The parent of TikTok, ByteDance Ltd., appears to be resisting the sale of the U.S. operations of the world's most-popular app, pursuing a so-far vaguely defined partnership with the software company Oracle (ORCL) instead.
It's unclear whether that will satisfy the concerns over national security raised by U.S. President Donald Trump, although Oracle Executive Chairman Larry Ellison is a prominent Trump backer and China basher. Trump has pushed for TikTok to be sold, with a deadline of next week for U.S. companies to cease doing business with it.
Rival bidder Microsoft (MSFT) says it is definitely out of the running. "ByteDance let us know today they would not be selling TikTok's U.S. operations to Microsoft," Microsoft said in a blog post on Sunday.
Oracle has reached a preliminary "technical partnership" with ByteDance for TikTok's operations, according to the Financial Times. Everyone agrees Oracle is doing a deal with TikTok. Quite what kind of deal isn't clear, since neither ByteDance nor Oracle has commented.
The partnership/deal/whateveryouwannacallit does not apparently include a full sale of TikTok. This would attempt to keep both the U.S. and Chinese governments happy, since the United States has ordered TikTok to be sold, and China has essentially ordered that it cannot be sold.
Oracle, which is primarily an enterprise software provider, would likely become TikTok's "preferred technology partner." This would see it run TikTok's cloud operations and store the data of U.S. users, gaining TikTok as a customer. TikTok says it currently stores all U.S. data in the United States, with backup in Singapore and none of the information inside China or in the clutches of the Chinese government. For the time being, it uses the cloud operated by Google owner Alphabet (GOOGL) .
ByteDance is already backed by the venture-capital companies Sequoia Capital and General Atlantic. They will also likely be part of the new ownership structure alongside Oracle, which would take a minority stake, too.
The whole deal is going to get run up the flagpole of the Committee on Foreign Investment in the United States, or CFIUS. That's the body now charged with supervising the TikTok sale and these talks.
But it is actually impossible to satisfy the governmental demands of both China and the United States on this one. China has basically banned the sale of TikTok's "secret sauce" to an overseas company. Trump, meanwhile, has ordered that it has to be sold off.
The former chief security officer at Facebook (FB) , Alex Stamos, says on Twitter that a "deal where Oracle takes over hosting without source code and significant operational changes would not address any of the legitimate concerns about TikTok, and the White House accepting such a deal would demonstrate that this exercise was pure grift."
It's been grift all along. Trump has always been pushing for the sale of a supremely popular app to land TikTok in U.S. hands. This is ironic, since Big Tech in the United States is being investigated for anti-competitive oligopolistic behavior. And Big Tech has finally found a competitor that they have yet to beat at its game.
TikTok was the world's most-downloaded app in August, according to Sensor Tower, with 63.3 million installs, and broke through 2 billion downloads in April. It has around 100 million daily active users in the United States.
It allows users to make 15-second video clips. My teenage daughter loved using it for dance moves. Millions of other teens and tweens use it that way, too. Yes, you could get on there and do really embarrassing things, and if you're dumb illegal things. But it scores pretty low on the list of security threats.
K-Pop fans say they got on TikTok and organized to book tickets to Trump's rally in Tulsa, Okla. back in June. They then didn't show up, tanking attendance. But in this case, TikTok is just the tool. It could have been any other communication app. Likewise, TikTok could be used to train facial recognition. Like any other photo or video app.
Anyway, it's really, really popular. So U.S. and Chinese politicians just have to get involved. If it's popular, that means "concerned citizens" are worried about it. Like vaping, or gangsta rap. Parents can't stand their kids using it so much.
In response to efforts by Trump to force a cut-price sale of TikTok, China on August 28 updated its export controls on 23 types of technology, the first time it had made a change since 2008. China now needs to approve any sale to a foreign company -- and thus a tech "export" -- of any tech that deals with artificial intelligence, 3D printing, drones, lasers, facial recognition and recommendation "push" algorithms.
Beijing's move applies to essentially all technology. But it seems clearly designed with TikTok in mind; the app uses AI and predictive technology to figure out what you've been doing in its videos, and to recommend what videos you'd like to watch next. Beijing said it needed to make these changes to safeguard economic and national security. It also says it will defend the legitimate rights and interests of Chinese businesses.
TikTok has quite rightly sued the U.S. government. It says it is being denied due process. I agree. I said last month that I think they're being unfairly targeted. And I said at the get-go that Trump's action is mafia-style overreach.
Reuters has reported that Beijing would rather see TikTok shut down than allow its sale. TikTok already pulled the plug on operating here in Hong Kong. Faced with the unpleasant choice of refusing to hand over user data to the Hong Kong police, who might be tracing democracy activists, and therefore angering China, or handing over the data and angering the United States, it simply stopped its app from working here.
Trump issued his first executive order against TikTok on August 6, the same day he also issued an order against the WeChat app operated by Tencent Holdings (TCEHY). Chinese-owned apps are proliferating and "threaten the national security, foreign policy, and economy of the United States," Trump states in the order.
TikTok could be used by the Chinese Communist Party to track federal employees and contractors, gather information to use for blackmail, and to conduct corporate espionage. The order also notes that TikTok "reportedly censors" politically sensitive material on topics like Hong Kong's pro-democracy protests and China's treatment of Uighurs in western China. ByteDance certainly does do this within China; TikTok says it never has outside the country.
All U.S. companies must stop doing business with ByteDance (and Tencent's WeChat) within 45 days, those orders stipulate -- meaning they would kick in next Monday, September 21.
But one order wasn't good enough. On August 14, Trump issued a second order on TikTok, saying that parent ByteDance's purchase of rival lip-synch app Musical.ly was prohibited -- a little late, since it already went ahead in August 2018. Shanghai-based Musical.ly was TikTok's springboard into the United States, where it had a big U.S. user base, although Musical.ly itself was also a Chinese-owned app.
As a result of the second Trump order, ByteDance has 90 days from the date of that order to divest itself of all TikTok assets and property that relate to the United States. That would take us through November 13. It's not specified what would happen if ByteDance doesn't comply, but the U.S. attorney general is "authorized to take any steps necessary to enforce this order."
Microsoft was teaming with Walmart (WMT) in an attempt to buy TikTok's business in the United States, Australia, New Zealand and Canada. "We are confident our proposal would have been good for TikTok's users, while protecting national security interests," the company said.
Microsoft says it would have "made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation," doing its level best to imply that will now not happen. "We look forward to seeing how the service evolves in these important areas."
The former Facebook security officer Stamos believes this throwaway line from Microsoft "is an attempt to poison the well against an Oracle deal where they only take over hosting. And MSFT is right to do so," Stamos says.
The Chinese owner Beijing Kunlun Tech was forced to sell the gay dating app Grindr this March to a group of U.S. tech and media investors for US$609 million, due to security threat concerns and what some have cited as blackmail potential.
But ByteDance may point to the sale, approved by CFIUS two years ago, of U.S. insurer Genworth Financial to China Oceanwide Holdings. In that deal, China Oceanwide pledged to use a U.S.-based third-party service provider to store data on Genworth's U.S. policyholders. U.S. authorities agreed this was an effective way to ensure the data did not fall under Chinese rules or control.
The idea that TikTok could be used to spread disinformation or censor content is a valid one. But it applies to all communications tools, even phone lines. Facebook was used by Russian spies to peddle misinformation; having a U.S. owner offered no protection. Police how TikTok vets the information that its users share.
If TikTok user data is too hot for Communist Chinese officials to handle, just make sure it doesn't fall into their hands. Order it to be stored on U.S. shores, and make sure that it is. Then our teens can get on with making dance clips. And we can all move on.
