Inside the ‘Mess’ of TikTok’s Oracle Deal: 3 Things to Watch

Signing a multibillion-dollar deal is never easy — and that’s especially the case with Oracle’s proposed bid to take over TikTok’s U.S. operations. The bid appeared to be nearing the finish line this past weekend, only to hit more roadblocks on Monday. “This whole process has been a mess,” Martin Chorzempa, a research fellow at the Peterson Institute for International Economics, told the Associated Press — and that was a week ago, before the latest ups and downs. Lingering questions remain about the framework of the deal, as well as reservations the Trump administration has over data security concerns, leading to more questions than answers. Here are three to consider: 1. Do we have a deal?  This is the big one, obviously. And right now, the answer seems to change by the hour. On Saturday, President Trump said he had given his “blessing” to the proposed Oracle-TikTok deal, “in concept.” On Monday, though, he appeared to walk back that statement. Just two days later, in an appearance on Fox News, the president said his administration would not approvd any deal that would allow ByteDance, TikTok’s Beijing-based parent company, with some control of TikTok Global, the U.S. subsidiary that would stem from Oracle’s bid. “They will have nothing to do with it,” the president said about ByteDance. “And if they do, we just won’t make the deal.” The president added: “It’s going to be controlled, totally controlled by Oracle, and I guess they’re going public, and they’re buying out the rest of it. They’re buying out a lot, and if we find that they don’t have total control, then we’re not going to approve the deal.” That’s a major roadblock, considering the current framework of the deal. Oracle and Walmart, which partnered on the deal, have proposed grabbing up to a 20% cut in TikTok Global — a subsidiary that expects to file for an initial public offering sometime in 2021, TheWrap reported last week. (Oracle would hold a 12.5% cut.) ByteDance, as Bloomberg reported on Monday, would retain up to the remaining 80% of the offshoot. That’s where it gets messy. While ByteDance has backing from major U.S. investors, including Sequoia Capital and General Atlantic, the fact it would retain so much control could be a real deal-breaker for the White House. There are two real options at play here. The first is that the Oracle deal is approved anyway — and the president caves on the ownership issue. Or it gets blocked by the government, and Oracle and TikTok have to answer why they felt it was worth pushing a deal that didn’t meet one of the administration’s clear stipulations. In addition, the odds that TikTok gets booted from the U.S. in early November would jump considerably. 2. Would the Oracle deal solve national security concerns?  Set aside the ownership issue for a moment. Even if the Oracle deal is approved, it’s still worth asking if this deal resolves the national security concerns the Trump administration was worried about in the first place. Here’s what we know: Oracle would become TikTok’s “trusted technology provider” in the U.S., meaning it would host American user data on its cloud. But it’s unclear if that arrangement would completely block ByteDance from being able to access American user data — and that could be an issue. The administration has voiced concern that the app doubles as a data collection tool for China’s Communist government even though TikTok has denied ever sharing user data with Beijing. But ByteDance, as a Chinese firm, would be legally compelled to share user data — or any other information — if the Chinese government requested it. And as Stratechery’s Ben Thompson pointed out, TikTok’s privacy policy explicitly says it “may share” user information “with a parent, subsidiary, or other affiliate of our corporate group.” In other words — it would have to share information with China’s government. “Moreover, this requisition of data is not subject to warrants or courts, as is the case with U.S. government requests for data from Facebook or any other entity,” Thompson explained. That arrangement led the U.S. military to ban members from using TikTok on government-issued phones late last year. Military officials also encouraged troops to delete the app from their personal phones as well. And last month, the senate unanimously voted to ban TikTok from work devices, while also pointing to data security issues. Compounding the data concerns, under the proposed deal ByteDance would retain control of its source code. Oracle would be able to review its code for any potential backdoor openings to China, but that may be insufficient for an administration worried about China’s government influencing 100 million American users. By controlling its code, ByteDance maintains power over TikTok’s algorithm, which determines what does and doesn’t go viral on the app. In July, Trump had said the app would be banned in the U.S. if it didn’t relinquish control of the company and its algorithm to an American firm. And lawmakers like Sen. Marco Rubio (R-Florida) have already raised concerns ByteDance’s continued control of its algorithm could make any deal worthless. “If China continues to control the code, as I understand they would in this deal, they could put in that code an instruction to secretly send data back to China, to the mainland,” Rubio said on Sunday. “No matter where the actual data is housed there can be something embedded in that code that sends it the other way.” 3. What education fund? Trump had said any TikTok deal would need to include a cut, similar to a finder’s fee, for the U.S. government. That requirement appears to be evolving, though, as the president this weekend said any approved deal would need to earmark $5 billion for an education fund “so we can educate people as to [the] real history our country — the real history, not the fake history.” It’s unclear which company would contribute the $5 billion or if it would be split between Oracle and ByteDance. Reps for TikTok, Oracle and the U.S. Treasury did not respond to TheWrap’s request for comment on the matter. On Sunday, a rep for ByteDance appeared to be thrown off by the potential education fund. “Some news media reported that TikTok will set up a $5 billion education fund in the United States,” ByteDance told CNN. “We would like to clarify that it was also our first time hearing about the news.” It’s also not clear whether the education fund would completely replace the government cut the president had said he wanted, or if they’re both expected as part of a deal. As with most other aspects of the TiKTok-Oracle saga, it’s murky.