Oracle’s deal to serve as TikTok’s new “trusted technology partner” could be worth more than $1 billion in potential revenue annually for Oracle’s cloud business in the coming years, according to previously undisclosed data reviewed by The Information.
TikTok’s revenue coming from making TikTok data available on Oracle servers will provide a big boost to the cloud database company’s efforts, which lag far behind those of its competitors.
The deal would also take the business world away from Google and Amazon, Oracle’s cloud rivals that have considered TikTok as a major customer in the past year or two as the app grows.
The financial details of TikTok’s cloud spending have shed new light on the high-stakes flirtation with the viral video app among the largest enterprise technology companies, including Microsoft, which until two weeks ago was considered the leading contender to buy the app’s U.S. operations outright.
Quick tips
• TikTok could spend $750 million this year on server operating expenses
• TikTok was a cloud server client for Google and AWS
Under the deal, Oracle will reportedly take a minority stake in a new US-based company that owns TikTok which will be majority owned by ByteDance.
This proposal, which boosted Oracle’s stock price by 7% this week, still needs approval from the Trump administration and the Chinese government.
TikTok’s annual costs for storing data and running the app on cloud-based servers are large and growing, according to internal TikTok data seen by The Information. It could exceed $750 million this year, based on the company’s costs in the first and second quarters of 2020.
TikTok’s expected growth means that Oracle, which currently outsells its rivals in selling cloud storage and computing power, among other services, could be one of the world’s top ten cloud computing customers.
Oracle had 2% of the global market for selling cloud infrastructure services at the end of June, compared to 9% for Google, 18% for Microsoft and 33% for AWS, according to Synergy Research.
Google is more vulnerable than its biggest rival, AWS, to shift potential TikTok spending to Oracle.
Last year, TikTok quickly became one of Google’s cloud platform’s top customers. At one point, TikTok was expected to spend $150 million with Google this year, according to a person familiar with TikTok’s three-year cloud services deal with Google, which was signed last year.
TikTok’s cloud and data center-related operating expenses would have been higher for the year had it not been shut down in India at the end of June, after the government there banned it and other Chinese apps amid national security concerns.
The concerns were similar to those that prompted the Trump White House in July to order that the US version of the app be sold to a US entity or be banned. In India, TikTok had over 100 million daily active users.
Despite the Indian ban, TikTok is believed to have at least 200 million daily active users, including more than 50 million in the fast-growing US market, a figure it revealed in August.
By comparison, rival video app Snap recently said it has 238 million daily active users, and it previously struck deals to spend about $650 million this year on cloud infrastructure services from AWS and Google, according to the company’s financial disclosures.
In other words, TikTok’s operating expenses appear to be fairly comparable to those of its competitors.
TikTok pays for a range of cloud services from AWS and Google while also paying to manage its own servers in some data centers, although spending on cloud providers appears to be a bigger piece of the pie at the moment.
One question is how long it might take for TikTok’s compute and storage business data to be moved to Oracle’s data centers, and what percentage of business data the deal would force would need to be under Oracle’s control.
It’s also unclear how much it would cost TikTok to break existing cloud spending commitments to providers including Google — and deals it has struck in order to get a discounted price — or break commitments for separate data center work in the US.
Spokespeople for TikTok, Google Cloud, and Microsoft declined to comment for this article. Spokespeople from AWS and Oracle did not respond to a request for comment.
Acknowledging the pending TikTok deal without revealing any details, Oracle publicly stated Monday that it “has a 40-year track record of providing secure, high-performance technology solutions.”
That statement may be accurate, but growing its cloud computing business hasn’t always been easy for Oracle, whose executives — including co-founder Larry Ellison — have underestimated AWS’s business potential and the entire idea behind cloud computing.
That was before Oracle launched a competing cloud service in 2016. Two years ago, some of Oracle’s largest database customers declined to buy Oracle’s cloud services, in part because of the company’s aggressive sales tactics, The Information said.
While Oracle has recently touted customers, such as video conferencing companies Zoom and 8×8 as representative of its cloud growth, it has not disclosed a cloud infrastructure revenue figure that would be comparable to numbers for AWS and Google’s cloud ecosystem.
AWS generated $11 billion in revenue in the second quarter of the year and $3.3 billion in operating profit.
Google doesn’t break down profits for its equivalent business, but it was likely less than $2 billion per quarter, according to the company’s broader financial disclosures, which include its G Suite apps business.
Microsoft also doesn’t break down its comparable earnings.
