The most valuable asset for ByteDance is the intellectual property (IP) within TikTok and the China-based company has successfully offloaded geopolitics while keeping its secret codes safe by choosing Cloud major Oracle as its trusted tech partner.
The algorithmic models at the core of TikTok for content recommendations are continuously refined over a huge data set that will continue to grow.
In an effort to show some transparency, ByteDance recently unveiled details of how these algorithms work.
“This is a massive competitive moat for ByteDance, and this partnership excludes this item. The company must exclude it because the Chinese government updated its regulated catalog for technology export on August 30, and ByteDance cannot sell the core TikTok IP without permission,” Jeff Pollard, VP, Principal Analyst, said in a Forrester paper on Tuesday.
That makes a deal with some degree of oversight by a US company friendly with the intel community tolerable if it means continued operations in the US market.
“So, as a short-term measure to avoid the forthcoming ban, this partnership makes a great deal of sense, but it doesn’t necessarily end the saga of where TikTok eventually lands,” added a Forrester team of analysts in the paper.
The confirmation by Oracle to become a trusted tech partner of ByteDance came on Monday, a day after Microsoft, which was among the frontrunners to seal a deal for TikTok’s US operations, revealed that its bid was rejected by ByteDance.
“The announcement is murky at the moment, but the particulars indicate that Oracle and ByteDance will enter into a technology partnership to host the US operations of TikTok. This allows TikTok to escape planned shutdowns and gives the US government some degree of oversight into the operations of TikTok,” Forrester explained.
The deal is important for Oracle that is frustrated at being behind the global top four hyperscalers in public cloud revenue (behind Amazon Web Services, Microsoft Azure, Alibaba Cloud, and Google Cloud) and has been vying with IBM to grow its cloud in two dimensions at once: expand its penetration in the traditional enterprise and prove its cloud platform’s scalability and “hip factor” with well-known brands such as Zoom.
“Nothing is hipper than TikTok at the moment, and TikTok has 100 million monthly active users in the US, putting a checkmark by both of Oracle’s goals,” Pollard noted.
This also gives Oracle access to a (small) monetization stream that its hyper-scale competitors all possess: owned advertising inventory.
This partnership may finally open this avenue up to Oracle, who has traditionally operated in the advertising technology side of the equation.
Oracle Chairman Larry Ellison has a long history of working with the US government “specifically the intelligence community,” said the paper.
Oracle’s first customer was the CIA, and the company is named after a CIA project Ellison and co-founders worked on prior to starting the company.
“Based on the ambiguity in the current deal, it’s unclear exactly what degree of insight this will provide — and it appears Oracle gains little control over TikTok — but the links between the US government and Oracle certainly make the deal more likely to pass through White House review, which is required before the partnership is authorized,” the Forrester team emphasized in the paper.
If Oracle takes over US TikTok platform development, it will be the death knell for US TikTok as Oracle alone cannot cultivate and innovate the TikTok platform to keep up with the demands of its young, impatient, and finicky users.
According to the market intelligence and research firm, Oracle should allow the US TikTok team to operate independently if it wants to maintain and grow its user base — much like Microsoft did when it acquired LinkedIn in 2016 and left its team alone so the social network could stay relevant.
“But the US app could ultimately evolve and diverge from the ByteDance version of the app, which is not unprecedented: The WeChat app within China’s firewall is different and more robust than the WeChat app version outside China”.
