, said it would own a majority stake in TikTok Global that appeared to contradict Trump’s claims the deal had “nothing to do with China.” Since about 40% of ByteDance is owned by U.S. venture capital firms, the Trump administration can technically claim TikTok Global is now majority-owned by U.S. money.
ByteDance also said it will not be transferring its algorithms or technology to Oracle even though the latter would be able to inspect the source code to TikTok.
Oracle LONG (Buy)
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