Key Takeaway: Master tactician Larry Ellison gains a feather in the Oracle Cloud by playing the long game and positioning Tiktok as a significant Oracle Cloud customer. Well played, Mr. Ellison.
As if 2020 hasn’t been weird enough, many of us are finding out that enterprise stalwart Oracle is apparently going to purchase Gen Z (born after 1995) and Gen Alpha (born 2010 or later) social media darling Tiktok.
What? Is this actually happening?
Well, not quite. But to explain, first we need to look at the context.
Last month, President Trump created an executive order to ban Tiktok in the United States based on security and censorship issues. This move was seen both as a move against the Chinese economy and to protect global social media platforms based in the United States such as Facebook and Twitter.
In response, a number of potential suitors showed up with either bids or proposals to support Tiktok in the United States. Microsoft showed interest in purchasing Tiktok to support its Azure cloud and gain a massive source of video content that would be useful across Microsoft’s marketing (Bing), gaming (XBox, Minecraft), augmented reality (Hololens), and artificial intelligence (Azure AI) businesses. And at one point, retail giant Walmart was associated with this bid, perhaps in an attempt to fend off Amazon in this digital path. But this bid was shut down was rejected on September 13.
Oracle came in after Microsoft, showing interest in Tiktok. At the time, there was massive confusion from the market at large on why Oracle would be interested. But, as someone who has written about the tight relationship between social technologies and the cloud for many years, my immediate thought was that it’s all about the cloud.
Oracle has been forcefully marketing Oracle Cloud Infrastructure as an enterprise solution after making significant investments to improve connectivity and usability. These recent changes have led to significant logo wins including Zoom and 8×8, both of which chose Oracle for its performance and 80% savings on outbound network traffic. The cost of connectivity has traditionally been a weak point for leading cloud providers, both due to a lack of focus on networking and because cloud vendors have wanted to gate data within their own platform and have little to no incentive to make inter-cloud transfers and migrations cheaper and easier. But Oracle’s current market position combined with its prior investments in high performance computing and network performance means that it makes good business sense for Oracle to be the most efficient cloud on a per-node and bandwidth perspective and to attack where other cloud vendors are weak.
Social media and communications vendors are massive cloud customers, in their own right. Pinterest has a 6 year, $750 million commitment with Amazon Web Services and is easily on pace to spend far more. Lyft has its own $300 million commitment wth AWS. And Citrix has a $1 billion commitment with its cloud vendor of choice, presumably Microsoft Azure. The cloud contract sizes of large and dynamic social and video-centric vendors is enormous. Every cloud provider would be glad to support the likes of Tiktok as a customer or potentially even as a massive operations writeoff that would be countered by the billions of dollars in revenue Tiktok provides.
And, of course, Tiktok creates a massive amount of data. Similar to Microsoft’s interest in Tiktok, Oracle obviously has both expertise and a large business focused on the storage and analysis of data. Managing Tiktok content, workloads, and infrastructure would provide Oracle with technical insights to video creation trends and management that no other company other than perhaps Alphabet’s Youtube could provide. Over the past couple of years, Oracle has put a lot of effort both into database automation and cloud administration with its Gen2 offering.
In addition to bolstering Oracle’s cloud, Tiktok also could make sense as a tie-in to Oracle’s Marketing Cloud. At a time when large marketing suites are struggling to support new platforms such as Tiktok, what better way to develop support than to own or to access the underlying technology? But wait, does Oracle have access to Tiktok’s code and algorithms?
Apparently not. Current stories suggest that Oracle will be the hosting partner or “Trusted Technology Provider” for Tiktok America while Tiktok parent company ByteDance still maintains a majority ownership of the company. It looks like Oracle has positioned itself to be the cloud provider for a massive social media platform, as the United States alone has over 100 million active users on Tiktok. And the speculation behind Microsoft’s rejected bid is that Microsoft sought to purchase the source code and algorithms of Tiktok, which ByteDance refused to provide.
So, the net-net appears to be that in response to Trump’s Executive Order, Oracle will gain an anchor client for Oracle Cloud Infrastructure while making some investment into the new Tiktok US organzation. Oracle’s reputation for security and tight US government relations are expected to paper over any current concerns about data sovreignty and governance, such as Chinese access to US user data. Current Tiktok investors, such as General Atlantic and Sequoia Capital, may also have stakes in the new US company. This activity effectively puts more money into a Chinese company. Most importantly, this action will allow Tiktok to remain operational in the United States after September 20th, the original due date of the executive order.
Congratulations to Oracle and Larry Ellison on a game well played.