Dissecting the Sweetheart Deal Between Oracle and TikTok

Dissecting the Sweetheart Deal Between Oracle and TikTok

A match not made in heaven.
Photo: Thomas Trutschel/Photothek via Getty Images

After weeks of speculation about the fate of TikTok, the wildly popular, Chinese-owned streaming app that the Trump administration views as a national-security threat, a resolution looks imminent: American tech giant Oracle, headed by Trump backer Larry Ellison, is on the verge of buying a minority stake in the company to keep it from being banned in the U.S. But to many, the deal not only fails to address the problems it was meant to solve — it also looks fishy. Kara Swisher, Scott Galloway, and their guest, Alex Stamos, discuss the many drawbacks of the arrangement on the latest Pivot podcast.

Kara Swisher: We’re talking to Alex Stamos. He’s been on the show before because he’s so smart. And he’s a perfect person to go deeper on the TikTok-Oracle deal today, such that it is. He is the director of the Stanford Internet Observatory, the former head of security for Facebook, and now an advisor to Zoom to improve their privacy and security. And, of course, they use Oracle.

Alex Stamos: Thank you.

Swisher: So talk to me about Oracle.

Twice weekly, Scott Galloway and Kara Swisher host Pivot, a New York Magazine podcast about business, technology, and politics.

Stamos: I don’t have a lot of direct experience with Oracle. They do run a cloud-computing product, and Zoom uses them for a couple of purposes. One of the things they do that I think is a little bit different than some of the other cloud-computing platforms is they do a lot of raw hardware cloud, so I think that’s something that Zoom enjoys. But Oracle is not not considered one of the cloud-computing big three, which are obviously Amazon, Microsoft, and Google.

Swisher: They’re not even the big five, I think.

Stamos: Maybe not even the big five. So I do think one of their problems is that they don’t have a centerpiece, keystone social-media product, right? So if you look at Amazon Web Services, their keystone product was Netflix. That was a big deal. I don’t know if you guys remember, but it was a huge deal here in the Valley among technical people when Netflix said, “Screw it, we’re going to AWS.” And everybody’s like, that’s crazy — the idea of pushing all of your infrastructure to somebody else.

And the fact that they crushed it and it meant a lot of good things for them financially was a huge deal among executives in Silicon Valley — proving that this model works. Microsoft’s Azure has a number of products; Google Cloud has Snap.

Zoom is probably Oracle’s most famous client right now. And I think they are definitely looking for something to put them on the map. We don’t know a ton about the deal. But what it’s sounding like — you guys both read the Microsoft announcement, right, the incredibly passive-aggressive press release?

Swisher: Oh, it was aggressive-aggressive.

Stamos: It was pretty aggressive, yeah. As you guys know, especially Scott, corporations don’t communicate like this, right? And they had this line in there about all of the security things they were going to do, and basically like — well, we’re interested to see what happens next. And then you could insert the Kermit-sipping-tea emoji. Reading between the lines of that and then the discussion of Oracle being a technology partner, it sounds like this is going to be a much less aggressive integration than what Microsoft was considering, right?

Swisher: Right.

Stamos: The possible deal with Microsoft seemed to be that Microsoft would really own at least three or four regions of TikTok. They would have some kind of licensing deal, but they would own the stack top to bottom and the people who would be running TikTok U.S. would be Microsoft employees. That does not sound like what we’re going toward now. It sounds more like — and again, I’m just reading the tea leaves here, so this might change significantly over the next week — that Oracle will be providing hosting services. And then the question is, how much up the stack do they go there, and who are the employees that have access to data?

There were three legitimate concerns about TikTok. The first is access to Americans’ data, which is of great concern because there’s a long history of China stealing data and then looking at it in these big data warehouses. The second concern was the potential of a backdoor, or what we call a “bug door,” which is an intentional mistake in your software that allows people to get into your system. And then the third would be a subtle manipulation of the media environment in the United States through the control of the algorithm. And as much as people talk about algorithms on Twitter and Facebook, the No. 1 determinant on most social-media sites of what you see is who your friends are. TikTok doesn’t have that. TikTok is a 100 percent algorithm, and that’s why they’ve kicked so much butt so far, is that their machine learning is really, really good.

One of the reasons that I think they’re looking at this fallback position is that the Chinese Communist Party and the People’s Republic of China, the government said, “We are not going to allow you to export certain things to the United States,” and they tagged the machine learning algorithm. There’s no way for ByteDance to sell all of TikTok U.S. And so, I think they’re looking for a face-saving half measure. The problem is, if Oracle’s just providing hosting and the actual operation and most of the software development is still happening in ByteDance Beijing, then it doesn’t actually address any of those three issues.

Swisher: No, it does not.

Stamos: The Chinese aren’t accessing data by going to the hard drives and pulling it out of racks and then imaging it. The way they would access data would be that they have subverted ByteDance employees who have access to the data warehouse, and they can do queries on behalf of the government. Now, again, it’s early days, but if it turns out that ByteDance employees are still running the back-end operations, and if there’s a huge amount of software that’s a black box to Oracle, then you can’t claim that this was actually for security.

Swisher: This seems like a favor to Oracle, getting them a deal.

Stamos: It’s a favor to Oracle. Larry Ellison is famously probably the most conservative tech CEO. Other than Alex Karp at Palantir, he’s the only one who’s a really obvious Republican. I think there’s a lot of secret Republicans, but you’d know that better.

