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Analysis: Will the Oracle partnership offer a leg up or be the death knell for Tiktok?

Analysis: Will the Oracle partnership offer a leg up or be the death knell for Tiktok?

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Shortly after TikTok's parent company ByteDance officially named Oracle its technology provider this week, media outlets such as the Financial Times and the Wall Street Journal reported that Oracle plans to acquire a minority stake in TikTok. According to FT, TikTok could potentially become a standalone entity in the US, adding that Oracle will ensure that data from American users will be stored and processed in the US, in line with the recommendations of the Committee on Foreign Investment in the United States (CIFUS). Meanwhile, WSJ said ByteDance would retain majority control of TikTok as part of a proposal currently under review by CIFUS. 

Oracle recently edged out Microsoft in the race to acquire TikTok's US operations and was appointed the latter's technology partner. In a statement to Marketing, TikTok's spokesperson said it has submitted a proposal to the US Treasury Department which it believes would resolve the administration's security concerns. "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," the spokesperson added.

US president Donald Trump considered banning TikTok in July this year over privacy concerns, and announced he would sign an executive order as soon as 1 August to put the ban in motion. The pressure on ByteDance to sell its US operations also led to the departure of former CEO Kevin Mayer three months after he took on the role. TikTok's spokesperson previously told Marketing that the political dynamics of the last few months have significantly changed what the scope of Mayer's role would be going forward, and fully respect his decision. TikTok was initially created in 2016 as an international version of Chinese app Douyin and both are owned by ByteDance.

Amidst the buzz surrounding the sale of TikTok in the US, it remains to be seen if advertisers are actually concerned about the news. Ranga Somanathan, former CEO of Omnicom Media Group Singapore and Malaysia, told Marketing that clients are rather agnostic to the ownership of the platform, as long as it continues to offer quality addressable audiences where brands can present themselves in a creative and meaningful way. He said:

I do not believe it matters much to the marketers. If at all, their only worry would be to not be left holding the wrong end of the stick, in the event the deal is not blessed by the regulators.

Somanathan describes the recent deal to be "a saving grace solution to a complex problem created by geopolitics". He does not expect much changes to the user experience and customer engagement if the arrangement is for Oracle to act as a trustee and supervisor of TikTok's US business and compliance. It also be business as usual for Oracle. "Also, it will be in Oracle's interest to keep this deal at arm's length with its other businesses. As such, I cannot see any synergies with its core business," he added.

Agreeing with him is founder and senior partner of Entropia Prashant Kumar, who said that while the deal might not be of concern to advertisers, it does bring a new player into the media business - TikTok. This deal also gives Oracle access to vast consumer data, thus strengthening its data management platform offering, he added.

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Buying its way to cloud relevance

Oracle has so far mostly sat on the sidelines of the B2C digital media platforms and this latest deal can be a gamechanger for the company, where it may eventually consider expanding into other B2C platforms, Kumar said. According to him, the deal also gives "a big leg up" to Oracle in the cloud business where it has been "a distant laggard" behind Amazon and Microsoft, and this could bring a big shift in the perception of Oracle as a cloud services player.

Echoing Kumar's sentiments is a blog post by Forrester's analysts which said Oracle is "frustrated at being the behind the global top four hyperscalers in public cloud revenue" - Amazon Web Services, Microsoft Azure, Alibaba Cloud, and Google Cloud. The company has also been competing with IBM to grow its cloud in two areas at once - expand its penetration in traditional enterprise and prove its cloud platform’s scalability and “hip factor” with well-known brands like Zoom.

While the TikTok deal might not buy Oracle much enterprise credibility, Forrester's analysts said it does buy the company visibility and exposure, given that nothing is more popular than TikTok at the moment.

"This also gives Oracle access to a (small) monetisation stream that its hyperscaler 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," Forrester said.

Additionally, chairman, CTO and co-founder of Oracle, Larry Ellison, is said to have a long history of working with the US government, specifically the intelligence community, according to Forrester. While it is unclear exactly what degree of insight this will provide, based on the ambiguity in the current deal, Forrester said Oracle's links with the US government "certainly makes" the deal more likely to pass through White House review, which is required before the partnership is authorised.

