TikTok Sale: ByteDance Rejects Microsoft Bid, Partners With Oracle

Tiktok App -Getty -3- H 2020

The Beijin-based tech giant has submitted a proposal to Treasury Secretary Steve Mnuchin that includes Oracle as its chosen technology partner.

ByteDance has selected Oracle as its partner for a deal to keep TikTok operating in the U.S.

The decision comes as ByteDance has rejected a bid by Microsoft that earlier this summer was seen as the likely option for the company as it looked to avoid a shutdown of the popular social media app amid increased tensions between the U.S. and China.

A TikTok spokeswoman confirmed that the company had submitted a proposal to the Treasury Department. "This proposal would enable us to continue supporting our community of 100 million people in the US who love TikTok for connection and entertainment, as well as the hundreds of thousands of small business owners and creators who rely upon TikTok to grow their livelihoods and build meaningful careers," she said in a statement.

Treasury Secretary Steve Mnuchin told CNBC on Monday morning that he received ByteDance's proposal over the weekend and would review it this week before making a recommendation to the president. While he declined to go into the specifics of the proposal, he confirmed that ByteDance had selected Oracle as its tech partner. Together, the companies made several recommendations for how to address national security concerns, including a plan to make TikTok's a U.S.-headquartered company, which would add 20,000 new jobs.

Following Mnuchin's comments, Oracle released a statement confirming its selection. "Oracle has a 40-year track record providing secure, highly performant technology solutions," the company said.

Microsoft was seen as the favorite to move forward in negotiations with ByteDance given its deep pockets, which would have helped it address the security concerns that led President Donald Trump to require the business to be sold if it wanted to continue to operate in the U.S.

Microsoft confirmed that its bid had been rejected in a statement on its corporate blog on Sunday night. "We are confident our proposal would have been good for TikTok's users, while protecting national security interests," the company wrote. "To do this, we would have made significant changes to ensure the service met the highest standards for security, privacy, online safety, and combatting disinformation, and we made these principles clear in our August statement. We look forward to seeing how the service evolves in these important areas."

Walmart had planned to team up with Microsoft on the bid but was not mentioned in the company's statement. The retail giant released its own statement indicated that it remains interested in investing in the TikTok business. "Walmart continues to have an interest in a TikTok investment and continues discussions with ByteDance leadership and other interested parties," the statement reads. "We know that any approved deal must satisfy all regulatory and national security concerns."

But ByteDance, facing a short timeline to strike a deal, ultimately felt that Oracle — which has curried favor with Trump — was the best partner to address the security concerns that have plagued the app since it first came to the U.S. in 2018. According to a source familiar with the deal, Oracle is being brought on board as a tech partner and not as an outright buyer of TikTok's U.S. business. It's unclear whether Oracle will acquire a share in TikTok as a result of the partnership.

The news follows an Aug. 6 executive order from Trump that called for TikTok to be banned in the U.S. if ByteDance didn't sell its American operations. Trump has cited national security concerns as the reason for the ban, arguing that ByteDance could give the Chinese government access to data from its U.S. users. The company was given a mid-September deadline to divest of the business.

TikTok has fought those claims, saying that it stores American user data on serves based out of the U.S. and Singapore. The company also has sued Trump, arguing in its complaint that the ban is "a pretext for furthering the President's broader campaign of anti-China rhetoric in the run-up to the U.S. election."

China complicated ByteDance's ability to strike a deal when, in late August, it issued new export rules that would prevent TikTok from selling the technology that powers the algorithm behind its addictive "For You" feed, which learns about user behavior over time in order to serve up the most relevant videos.

Though the goal of a deal with Oracle is to keep TikTok operating in the U.S., but the Trump administration still has to agree that the new arrangement addresses his concerns about the handling of U.S. user data. Tech analyst Daniel Ives is skeptical. In a Sunday night note, he wrote, "TikTok's days in the U.S. likely are numbered."

TikTok first came to the U.S. in August 2018 after ByteDance acquired competitor Musical.ly and merged the two apps. Today, the social video app has 100 million monthly active users in the U.S. and has minted stars out of young creators including Charli D’Amelio and Addison Rae. The app has also become a powerful platform for debuting new music and helped popularize Lil Nas X’s "Old Town Road."

The app's fate in the U.S. is being determined without the company's newly appointed American CEO. Disney veteran Kevin Mayer, who accepted a job running TikTok in late May, announced his resignation on Aug. 26. Vanessa Pappas, general manager of TikTok in North America, Australia and New Zealand, is serving as the company's interim CEO.

Sept. 14, 6:40 a.m. Updated with Walmart's statement expressing continued interest in a TikTok investment.

Sept. 14, 8:34 a.m. Updated with Treasury Secretary Steve Mnuchin's comments and the statement from Oracle.

Sept. 14, 11:47 a.m. Updated with TikTok's statement.