We woke up this morning to the news that ByteDance, the owner of TikTok, has sent a proposal to the Federal Government to have Oracle as its US “technology partner”. It has rejected the highly-expected proposal from Microsoft to sell its US business. Citing concerns that Americans’ personal data would be shared with the Chinese government, the White House had imposed a Sept. 20 deadline for ByteDance to announce a plan for a sale of TikTok in the U.S. or be banned by Sept. 29. The deal would have to be done by Nov. 12. ByteDance denied that TikTok data was shared with China.
The first reaction I had was “how does this make sense for Oracle and ByteDance to combine their business’? An outright purchase of ByteDance’s US operation will throw Oracle into a market segment which is far away from its core. Oracle sells its database software and ERP applications to large enterprises and it has never dabbled in the consumer sector (unlike Microsoft which primarily served the consumer market, but has expanded to the enterprise with its Azure cloud and Dynamics app.). According to CNBC, “As an app that entertains people, TikTok stands out from the rest of Oracle, which sells software to large businesses, schools and government institutions. Oracle and TikTok share an interest in marketing, though. TikTok derives revenue by showing users ads, and Oracle offers software that marketers can use to manage the distribution of ads on Facebook and other channels. TikTok has been adding users quickly, while Oracle’s revenue has declined in four of the eight most recent quarters”.
On closer look, the “technology partner” deal is not an outright purchase, but shows a way to address the concern of data security of the US users. Serving as a technology provider to TikTok might mean Oracle will offer its cloud infrastructure for the app to use. That would give Oracle another popular property for its executives to boast about as a cloud client, and it could attract additional cloud business where it is way behind Amazon, Microsoft, and Google. By providing its cloud infrastructure to TikTok it wins a huge customer. Few months ago, it won a big contract from Zoom, the fast-growing video-call provider. If this ByteDance deal goes through, then Oracle gains a stronger foothold in the cloud infrastructure market. It’s differentiator in that market is its autonomous and highly scalable database plus the security features. Having Zoom and ByteDance as its customers in the growing consumer and small business market, it gains big.
This is also a political move by Oracle. With its inside access to the White House and federal government, it will, most likely, convince the authorities that a partnership deal will alleviate any fear of security breach of customer data. Hence a full acquisition is not needed. Oracle will have a big stake in ByteDance’s US business, but will let it run independently as now.
Oracle started its business back in 1977 with the CIA as the first customer on a secret consulting project called Oracle. That’s how the name of the company was given. It always had a strong federal/state government presence. This latest move only enhances its government relationship and will pave the way for more business in future. If approved, this will be a smart move by Oracle after all.
Jnan Dash's Weblog 