TikTok is not on the losing end either. ByteDance's most valuable asset is its intellectual property (IP) within TikTok, namely the algorithmic models at the core of TikTok for content recommendation.

"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," Forrester said. ByteDance excluded the algorithmic models as a result of the Chinese government updating its regulated catalogue for technology export on 30 August. As such, ByteDance is unable to sell the core TikTok IP without permission.

"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 does not necessarily end the saga of where TikTok eventually lands," Forrester said.

The death knell?

Despite the advantages the sale might post, Forrester also said that it will be "the death knell" for US TikTok should Oracle take over its platform development. Reason being Oracle alone "cannot cultivate and innovate the TikTok platform to keep up with the demands of its young, impatient, and finicky users". Instead, the tech company 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 the team alone to ensure the social network remains relevant.

"US TikTok will also continue on the standard social network advertising business trajectory that Facebook roadmapped for Instagram, LinkedIn, Snapchat, and Twitter to follow," the analysts said. Earlier this year, TikTok rolled out its self-serve ad business in the US and partnered with a few third-party social tech vendors to facilitate advertising in its app.

This development also shows that global brands will require a two-prong approach to advertising in China versus the rest of world, the analysts said, albeit it being an all too familiar strategy when marketing in disparate regions with different rules.

TikTok's geopolitical struggles

TikTok has been facing headwinds since June this year, after it was banned in India along with 58 other Chinese apps. The company also exited the Hong Kong market following the announcement of the national security law. ByteDance has made efforts to distinguish TikTok from its Chinese operations. Mayer previously said the app's data was not stored in China and he also wrote a letter to the Indian government in late June explaining that the Chinsee government "has never requested user data, nor would the company turn it over if asked", Reuters reported.

Amidst its struggles, TikTok rivals YouTube and Facebook seized the opportunity to take on the former by rolling out YouTube Shorts and Instagram Reels. The early beta version of YouTube Shorts was unveiled in India on Monday, allowing users to create 15-second videos that are easily discoverable on the YouTube homepage and across other parts of the app. Likewise, Reels allows users to create and discover short, entertaining videos on Instagram. Users can also create their own audio and use various AR effects in their videos.

Meanwhile when Microsoft made its bid for TikTok's US operations early last month, it said in a blog post that both the company and TikTok provided notice of their intent to explore a preliminary proposal that would involve a purchase of the TikTok service in the US, Canada, Australia, and New Zealand. Microsoft and ByteDance initially halted negotiations to buy TikTok following Trump voicing opposition of the deal, the Wall Street Journal reported quoting its sources. 

Industry players Marketing spoke to previously said one pitfall of the potential TikTok-Microsoft deal is that Microsoft's record in handling consumer-centric entertainment businesses has been "quite underwhelming historically", even though TikTok is "a great complement" to LinkedIn. On the other hand, some said that there is a possibility for Microsoft to become China's next best friend through the deal. Reason being, Microsoft never spoke about a fire sale and it would most likely pay for whatever TikTok asks for.

As the challenge to resolve the geopolitical concerns continues, ByteDance is reportedly preparing Singapore to be the main foothold for Asia as part of its global expansion, reported Bloomberg. ByteDance intends to spend "several billion dollars and add hundreds of jobs" over the next three years in Singapore, the report said, adding that the company is looking to potentially unveil a data centre in the city state too.

According to ByteDance's job referral site, it currently has more than 200 job openings in Singapore, ranging from data analytics and eCommerce, to UX, logistics, brand partnership, ad integrity and content. A quick check by Marketing on LinkedIn found that over the last six months, the company has also been filling roles such as head of business marketing Southeast Asia, SMB product marketing lead, channel manager, chief of staff, amongst others. These roles are largely based out of Singapore.

Join us on a three-week journey at Digital Marketing Asia 2020 as we delve into the realm of digital transformation, data and analytics, and mobile and eCommerce from 10 to 26 November. Sign up here!

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