With TikTok, Trump takes on 100 million more Americans
The Trump/TikTok saga is so fast-moving, inchoate and opaque, it’s hard to know where to begin—or how it will end. What’s clear though, is that this imbroglio touches on nearly every hot-button issue of our time: from U.S.-China relations and national security, to the president’s lightning-rod ego, to the election, to the never-ending alpha dogfight by tech giants looking to lord over our screen habits and spending—and controlling the lucrative cloud business that goes with it. The drama also includes a world-class cast of characters, including not only Trump and all of his men, but the CEOs of the biggest companies on the planet, billionaire financiers, Hollywood players and Xi Jinping, too. (And then maybe there’s a certain Hollywood actress.)
Stop me but I feel a Netflix mini-series coming on. (I mean if Showtime can make The Comey Rule...)
With so much noise surrounding this ‘deal,’ (if it can even be called that), and so much at stake, it’s important to go through just exactly what we know here—and connect the dots. (I should point out this analysis is limited by the deadline at the top of the page, i.e., the brouhaha seems destined to drag on for some time.)
First to get you up to speed, on August 6, President Trump said he would ban TikTok, an insanely popular social media platform—including an audience of some 100 million Americans—owned by a Chinese company, ByteDance, unless that American audience was somehow turned over to a U.S. company by Sunday, September 20. Trump and his administration say they’re concerned ByteDance could collect data on Americans (or even blackmail crazy dancing American teenagers) and turn it all over to the Chinese government. (There’s zero proof that’s happening by the way.) TikTok may have landed in Trump’s crosshairs after teenage TikTokers reportedly bought up tickets and tanked attendance at a June 20 Trump campaign rally in Tulsa.
Along with TikTok, Trump said he would ban WeChat, a messaging app owned by Chinese tech giant Tencent, ubiquitous in China, but also used by a couple of million mostly Chinese speaking customers here in the U.S., as well as the likes of Disney and Walmart to reach consumers in China.
In the case of TikTok, a compromise was worked on feverishly. The serious buyers looked to be Microsoft, which has now said it’s bowed out, with Walmart as its partner, and Oracle. A week ago, Oracle is said to have won, becoming ‘a trusted tech partner’ of TikTok’s, apparently teaming up with Walmart which has now jumped over to work with Oracle.
Oracle won (so far) in part it’s believed because Microsoft wanted to buy the whole U.S. operation, which the Chinese government would have likely opposed, because that would have meant transferring all of TikTok’s secret-sauce algorithms to a U.S. company, not allowed under new export laws China passed at the end of August no doubt specifically to scotch that pending sale.
But even though, it’s a deal that never got over the finish line, and so on Friday, Commerce Secretary Wilbur Ross said that as of tomorrow (Sunday) night, the U.S. government will prohibit any new downloads or upgrades of the TikTok app, which would be banned completely as of November 12, (unless of course the deal gets done before then.) As for WeChat, it will be banned as of Sunday night (which seems to contradict a filing by U.S. Department of Justice on Wednesday.) The U.S. government will block both apps from Apple and Google’s stores in the U.S., Ross said. (The ban doesn’t include removing TikTok and WeChat from app stores in China, a huge win for Apple and Google.) A group of WeChat users is suing the U.S. government saying that banning the app wouldn’t allow them to communicate with each other and with friends and family in China.)
Got all that?
Here’s what’s still not clear:
-What the U.S. TikTok company would consist of exactly (which customers, what data, what algorithms.)
-The management structure, (who would control what, what ownership stakes would Oracle, Walmart and powerful U.S. venture capital firms including Sequoia and General Atlantic, which have investments in ByteDance have.)
-Who would run TikTok U.S. Kevin Systrom, co-founder and former CEO of Instagram has reportedly been approached (who might relish a return to the battlefield after being unceremoniously pushed out of Facebook by Mark Zuckerberg.) Former Disney exec Kevin Mayer became the U.S. TikTok CEO in May, but left in late August—at either just the right or wrong time.
-Whether TikTok can or will go public in the U.S. in the near future.
