(Bloomberg) — Oracle Corp.’s deal to attain a 12.5% stake in TikTok Global and provide computing services to the video-sharing app furthers the software maker’s years-long plan to become a cloud computing heavyweight.
Executive Chairman Larry Ellison leaned on his company’s close ties to the Trump administration to land the partnership with the newly formed company, which will help fulfill an ambitious strategy outlined with fanfare half a decade ago to become a credible cloud rival to Amazon.com Inc. and Microsoft Corp.
Retailer Walmart Inc. will buy as much as 7.5% of TikTok Global, which will be headquartered in the U.S. and pursue a public listing in less than a year, the companies announced Saturday in a statement.
While other Silicon Valley giants have kept U.S. President Donald Trump at arm’s length, Oracle has embraced him, which may have helped the company gain preliminary U.S. approval for the deal. Ellison spoke directly with the president Friday, two days after Trump said that he “conceptually” didn’t like the TikTok proposal, which would leave computer code and ownership mostly in the hands of its Chinese parent Bytedance Ltd.
There’s little to indicate the investment structure of the deal has dramatically changed since then, but Trump nonetheless gave his blessing Saturday. The deal does call for the addition of 25,000 jobs, the creation of a $5 billion education fund, a mostly U.S. led board and several precautions aimed at safeguarding the data of American users.
There are very few leaders of Fortune 1000 companies who back Trump and the president is “giving a cloud contract and investment opportunity” to a firm “whose CEO is openly supporting him,” said Scott Galloway, a professor of marketing at New York University. “The only way I would describe the proposed agreement is strange and a giant step backward for the government’s approach to capitalism.”
Much-Needed Win
The administration’s assent gives the Redwood City, California-based company a desperately needed win. Oracle, the world’s second-largest software maker after Microsoft, has struggled to find its footing in the fiercely competitive public-cloud market. In 2019, Oracle’s share of the cloud infrastructure market was so small that Gartner lumped it into an “Others” category of niche players.
“For Ellison and Oracle this is a strategic win on the infrastructure/cloud front by inking this partnership and should competitively help its efforts within the Beltway going forward,” Dan Ives, an analyst at Wedbush Securities, wrote in a note. “A TikTok technology partnership is a symbolic shot in the arm and could have positive financial ripple impacts.”
Ellison’s courtship of the president predates this business opportunity. In February, the Oracle co-founder, who is the world’s ninth-wealthiest man, let Trump use one of his California estates to host a political fund-raiser. Not long after, he offered his company’s help in building a database to track the effects of hydroxychloroquine, which the president said was a treatment for Covid-19. The anti-malaria drug proved ineffective.
Trump has expressed his admiration for Ellison on more than one occasion, calling him a “tremendous person” in August and saying Oracle was a “great company.”
”I have a high respect for Larry Ellison,” the president said earlier this month. “He’s somebody I know. He’s been really a terrific guy for a long time.”
Oracle Chief Executive Officer Safra Catz supported Trump since before his administration began, visiting him in Trump Tower after the 2016 election, serving on his transition committee and dining with him at the White House. Most recently, Catz personally donated more than $125,000 to the president’s re-election bid this year.
Pentagon Contract
Last year, Oracle missed out on a deal to provide cloud services to the U.S. Department of Defense. Catz told Trump at a 2018 dinner that the process was unfair and designed to favor Amazon, Bloomberg reported. Amazon had been widely expected to win the contract, but Microsoft instead prevailed. Amazon sued the U.S. government, alleging that Trump unfairly interfered in the process.
Oracle Loses Appeal in $10 Billion Pentagon Contract Fight
The Pentagon deal, valued at $10 billion over a decade, could have helped Oracle catch up to rivals. For more than half a decade, the company has promised to become a cloud powerhouse, with Ellison in 2014 saying that year would be an “inflection point” in its cloud advancement.
Oracle’s heritage is producing essential databases that help businesses process transactions — high-priced technology that was stored in client’s own server farms. The company waited too long to make databases and applications accessible over the internet, and its attempts to provide web-based computing and storage have flailed in the face of more mature offerings from Amazon Web Services and Microsoft.
The company’s cloud efforts fizzled last year, when it trimmed the workforce in Seattle offices that are focused on the public cloud. Oracle has said that it is moving full steam ahead, hiring staff for other roles and broadening a network of data centers in regions around the world.
Oracle made headlines during the coronavirus pandemic when it announced a deal with Zoom Video Communications Inc. to help the video-conferencing company cope with a surge of usage while businesses and schools operated remotely.
In the cloud services market, Oracle has touted its aggressive pricing, to be a more affordable option than AWS. That means that its contract with Zoom, which maintains data centers and an AWS partnership, isn’t a cash cow for Oracle.
Instead of padding revenue, Zoom, and likely TikTok, will fill space in Oracle’s larger network of servers and be proof points in Ellison’s marketing efforts. The billionaire already touts the Zoom deal during every public statement, to demonstrate to prospective clients and the market that its cloud helps underpin a vibrant service that hundreds of millions of people rely on.
TikTok Coup
Ellison framed TikTok as a coup for Oracle in a statement Saturday, and said that its cloud service has high customer satisfaction.
“TikTok picked Oracle’s new Generation 2 Cloud infrastructure because it’s much faster, more reliable, and more secure than the first generation technology currently offered by all the other major cloud providers,” he said.
Oracle said that TikTok was “heavily influenced” by Zoom’s decision. It also pointed to a long history of securing sensitive data. The company’s first client was the U.S. Central Intelligence Agency and it is now responsible for safeguarding TikTok’s user data from foreign manipulation. Oracle says that its technology will find any backdoors in TikTok’s code.
Michael Coates, the CEO of Altitude Networks and former chief information security officer at Twitter Inc., said that’s easier said than done.
“With the speed of development and iteration for a social media platform of that scale, it’s infeasible that they would be able to detect a maliciously planted back door to siphon off data if a clever developer put their mind to it,” he said.
Being TikTok’s “secure cloud technology provider” won’t be easy because of the complexity of hosting a bandwidth-intensive video-sharing app and lingering security concerns. But Oracle is on the lookout for more anchor tenants.
To succeed, it will need to support more than just two social networks, as large as they are. The company will also need to get some of its big legacy clients to bring their workloads to the cloud, which has so far proven to be a tough task.
In the meantime, Ellison, who like Trump has a braggadocious demeanor in business, will have two successes to point to, while the president can argue he’s helping to create more American jobs and is making TikTok a U.S. company.
The men, both billionaires known for their love of deals, finally pulled one off together.
Ellison has said that he is a “dispassionate” political centrist rather than a fervent ideologue. Before the pandemic-fueled recession, he said in a 2018 interview with Fox Business that he appreciated Trump’s economic accomplishments.
“I don’t think he’s the devil,” Ellison said about Trump in a Forbes interview earlier this year. “I support him and want him to do well.”
bloomberg.com” data-reactid=”65″>For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.” data-reactid=”66″>Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
