Oracle, Walmart Invest in TikTok To Challenge Cloud Rivals

Deal will reshape course of Cloud Computing market

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Leapfrogging Cloud rivals many times its size, Oracle has emerged as a minority investor in TikTok Global under a multi-party agreement whereby Oracle Cloud Infrastructure will power the hugely popular video-sharing platform with over 800 million monthly active users.

TikTok and its parent ByteDance have been embroiled in a trade and national security dispute with Washington as President Donald Trump threatened to ban TikTok on September 20 if it were not sold. On the eve of the deadline, ByteDance announced that the deal would entail selling a 20% stake of TikTok in a pre-IPO financing round to Oracle and Walmart with the software vendor picking up 12.5% and the No. 1 retailer the remaining 7.5%.

Oracle co-founder Larry Ellison(top) and Walmart CEO Doug McMillon join forces to take on social network giants
Oracle co-founder Larry Ellison(top) and Walmart CEO Doug McMillon join forces to take on social network giants

ByteDance’s current investors including General Atlantic, KKR, Sequoia, SIG, and Softbank are expected to hold an estimated 33% of TikTok, leaving ByteDance founders and their Chinese backers with about 47% of TikTok. Doug McMillon, CEO of Walmart, is expected to serve as one of five board members of TikTok Global, the retailer said.

The deal is significant because it will reshape the Cloud Computing market, or for that matter the entire software industry. Furthermore, it’s not a stretch to suggest that the deal could influence how any high-tech business will be run in light of the ongoing trade disputes between China and the United States.

TikTok is owned by the Cayman Islands-registered and Beijing-headquartered ByteDance, which has catapulted to become one of the world’s most sought-after unicorns with a valuation of over $100 billion. For weeks, TikTok was thrown into an unenviable position of becoming a trophy akin to a sports superstar being traded in a hotly-contested bidding war loaded with geopolitical implications.

Expanding OCI’s Cloud Reach

By becoming TikTok’s trusted technology provider, Oracle Cloud Infrastructure will be instrumental in continuing TikTok’s explosive growth, perhaps eclipsing Alibaba, Facebook, Tencent, and Youtube. Since January 2018, the number of TikTok’s monthly active users has soared from 50 million to more than 800 million, including over 100 million in the United States as shown in the following graphic:

Cloud Computing Powers Social Networks (User Generated Content):

Social NetworkNumber of Global Monthly Active UsersCloud InfrastructureNotes
Facebook Family3,140 million monthly active peopleFacebook, Amazon Web ServiceIncludes Facebook, Instagram, Facebook Messenger, WhatsApp
Youtube2,000+ million MAUsGoogle Cloud PlatformOver 2 billion logged-in users each month
Tencent1,854 million MAUsTencentIncludes QQ, WeiXin, WeChat
Alibaba874 million mobile MAUsAlibaba CloudMobile monthly active users
TikTok800+ million MAUsOracle Cloud Infrastructure as trusted technology providerUp from 50 million in January 2018
LinkedIn700 million membersMicrosoft AzureRegistered members and subscribers
Reddit430 million MAUsAmazon Web ServiceAs of December 2019
Pinterest400 million MAUsAmazon Web ServiceAs of July 2020
Baidu339 million MAUsBaiduBaidu Smart Mini Program
Snap238 million daily active usersGoogle Cloud Platform, Amazon Web ServiceAs of July 2020
Amazon.com197 million monthly visitorsAmazon Web ServiceSite visitors only
Twitter186 millionAmazon Web Service, Google Cloud PlatformMonetizable daily active usage

Source: ARTW and Company Reports

The deal with TikTok follows Oracle’s successes in winning over Zoom and 8×8 – two of the most popular video conferencing apps – as their strategic Cloud infrastructure provider to handle their breakneck growth in usage and Cloud workloads. In its latest earnings call, Oracle co-founder and CTO Larry Ellison said OCI now operates in 26 cloud regions around the world and will soon add 10 more in the next nine months, compared with 24 from its archrival Amazon Web Services.

Security and Privacy Concerns

A major factor behind the choice of Oracle as the part-owner of TikTok is its security track record, which dates back decades earlier when it was developing database technologies for the Central Intelligence Agency. Last week, the vendor announced two features that are standard in Oracle Cloud Infrastructure – Maximum Security Zones and Oracle Guard designed to enforce and deliver security monitoring on a proactive basis.

Unlike other Cloud vendors that charge considerably more for security features, Oracle Cloud Infrastructure touts built-in security. That fares well against rivals like Salesforce, which now depends on incremental revenues to sustain its growth from add-ons like Salesforce Shield, a security bundle that includes event monitoring, field audit trail, and platform encryption that could require customers to pay as much as 30% more on top of their Salesforce applications purchases.

For weeks, the deal over future control of TikTok has attracted bidders ranging from Microsoft to Twitter and from Netflix to Triller, which also offers a video-sharing platform. The Trump administration did not make clear why Oracle was chosen over Microsoft, Twitter and others.

One thing is clear. Giant tech companies like Microsoft, Google, Facebook, and others have been wrestling with government authorities in the US, Europe, and elsewhere over their security and privacy policies for years. In 2019, Facebook user data were reportedly found in AWS servers apparently provisioned by Facebook partners that could be publicly accessible. Last October the European Data Protection Supervisor raised concerns about Microsoft cloud privacy policies and its compliance with European data protection laws. Similarly, Google has been accused of mishandling personal data for advertising purposes especially with its hidden web tracking pages and Nest Cam offerings.