-And finally, who needs to approve all this. Besides the buyers and sellers, that would include various U.S. agencies such as CFIUS (Committee on Foreign Investment in the United States) and the U.S. Treasury. Also GOP headliners like Senators Ted Cruz and Marco Rubio, who have been vocal here, need to be on board. And of course Trump himself. And let’s not forget President Xi and the Chinese government need to approve the deal. They are reportedly more willing after Trump dropped a demand that the U.S. Treasury be paid what he likened to ‘key money,’ to consummate the sale.
All because a bunch of teenagers sabotaged a campaign rally? It's a good thing America doesn’t have any pressing problems at the moment, right? I’m also thinking Microsoft CEO Satya Nadella dodged a bullet here.
Trump isn’t wrong to be concerned about a Chinese company vacuuming up our personal data. Here’s what Kevin Rudd, former Prime Minister of Australia, said this week at Yahoo Finance Australia’s All Market Summit: “China has formally abandoned [former Chinese leader] Deng Xiaoping’s renowned strategic caution of hide your strength, bide your time, never take the lead. And instead, under Xi Jinping, there is now an explicit directive for China to assert its interests with countries around the world and also to assert its values.”
Yi-Zheng Lian, former chief editor of The Hong Kong Economic Journal is more blunt, writing in the New York Times recently that Trump is actually underselling China's soft power which he called “invasive, intrusive and dangerous” suggesting Beijing’s ambitions know no limits.
Trump and his administration have taken on other Chinese companies over potential transgressions, (a curious pre-proof, pre-emptive justification), most notably Huawei. And Lian points that the wildly popular U.S.-based, video-conferencing company Zoom, was “established by a billionaire Chinese immigrant, [and] uses software partially developed in China,” which he suggests the Chinese government could tap into, presumably in the dead of night, (which is day for them.) Again no proof of anything here either.
And Trump is right, that intellectual property protection has been a one-way street with the Chinese.
“The Chinese allow you to invest in the country but it must be a majority-owned Chinese company and you can only be a minority investor,” says Holger Mueller, a tech analyst at Constellation Research. “Anything you do that produces intellectual property in the country, you have to hand over the patents. You lose them, not only for China but globally.”
Or as veteran tech analyst Dan Ives of Wedbush says, “Right now, for the U.S. and China, there’s no candlelight dinner between them.”
As Rudd suggests, the China relationship writ large requires a recalibration, which maybe we’re getting with TikTok, except well, what’s really the plan, man? Is it about protecting our data, punishing the Chinese, or what?
Here’s Kara Swisher invoking The Bard:
“There is no question that the issues of Chinese influence and surveillance should be top of mind for any democratic government — and a cogent and broad-ranging policy of how to deal with Beijing is necessary. But this is not that. What we have been left with after all the gnashing of teeth and tearing out of orange hair is a lot of sound and fury that appears to signify very little.”
Trump seems to have established a hierarchy of Silicon Valley companies. Amazon is his least favorite as its CEO Jeff Bezos, the richest man in the world and owner of the Washington Post, overshadows and angers him. Amazon recently lost the lucrative ‘JEDI’ Pentagon contract for cloud services, even though it has the greatest expertise here, to Microsoft—which reportedly surprised executives there. (Oracle lobbied hard for JEDI too.)
Speaking of Microsoft, while Trump greenlit JEDI for Microsoft, he has no love for Bill and Melinda Gates, who aren’t exactly Trump supporters and who’ve been critical of the president’s COVID-19 response.
So no, Microsoft doesn’t get TikTok, that goes to Oracle, a company founded by the 10th richest man in the world Larry Ellison, and run by Safra Catz, two of Trump’s biggest (and only supporters) in Silicon Valley. Oracle has zero expertise in consumer software where Microsoft, the biggest application software company in the world—plus it owns Xbox, LinkedIn and Skype—has oodles of expertise.
Still there is logic to all this. “Once the Chinese government changed the export rules with the algorithm not in play, that took an outright sale off the table,” says Ives. “I never looked to Microsoft to partner. Amazon can’t touch TikTok given regulatory issues around FAANG players, meaning that goes for Google and Facebook as well. By the process of elimination, the only dance partner left was Oracle.”
