Oracle, the US$175 billion ($261.2b) enterprise software giant, has finally bested arch-rival Microsoft in the contest for lip-sync video sensation TikTok. That prompts a question. When is a sale not a sale? When it is a "technology partnership", apparently.
If you were trying to explain this deal to a teenage TikTok fan you might say: imagine the Hype House of influencers tried to convince TikTok star Charli D'Amelio to join, but only succeeded in getting her to redirect her mail. The arrangement looks like a fudge. Instead of an outright acquisition of TikTok's US assets from its Chinese parent ByteDance — something the US government has pushed for — Oracle is expected to seek to host TikTok's US user data and take a stake in the company.
Theoretically, a deal with TikTok could bolster Oracle's cloud business. Its attempt to shift from a legacy vendor of software licences into cloud computing has been slow. In first-quarter earnings to September it reported a mere 2 per cent rise in "cloud services and licence support" on the previous year — although this unit also includes fees for traditional software. Cloud licence and on-premise licence sales rose 9 per cent. Contrast that with Amazon's cloud division, where sales rose 29 per cent in the past quarter. Or Microsoft's, where they grew 47 per cent.
Still, Oracle is ambitious. It secured Zoom Video as a cloud customer this year and tried to win the bid to supply cloud services to the US defence department. It had a US$27b cash pile at the end of the first quarter — more than enough to try to buy in customer business. TikTok is reported to have already signed a three-year deal with Google's cloud business. But it would not be the first business to sign multiple cloud vendor deals.
Buying just a stake in TikTok means Oracle may not trigger China's newly issued restrictions on the export of algorithms. The involvement of a US software giant — one with friendly ties to the White House — is expected to ameliorate US security concerns too. Those worries led the defence department to tell employees to uninstall TikTok from their phones.
But if ByteDance maintains an interest, it is hard to see what this messy drama has achieved — and why US/China security concerns will not recur. For Microsoft, losing out to Oracle looks less like defeat than a lucky escape.
Lex is a premium daily commentary service from the Financial Times
© Financial Times