The decision might not have rested on Oracle prevailing over others for securing data and protecting user privacy better than any other vendor, but rather its Cloud rivals’ inability to set the bar high enough to prevent anyone from raising such concerns in the first place.

When evaluating the security and privacy postures and guarantees from tech giants including Amazon, Facebook, Google, Microsoft, and Oracle, government regulators, investors and most importantly customers and partners from Zoom to Walmart now appear to favor the Redwood Shores, CA, company over others. That is also being validated by our regular surveys of enterprise software customers on their propensity to invest in next-generation Cloud infrastructure with Oracle scoring high among Global Top 500 companies.

One can attribute Oracle’s winning their increased support to its full-stack approach for critical components from database security to Cloud infrastructure, along with its lead in the self-driving race to deliver autonomous database, transaction processing, and data warehousing, all done without manual intervention to ensure maximum centralized security control by eliminating human errors.

Oracle and Walmart Join Forces

With Oracle and Walmart holding a 20% stake in TikTok and options to expand their holdings even more upon the completion of its IPO next year, both entities are entering a new phase in their unusual alliance. For years, Walmart has been a heavy user of SAP ERP along with a smattering of technologies from Oracle databases to Workday applications for HCM, according to our Buyer Insight Master Database.

In 2018, Walmart, the No. 1 company in our Global Top 500 study with the most revenues, decided to use Microsoft Azure as its cloud infrastructure under a five-year agreement as the two strengthened their ties to thwart their common enemy Amazon.

Now the TikTok deal could put Microsoft at a disadvantage, first being snubbed by the Trump administration and then leaving the back door of one of its biggest customers open to Oracle. Walmart said the TikTok deal will provide the new company with its omnichannel retail capabilities including its Walmart.com assortment, eCommerce marketplace, fulfillment, payment, and measurement-as-a-service advertising service. Oracle is well positioned to support that as well with its heavy investment in its CX applications, especially for Ad activation for sending first-party mobile advertising IDs from the Oracle Unity Adtech product to any social network like Facebook, a feature that is already readily available.

Additionally, Walmart will partner with Oracle to develop and deliver an AI-driven online video curriculum for US children and students, raising the specter that a new set of eLearning products will be made available to Walmart employees as well. That certainly plays to Oracle’s strengths in the HCM market, building on the Learning Management System foundation that the vendor has been improving upon for years.

What The Future Holds

It’s one thing for Oracle and Walmart to acquire a 20% stake in TikTok – costing them an estimated $6.25 billion and $3.8 billion, respectively, based on TikTok’s global appeal that warrants as much as 50% of ByteDance’s reported valuation of $100 billion.

It’s something else together for them to capitalize on its meteoric rise because of the fickle nature of the social networks, all of which derive the bulk of their revenues from advertising.

Before TikTok came on the scene in 2017 when ByteDance bought Musical.ly for an app that let users share short and catchy lip-sync videos, there were a long list of failed or struggling social networks from MySpace to Google Plus. For instance, Snap with its Snapchat social network, which was once a serious threat to Facebook, has seen little movement in its stock price since it went public in 2017. Between 2017 and 2019, Snap  saw a 112% jump in its revenues to $1.7 billion at the expense of steep losses. Facebook, on the other hand, almost doubled its market cap with just a 63% revenue growth to $20.7 billion during the same two-year period after consolidating its gains across its family of social networks from Facebook to Whatsapp. Despite their popularity, many social networks as well as real-time communications tools from Evernote to Slack face stiffening competition along with investor expectations that are unrealistic at best or devastating at worst.

Oracle is keenly aware of the risks associated with investing in TikTok given that it chose to align itself with the Trump administration in a volatile election year buffeted by the global pandemic. Shortly after the inauguration of Trump, Oracle CEO Safra Catz acted as one of the business leaders advising the president. Ellison also threw his support of the president earlier this year by hosting a fundraiser for his reelection campaign. In a 2018 TV interview, Ellison is quoted as saying, “We have a serious competition going on with China. I’m on team U.S.A., I would like us to be successful.’’

With the souring relations between Washington and Beijing in 2019, Oracle quietly disbanded its R&D team in Shanghai by laying off about 900 employees in a move that the local media characterized as taking the cue from the Trump administration. Now both Oracle and Walmart said the new TikTok will be expanding its presence in the U.S. with plans to hire more than 25,000 workers overtime in Texas and elsewhere.

Oracle also realizes the upside potential may outweigh the risks while providing it with the much-needed stimulus to satisfy its shareholders. In a recent SEC filing, Oracle’s board of directors issued the operational goals of achieving $20 billion in total annual cloud revenues including $10 billion in Cloud apps and $10 billion in PaaS and IaaS offerings, or about twice its current run-rate based on our annual survey of 3,000+ Cloud vendors.

Both Amazon Web Services and Microsoft are comfortably above the $20 billion mark with the former reaching $35 billion in Cloud revenues in 2019 and the latter posting $52 billion in its Commercial Cloud operations including Azure, Office 365, Dynamics 365, LinkedIn and others in its fiscal 2020. That leaves Oracle with no choice but to hunker down and accelerate its Cloud business. Now TikTok is poised to become one of the key enablers to help bridge the gap.