Oracle does make sense, says Mueller of Constellation. Oracle’s presumed partner Walmart can handle the consumer-facing facets of TikTok. And Oracle has deep expertise in software security, having supplied database software and more to the U.S. Defense Department for decades. So that’s a good fit if in fact TikTok’s U.S. software and customers are to be separate from China’s. “You’re talking about one of the mainstays within the build-up of enterprise infrastructure over the last 50 years. Oracle is a gold standard name and I think there are no concerns from a technology perspective that they’re going to fall short,” says Mueller. (Yahoo Finance’s Brian Sozzi points out the deal would also help Oracle play catch-up in the cloud business where it has lagged.)
“Both the U.S. government and the Chinese government get wins,” says Ives. “China stopped the outright sale with the export rule poison pill. The U.S. government gets a majority stake in TikTok from U.S. tech players as well as Walmart and brings jobs into the U.S. Security concerns are alleviated relatively for the White House. This is all relative to what could have been a Fort Sumter moment.”
Except for one big caveat Dan: IF the deal goes through.
And even if it does, you can’t get around this presidential favoring or meddling in the private sector, (talk about picking winners and losers!) From badgering the likes of United Technologies, Merck and GM to his ham-handed attempts to block the AT&T-Time Warner merger to punish the latter’s CNN property, which has become Trump’s M.O. What was Ronald Reagan’s favorite airline? Or Lincoln’s favorite munitions manufacturer? Or Kennedy’s favorite defense contractor? I can just hear Trump saying, ‘Oh they had their favorites too. You just didn’t know about it.’ (Another round of a new favorite game in Washington: Prove the Negative.)
Once again it’s unprecedented stuff with Trump and not in a good way. Lindsay Chervinsky, a presidential historian and scholar-in-residence at the Institute for Thomas Paine Studies at Iona College, acknowledges that sometimes presidents do weigh in on the private sector, but those are “instances presidents are trying to protect the American people from having to spend too much money on something they needed: Oil for their car or food for their family.”
Says Timothy Naftali, an author and professor of history at New York University: “Teddy Roosevelt grew to dislike certain captains of industry. FDR came to dislike certain captains of industry. JFK railed against captains of big steel because he thought they betrayed him. There’s no doubt presidents have intervened in sectors. It’s not the same as Trump coming down on companies because he doesn’t like their owners. His desire to use the federal government to retaliate against political opponents smacks of Nixonianism only Trump has expanded his targets to include fellow billionaires.”
Then there’s the unprecedented politicization of government, as Trump appointees scurry around to do the president’s bidding in all this dealmaking. Trump rails against what he calls deep state actors in government agencies. They’re actually dispassionate career civil servants. He’s replacing them with agenda-driven apparatchiks. Sadly, it’s too often Trump’s personal agenda.
Donald Trump is right to say that the old rules of engagement between China and the U.S. are obsolete and must be rewritten. Unfortunately, what the TikTok drama looks like is Art of the Deal meets the Nixon’s old Committee for the Re-election of the President, AKA CREEP. And you know what else it looks like? An asset or technology transfer, really a forced sale by the U.S. government, the exact thing the Trump administration howls that the Chinese do to us. Which I guess is OK if tit-for-tat is your idea of a winning strategy.
Trump’s threat to shut down TikTok before the election is an idle one by the way. (Note the new November 12th deadline, conveniently nine days later.) Granted, many TikTokers are too young to vote but many are not.
I was talking to Jessica Alba this week about it all. (Yep, her.) “What makes me so happy about TikTok is that it really allows everyone, grandma and grandpa all the way to the kids, and everyone is having a blast on it. It's just such a fun and engaging platform,” she said. It could get shut down I pointed out. “Yeah, I hope it doesn't because it is really fun,” she responded.
I don’t think President Trump wants to mess with one of LA’s Finest right now. Or 100 million other Americans either.
This article was featured in a Saturday edition of the Morning Brief on September 19, 2020. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.
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