The clock is ticking for Oracle to make sense of the TikTok deal
What does the world’s largest enterprise software firm see in a Chinese video-sharing social networking app?
Putting the intense political pressure by the US government to make this deal work to one side, the two businesses seem like chalk and cheese to hard-nosed City investors. One company is a behemoth known for serving the corporate world with database software. The other is the latest loss-making consumer tech craze to capture the 2020s zeitgeist.
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Now, the concept of a major software corporation using the technology it invests in for more than equity upside is very attractive to investors. Instead of just focusing on equity returns, Oracle may actually use the money it pumps into TikTok to create the next wave of product innovation. However, as with all of these types of technology acquisitions, Oracle will need to demonstrate that this investment approach genuinely delivers sustainable value to investors.
The combination of taking disruptive technology and then adding corporate expertise can work, but only if Oracle sees TikTok as an investment for the long term. If it does, then it will cost Oracle a lot of capital in order to create value from an app that has no direct link to its core business.
Traditionally, the big corporates are unable to create investor value from such products. Instead, they usually create technologies by demand. With over 500m users across 150 markets globally, there is no denying the huge demand for TikTok right now. Whether or not that demand is still there or replaced by the next social networking craze in five years time is very much unknown.
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It is perfectly normal for every corporation, when it gets to a certain size, to try and seek out new opportunities for growth. After all, the larger and more bureaucratic you become, the harder it is to innovate from within. The tech giants might be experts in raking in cash from their core businesses, but they are not always successful in everything they try to do.
If Oracle sees TikTok as part of a wider ecosystem of technology investments that all have a strategic link to one another, then this investment could work. But if this is just a speculative gamble motivated by the fear of missing out on the latest social networking phenomenon, then TikTok may end up being a flip flop.
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