Tech

Why Oracle's bid for TikTok might not be as crazy as it sounds

Key Points
  • Oracle's bid for Chinese-owned social media app TikTok might not be as odd as it first seems.
  • Analysts told CNBC that there are a number of reasons why the deal could make sense for both parties. 
  • Oracle is now competing with Microsoft to buy TikTok's U.S. business. 
Larry Ellison, chairman of Oracle Corp., speaks during the Oracle OpenWorld 2016 conference in San Francisco, on Sunday, Sept. 18, 2016.
David Paul Morris | Bloomberg | Getty Images

Oracle's bid to acquire TikTok's U.S. business might not be as bizarre as it initially sounds, analysts told CNBC Tuesday.

The enterprise software giant is said to be working with venture capital firms Sequoia and General Atlantic to beat Microsoft in the race to buy TikTok's business in the U.S., Australia, New Zealand and Canada from Chinese owner ByteDance. The deal talks were confirmed by a CNBC source after they were first reported by the Financial Times.

While TikTok may not seem like the most natural fit for Oracle's existing customer base, there could be more to it than that. Abishur Prakash, a geopolitical futurist at a strategy consulting firm called Center for Innovating the Future, said companies want one thing when it comes to TikTok: data.

"By putting TikTok's data on Oracle servers, Oracle may be able to build in-roads into new industries," Prakash said. Oracle doesn't have a social media app that it could integrate TikTok with but the company could theoretically use customer data collected by TikTok to improve its marketing products.

With over 2 billion downloads, TikTok's large user base may also appeal to Oracle, as could the company's business model, which poses a direct threat to Facebook.

"In the post-Covid world, every business is trying to reinvent themselves," Prakash added. "And, within geopolitics of tech, there isn't just risks, but also opportunities. Oracle may have its own ideas as to how it could use TikTok that it hasn't revealed to the market yet."

Preferred buyer

But would ByteDance rather sell TikTok to Oracle, co-founded by President Donald Trump backer Larry Ellison, or Microsoft?

"The perfect company for Bytedance to sell to is one with deep enough pockets to pay a good price," said Matthew Brennan, a social media analyst in Beijing.

Brennan added that the buyer should be "good enough at tech to actually run all the advanced AI (artificial intelligence that TikTok has)" but weak enough at consumer mobile that they would avoid arming a future competitor. "By these measures, Oracle sounds like a good fit," said Brennan.

It remains unclear whether ByteDance wants to divest TikTok as a whole or by region. The company is reportedly in talks with Reliance Industries for TikTok in India, and is entertaining multiple bids for TikTok's U.S. assets.

"This may likely create confusion and friction with Microsoft, the front-runner for TikTok's assets, who has the balance sheet and ability to run TikTok's non-China assets," said Michael Norris, a research and strategy manager at Shanghai-based consultancy AgencyChina.

"For Microsoft, the deal's attractiveness diminishes if it needs to be a shared product owner with Reliance Industries or Bytedance in non-US markets."

Some social media watchers are still struggling to comprehend why Oracle would ever be interested in TikTok.

"The deal makes zero sense when seen from a business lens but starts to make some sense when you look at it as Larry being friends with Trump and Trump wanting the Treasury to take a cut," said Timothy Armoo, the CEO of Fanbytes, a company that aims to help brands engage with younger audiences. Ellison threw a campaign fundraising event for Trump earlier this year and has expressed his support for the president.

"Sure there seem like obvious wins with access to data and cloud solutions but probably no one in the senior team of Oracle ever thought of TikTok or cared about it so this rumour has little commercial sense behind it," Armoo added. "Serving massively different demographics and cultures, I think there's no real substance to it."

Final decision

The final decision will ultimately lie outside the company's hands, according to Prakash.

"Ultimately, the ball is in China's court," said Prakash. "Will it allow ByteDance to sell TikTok to companies that power the U.S. government's technology?"

"Beijing is in an awkward position. If it intervenes, then all the fears of the Chinese government's control of its businesses will reach new heights. If Beijing doesn't intervene, then it's sitting idle as its tech firms are put under siege around the world."

The way TikTok is structured means means the subsidiaries in New Zealand, Canada, and Australia report to the U.S.

A ByteDance spokesperson said: "We do not comment on rumours or speculation."

An Oracle spokesperson said: "This is not something that we can comment on."