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Oracle co-founder and CTO Larry Ellison, left, is looking to make the company a “trusted technology partner” to TikTok after ByteDance turned down an acquisition bid from Walmart and Microsoft, led by Satya Nadella, right. (Oracle and GeekWire File Photos)

Microsoft’s bid for TikTok fell through after the tech giant insisted on acquiring full control of the social video app’s U.S. operations, data, source code and algorithms, declining to settle for a lesser deal that didn’t put those key assets in its hands.

That’s one of the details that emerged overnight after Microsoft said Sunday afternoon that TikTok’s parent, Beijing-based ByteDance, declined the offer from Microsoft and Walmart to acquire TikTok for a reported $20 billion to $30 billion.

The Chinese company, under pressure from the Trump administration to divest TikTok’s U.S. operations due to national security concerns, has instead submitted a proposal that makes rival bidder Oracle a “trusted technology partner,” reportedly seeking to avoid the outright sale of TikTok in the country.

EARLIER: Microsoft’s bid for TikTok rejected by ByteDance as reports name Oracle the winner of modified deal

That type of arms-length arrangement made Microsoft uneasy on a variety of fronts, a person familiar with the discussions told GeekWire.

Microsoft wanted full control to ensure that TikTok met its standards for privacy, security, and online safety, in addition to addressing concerns related to ByteDance’s ties to the Chinese government. Of particular concern to Microsoft was TikTok’s ability to engage in propaganda, censorship and disinformation campaigns, as highlighted in a Sept. 8 report by the Australian Strategic Policy Institute.

“While most major international social media platforms have traditionally taken a cautious and public approach to content moderation, TikTok is the first globally popular social media network to take a heavy-handed approach to content moderation,” the ASPI report said. “Possessing and deploying the capability to covertly control information flows, across geographical regions, topics and languages, positions TikTok as a powerful political actor with a global reach.”

Even if a Microsoft deal could have satisfied new Chinese export restrictions, shifting the key TikTok data and algorithms away from ByteDance and into Microsoft’s full control would have required a significant amount of technical and logistical work. However, it was the only way the Redmond company would have felt comfortable proceeding, particularly considering the reputational risk, according to the person, who spoke on condition of anonymity due to the sensitive nature of the situation.

Microsoft President Brad Smith also cited concerns about disinformation and Chinese access to TikTok’s data in an interview with the New York Times.

Treasury Secretary Steven Mnuchin with President Donald Trump and Vice President Mike Pence at a White House briefing in April. (Official White House Photo, D. Myles Cullen)

The details of the alternative ByteDance proposal and tech partnership with Oracle haven’t been yet been made public, and it’s not clear if the plan will satisfy President Trump’s concerns. The president has threatened to ban TikTok in the United States if ByteDance continues to control the app in the country. While the original deadline for an acquisition was Sept. 15, as noted in Microsoft’s original statement on the talks, President Trump’s subsequent executive order put the deadline at Sept. 20.

Treasury Secretary Steven Mnuchin said this morning on CNBC that the administration is reviewing the proposal. “I will just say from our standpoint, we’ll need to make sure that the code is, one, secure, Americans’ data is secure, that the phones are secure and we’ll be looking to have discussions with Oracle over the next few days with our technical teams.”

Oracle, the longtime database technology company, doesn’t have extensive experience running consumer technologies, but it has been seeking to aggressively expand its cloud operations in competition with Amazon, Microsoft and Google. It’s also in a position of influence with the administration. Oracle CEO Safra Catz was a member of the Trump transition team, and Oracle co-founder and CTO Larry Ellison is a prominent fundraiser for Trump’s re-election campaign.

To a lesser extent, Microsoft was also viewed as an odd fit for acquiring TikTok. While the Redmond company does have more experience with consumer businesses, as the owner of Xbox, Windows, Bing and other technologies, it has largely focused on business and individual productivity technologies under CEO Satya Nadella.

However, TikTok would have matched some of the characteristics of major Microsoft acquisitions, such a Minecraft, LinkedIn and GitHub, by providing an engaged user base and an interesting technology platform, according to the person familiar with the discussions. TikTok also would have filled a gap for Microsoft by providing a source of social media data to fuel artificial intelligence technologies in conjunction with the company’s Azure cloud computing platform.

Depending on the purchase price and the arrangement with Walmart, the TikTok acquisition would have been one the largest in Microsoft’s history, potentially rivaling or surpassing its $26.2 billion acquisition of LinkedIn in 2016, but still far less than Microsoft’s failed attempt to purchase Yahoo for more than $44 billion in 2008.

Given the potential distractions and complications of a TikTok acquisition, one popular view is that the Redmond company is better off without it.

Microsoft shares are up 1% in trading this morning, while Oracle stock is up more than 4% on the news.

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