Swisher: Yes, there are.

Stamos: But he’s just out there doing fundraisers for Trump and such. And yeah, it just looks like a favor for Oracle and a face-saving move. I think one of the things that happened here is Trump got over his skis. Banning TikTok is the kind of thing that, in theory, the executive branch has some power to do. In practice, it’s never happened, and to really do it, you would have to go force Apple and Google. And I expect what the White House has heard is that Apple and Google would fight this one to the Supreme Court. So they’re talking about, you’re not just fighting TikTok, but you’re fighting two of the largest tech companies in the U.S., because they can’t allow this all of a sudden for the U.S. executive branch to be able to decide what’s in their global app stores — that’s the end of those companies.

Every country will want that capability, and nobody would trust the United States to wield it. And so I expect that this is a fallback position because they got over their skis on what the power of the presidency is in this situation. And so they’re looking for — if they can both scratch the back of a big donor while also giving themselves a fig leaf of “We’ve made everything secure,” that’s great. And this thing is so complicated. How many people are going to understand, oh, well, operationally, do you have control of the data warehouse? And who has access to certain databases? Nobody understands that. All they understand is that Oracle got some money.

Swisher: What was your take on Steven Mnuchin’s remarks on Monday?

Stamos: Well, he was very careful to basically say this is still under review. And he said there’s two processes: There’s a CFIUS process, which is not a very technical process, and then there’s a national-security process. The real interesting question is, who’s running it? If that’s the NSA Cyber Division, it’s run by a very competent woman, Anne Neuberger. This is the new division of the NSA that does defensive cybersecurity on behalf of the United States. They are absolutely going to understand those distinctions. And I’m really looking forward to the Washington Post leaks of things leaking out from these secret committees, where you very possibly have NSA and Cyber Command and DHS CISA, which is the DHS’s cybersecurity infrastructure-security agency, saying, “Oh, this deal doesn’t really do much,” and then getting overwritten for political concerns because they don’t want to have to actually shut TikTok down.

Galloway: Wasn’t Microsoft’s fatal flaw here believing the president that this thing needed to be sold? This just feels so cooked and so backroom. You have Ellison, a conservative CEO; you have the backers of ByteDance picking the winner here and saying, “Okay, how do we turn this into what is effectively just a follow-on round of financing and a big cloud victory for Oracle? This just feels so fake to me. Really, the term acquisition — we shouldn’t be using it. By the way, I heard, and Alex, tell me if you can confirm this, that Oracle was advised by the crack M&A team of Gerald Levin, Carly Fiorina, and Marissa Mayer.

Stamos: I cannot confirm or deny that one. You actually bring up a good point, too, which is that there’s a bunch of Silicon Valley players and money people involved. And so the final ownership structure of whatever TikTok U.S. looks like is going to be really interesting, and I think following the money of who is making a ton from this is going to be interesting. From the Chinese side, too, they’re pretty pissed. And there is a legitimate risk from the government and from Chinese companies. There’s absolutely legitimate risk, which is why we have to be smart about this stuff. We have to have real rules that we enforce fairly and that the rest of the world has confidence we’re enforcing, because we want our European allies, we want our Five Eyes allies, we want our Asian allies like Japan to be lined up side by side with us. And instead, if it looks like this is just a way to pay off a bunch of American donors, and nobody’s going to ever believe when we ring this bell again — and we’re going to have to ring this bell sometime in the next five years — there’s going to be a major security incident related to a Chinese company having access to people’s phones.

Swisher: This is a win for China, as far as I can tell.

Stamos: Maybe. I mean, if the administration has really blinked, then China stood up to the U.S. and they set a precedent, and that’s going to really hurt. It’s really going to hurt U.S. tech companies, too, because now, if you’re India, you want the exact same thing. You want Facebook to have to pay billions of dollars to some Indian company that has corrupt links to the government. It’s basically going to create a situation where you have to bribe any country you operate in by paying some local, politically connected company to do your actual hosting.

Galloway: There could be so many second-order effects here. If the Chinese wanted to take down our markets, couldn’t they announce, “We’re contemplating forcing Apple to sell all its supply-chain operations to a domestic provider here”? It just feels like this could go so many weird places. It feels to me like we’ve been played. This is nothing but Sequoia and, I think, General Atlantic Partners and Oracle deciding they’re going to lead the Series G or whatever it’s called. We accomplished nothing around security. And to your point, Alex, they’ve said to Trump, “You got out ahead of yourself here. You’ve got to find a way to have peace with honor.” And all it does is it gives everyone else ideas around how they can start abusing our companies, which are increasingly international, dependent upon local laws and consistent application of those laws. This feels like Mayweather vs. McGregor, and you have Xi and you have Trump, and the redhead gets the shit kicked out of him. I just feel like we have been so played here. We have been so played.

Swisher: And also to get this deal through, they’ll do something like say, “We’ll have the headquarters here.” They’ll have some dumb, beautifully designed headquarters.

Stamos: Right, in Florida, across the street from the golf course. Yeah, it doesn’t matter where the headquarters are. Who are the data engineers? Who are doing dev ops?

Pivot is produced by Rebecca Sananes. Erica Anderson is the executive producer. 

This transcript has been edited for length and clarity.

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