Oracle & TikTok – Peak fudge pt II.

The margin by which this deal is approved is wafer-thin.

• The fact that Oracle will have access to TikTok’s algorithms and source code greatly increases the chances of the deal being approved by the US administration, but it also greatly increases the chances of it being blocked by China.
• The first details of the deal between TikTok and Oracle (see here) have emerged and it appears that contrary to my expectation, Oracle will have source code and algorithm access for the service that it will be administering.
• From the US standpoint, this is a crucial factor.
• This is because without source code access Oracle will in effect by the custodian of a locked box with almost no visibility on what is happening to the data that is being collected from US users.
• For anyone trying to ensure that data on US users is not being passed into the hands of a hostile state actor, this would always reasonably be a red line.
• However, if Oracle does have source code access, it has a much better chance of being able to safeguard the data and be sure that it does not leave US soil.
• This gives the deal a much greater chance of being approved by the US administration, thus preventing a blockade of the service.
• However, this same detail greatly increases the probability that China will veto the whole deal leading to TikTok being banned in the USA (and potentially some other countries).
• This is because, on Friday, August 28th, China updated its list of controlled exports for the first time since 2008 to include “personalised information recommendation services based on data analysis,“ in a move clearly aimed at obstructing the sale of TikTok.
• While this was aimed to obstruct a sale of TikTok, a situation where the algorithm is present and visible to a US company (Oracle) could easily fall into “this has been exported” territory.
• I cannot see how this can be fudged because, in order to process data to provide US users with the recommendations that define the quality of the service, the algorithm and the data have to be in the same place.
• This is exactly what I referred to when I opined that a deal that is acceptable to the US is unlikely to be acceptable to China and vice versa (see here).
• It is very unclear how this can be resolved as the margin to make the deal acceptable to both countries is imperceptibly thin.
• One possibility is that ByteDance has chosen Oracle (an also-ran in the data centre) due to its potential ability to get a deal that is just acceptable to China over the line with the US given its strong relationship with the current US administration.
• ByteDance needs this situation needs to be resolved quickly as the example of India demonstrates that users could quite quickly move over to rival services should TikTok no longer be available.
• There are no shortages of innovative apps waiting in the wings to fill any gaps left by TikTok should ByteDance fail to prevent a ban.
• Instagram and Snap are two that leap immediately to mind but there is no shortage of others.