Issues Between China and the US
Tensions came to a head after President Trump issued an executive order on August 7, obligating the Chinese parent company of TikTok, ByteDance, to sell the application to a US company within 45 days, or it would be banned from the US. This was then followed by another executive order the following week, where President Trump ordered ByteDance to divest interest in the US version of the app within 90 days. President Trump has also said that if a sale were to go through, he would want the US Treasury to get a cut of the deal, though this will most likely not happen due to the legal questionability of that action.
These orders, which essentially forced ByteDance to sell and hand over all control of TikTok in order to continue operating in the US, was met with opposition from the Chinese government, which further complicated the sale by introducing new rules which would allow for any purchase, including the TikTok deal, to be subject to review, and possibly veto. The rules were specific to sales of types of technology to foreign companies, including data processing as well as speech and text recognition, which are all tied to TikTok in some way or another.
The App Itself
TikTok’s popularity cannot be understated; hence when it comes to the value of the app as a whole, there was an extremely large window into what it could possibly sell for. Before the deal reached with Oracle, estimates by experts ranged anywhere from $20 billion on the low end, all the way up to $50 billion on the high end. These estimates come due to the massive user base of the app as well as the impressive revenues TikTok took during 2019. When taking consideration for the global market, TikTok has over 500 million active users, or, in other words, users that open and participate in the app at least once a month. These 500 million active users have ended up pushing TikTok to be the 6th most popular app on Android and iOS and the 7th most downloaded app of the entire 2010s. This incredible popularity is compounded by the fact that in 2019, TikTok earned $176.9 million in annual revenue.
The Partnership with Oracle
Before eventually partnering with Oracle, an integrated cloud applications and platform service who put their name into the ring in partnership with a collection of private equity companies, with an offer of $20-$30 billion in a stock and cash deal, TikTok had two different large scale companies vying to purchase. Software giant Microsoft had paired with retail titan, Walmart, to acquire TikTok. However, after weeks of uncertainty, Microsoft announced that ByteDance had passed on their proposal and would be moving on to different options. However, the details around what this partnership entails and what the future looks like for each company is still very hazy.
Possible Road Ahead
Without details as to which parts of operations are under Oracle’s control and how much TikTok was sold for, it is unclear exactly what to expect moving forward. However, one major hurdle that still needs to be faced is the US government. TikTok and Oracle’s proposal has been received by the US government and must now be approved by the US Committee on Foreign Investment in the United States. It does appear though that this proposal and deal was made specifically to ensure it is within the parameters of what will be accepted by the committee. Oracle’s ties to the current administration should help, with CEO Safra Katz being a part of President Trump’s transition team when first sworn into office. The larger issue of the tensions between the US and Chinese governments still leaves much to be decided before solidifying everything.