ByteDance, the parent company of popular short video app TikTok, has rejected Microsoft, the first publicly known bidder of the app’s American arm. Last month, US President Donald Trump issued two executive orders aimed at TikTok, the earlier of which could ban it in the United States if it is not in American ownership before Sept. 20
Microsoft said in a statement issued on its company blog on Sept. 13 that “ByteDance let us know today they would not be selling TikTok’s U.S. operations to Microsoft.” The company also said, “We are confident our proposal would have been good for TikTok’s users, while protecting national security interests.” Microsoft was reported to be involved in talks with ByteDance in very early stages of the series of fast-paced events, even signing a “non-binding letter of intent” to acquire TikTok’s US operations even before news broke that Trump planned to block TikTok’s US operations. Walmart Inc, which had teamed up with Microsoft in the bid earlier, said it was still interested in investing, and that it would talk further with ByteDance and other parties.
The exit of Microsoft left Oracle, a company with deep ties to the Trump administration, the sole remaining bidder of TikTok’s US operations. The Wall Street Journal and Bloomberg both reported that Oracle would emerge as the winning bidder, while adopting a special model of “trusted tech partner” rather than that of a conventional acquisition. President Trump, who is continually pushing forward the spin-off of TikTok’s US branch, has also spoke in favor of Oracle, claiming the software maker “would be certainly somebody that could handle it.” Top executives at Oracle including Larry Ellison and Safra Catz are both Trump supporters and played important roles in his election campaign.
However, ByteDance could not be selling off TikTok’s US operations after all, Reuters reported Monday. On Aug. 30, China released a revised catalog of technologies that are subject to export bans or restrictions, which means that ByteDance would need the government’s approval to proceed with TikTok’s sale to an American company. TikTok’s recommendation algorithm, which powers the “for you” feed that is featured on the app, is considered a core technology that could pose a threat to China’s national security if sold to a US company by Chinese authorities.
Hong Kong’s South China Morning Post also cited sources that ByteDance will not sell or transfer the algorithms behind TikTok in any sale or divestment. According to Chinese state broadcaster CGTN, ByteDance would sell TikTok’s U.S. operations to neither Oracle nor Microsoft, and would not share the source code for the platform to any U.S. firm.
It remains unclear what the partnership between ByteDance and Oracle would be like, if reached, given Chinese authorities are likely to block the ownership transfer of TikTok’s algorithm. Reuters cited sources that Oracle would be the manager of TikTok’s U.S. user data according to ByteDance’s latest offer to the company. Oracle is also negotiating taking a stake in TikTok’s U.S. operations, they said.
Reuters also cited sources familiar with the matter and offered four options for potential buyers of TikTok’s US branch to navigate the take-over under the regulatory pressure from both countries: to sell TikTok without the algorithm; to negotiate an up to a year-long transition period with CFIUS; to seek approval from China to sell the algorithm to the chosen U.S. company and to license TikTok’s algorithm from ByteDance.
If China and ByteDance are to hold on to the stance of not selling the algorithm, the potential Oracle take-over would be an incomplete one, thus resulting in an effective ban of the app in the US. ByteDance’s algorithm itself is a product that has been widely traded for use in many Chinese tech companies to provide a better user experience, a source familiar with the matter told Pandaily. The source also said that a software company like Oracle would struggle to find any compatible alternative to ByteDance’s well-trained recommendation algorithm within the foreseeable future, while the 600 million monthly active users of the app could still be a valuable asset itself to any tech company.
The talks between TikTok and potential buyers, if dragged on long enough past the US president election on Nov. 3, could face new uncertainty and elasticity as the US leadership could be subject to change. While the White House steps up efforts to purge Chinese owned tech companies, ByteDance and WeChat’s parent Tencent have heightened strategies for more maneuver room. TikTok has filed a lawsuit against the Trump administration over the ban, claiming it denied the company due process, while Tencent hired its first lobbyist to fend off the administration’s hostile policies.