Explainer: Why Oracle has a starring role in proposed TikTok deal
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For several years, Oracle has provided cloud services for TikTok in the US.
PHOTO: REUTERS
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The US and China are edging towards a deal to resolve the future of TikTok in the US, with Oracle cast in a starring role.
Under a US law passed in 2024, TikTok’s Beijing-based parent company ByteDance must divest its US operations or face a ban of the app.
US President Donald Trump is negotiating an arrangement with China that would spin off TikTok’s US operations to a group of American investors, including Oracle.
For several years, Oracle has provided cloud services for TikTok in the US, maintaining a firewall between American users’ data and ByteDance employees in China.
The deal under negotiation would expand the company’s role: Oracle would audit the recreation of a new US version of TikTok’s algorithm, as well as continue to secure and manage US users’ data.
Here is what to know about Oracle’s relationship with TikTok and its place in the proposed plan.
How do Oracle and TikTok currently do business?
No US company is more intertwined with TikTok than Oracle.
The short-video app is one of Oracle’s most important cloud services customers.
In 2020, TikTok became a crucial early client when Oracle was trying to build what was then a nascent part of its business.
Oracle currently provides cloud services for TikTok in the US, storing American users’ data and keeping it private from ByteDance employees in China.
TikTok has often invoked Oracle in its years-long struggle to avoid a US ban.
The US tech stalwart has a well-established relationship with the Trump administration.
Its co-founder and biggest shareholder, Mr Larry Ellison, is close to the President.
TikTok has sought to associate itself with Oracle to satisfy China hawks’ national security concerns.
To that end, in 2022, TikTok touted a high-profile data hosting partnership with Oracle dubbed “Project Texas” – a nod to the home of Oracle’s headquarters.
TikTok said it spent more than US$1 billion (S$1.29 billion) on changes limiting ByteDance’s access to sensitive US user data.
Despite the arrangement, Project Texas was never accepted by US regulators as adequate to address national security concerns.
What is Oracle’s role in Mr Trump’s proposed deal with China?
Under the framework now being discussed, Oracle would keep its lucrative role as TikTok’s cloud provider and pick up new responsibilities.
The company would help oversee the recreation of a US-only version of TikTok’s recommendation algorithm, which will be retrained “from the ground up” so that the software runs independently of ByteDance, according to the White House.
Oracle would then help oversee the algorithm on an ongoing basis, monitoring for improper manipulation or surveillance.
US user information would continue to be stored in an Oracle-run cloud with security controls designed to block access from China or other foreign adversaries, a Trump administration official said.
ByteDance would not have access to TikTok US subscriber data or involvement in the algorithm under the proposed arrangement, the official added.
Oracle would also work in partnership with the US government on tasks ranging from algorithm retraining to source-code review.
It is unclear the extent to which the US government would be involved in oversight of the TikTok app.
In addition, Oracle is expected to take a small stake as part of the investor group that would take ownership of most of ByteDance’s interest in TikTok US, alongside firms such as Andreessen Horowitz and Silver Lake Management.
What else do we know about the proposed deal?
The ownership structure is designed to meet requirements under US law.
ByteDance’s stake in TikTok US would fall below 20 per cent.
Meanwhile, six of seven board seats would be filled by Americans with national security and cyber-security backgrounds, while ByteDance would choose one director who would be excluded from the new venture’s security committee, the official said.
The American consortium would lease a copy of TikTok’s prized algorithm from ByteDance, but TikTok US would retrain and operate it independently.
That system would be continuously monitored by Oracle to ensure content is free from outside influence, according to the White House.
China’s position remains uncertain.
Mr Trump said Chinese President Xi Jinping gave his approval during a Sept 19 phone call
Mr Trump has also suggested that the US could receive what he described as a “fee plus” for brokering the deal, but details remain unclear.
What happened when Oracle tried to buy TikTok in 2020?
Oracle was part of an investor group that tried to buy TikTok’s US operations in 2020, the first time that Mr Trump tried to force a sale of the video app.
That autumn, the group’s bid to acquire TikTok’s US operations was initially approved by ByteDance and submitted to the US government for a security review. Mr Trump also blessed the deal.
Under that arrangement, the cloud giant would have taken a minority ownership stake in TikTok’s global business and provided technology and data storage services for the app to protect US user data.
But the arrangement hit a snag when officials in Washington and Beijing disagreed over whether ByteDance would maintain any involvement in the new TikTok entity.
The deal fizzled and Mr Trump turned his attention to the 2020 election. It officially fell through once Mr Joe Biden was elected president.
Why is TikTok’s algorithm so valuable?
TikTok’s content algorithm is the software that determines what videos users see in their feed.
It is widely considered to be an important reason TikTok is so successful and sticky with young people.
The algorithm can determine users’ interests and feed them videos that are most likely to keep them watching.
Given its key role in driving user growth and engagement, the algorithm is considered a valuable part of any potential deal.
But US law stipulates that ByteDance cannot have any role in TikTok’s US operations, including building or maintaining the algorithm.
Chinese law, meanwhile, forbids the export of certain highly valuable technologies.
The plan for US investors to license the algorithm temporarily is a proposed workaround to these two laws, though it is not immediately clear whether Beijing will go along.
What’s the relationship between Mr Trump and Mr Larry Ellison?
“He’s sort of CEO of everything – he’s an amazing man, an amazing businessperson,” Mr Trump said of Mr Ellison during a White House event in January on the first full day of his second term as president.
Mr Ellison has donated to Republicans, including Mr Trump, and Ms Safra Catz, who served as Oracle’s chief executive from 2014 until Sept 22, was part of Mr Trump’s transition team ahead of his first term.
It is unclear who else might join the proposed consortium of American owners of TikTok US.
In the past, Mr Trump has also floated Fox chairman Lachlan Murdoch and Dell Technologies founder Michael Dell as potential participants
What happens next?
The divestiture deadline for ByteDance is currently Dec 16
The president is expected to sign an executive order approving the Oracle-led plan and granting 120 days for the deal to close.
The ultimate outcome will hinge on whether lawmakers in Congress are satisfied that the plan to license ByteDance’s algorithm and retrain it with Oracle’s oversight fully disentangles TikTok from ByteDance, and whether Beijing sanctions the plan.
Several US lawmakers instrumental to the law’s passage have said they plan to scrutinise the extent to which ByteDance retains any operational relationship with TikTok under the deal. BLOOMBERG
