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U.S. to start blocking TikTok, WeChat downloads Sunday

On Friday, the Commerce Department announced that it will be banning business transactions with both WeChat and TikTok on Sunday. This comes as the U.S. government sets up a November 12th deadline for the Chinese owned company. Rishi Jaluria, D.A. Davidson Senior Vice President and Senior Research Analyst, joins The Final Round to discuss the latest developments on TikTok and Oracle.

Video Transcript

SEANA SMITH: Welcome come back to "The Final Round." We have a developing story that seems to be changing by the minute. But the latest here is that President Trump is ordering downloads of TikTok and Tencent's WeChat to be blocked as of midnight on Sunday. We still will be able to use the apps with WeChat, but those will start degrading pretty quickly, and then TikTok, the administration not banning that app until November 12, which is, of course, after the election.

So for more on this, we want to bring in Rishi Jaluria. He's the senior vice president and senior research analyst at DA Davidson. Rishi, from the last time we spoke, this story has changed dramatically over the last several weeks. So as you sift through the most recent developments and also some of the political noise that's out there at the moment, how are you looking at these developments? And then also, just the motivation from the Trump administration standpoint behind the ban that was announced today.

RISHI JALURIA: Yeah, thank you so much, Seana, always a pleasure to be here. It's absolutely just changing I think even by the hour, the headlines today have developed I think really rapidly. Look, I think Oracle was a little bit of a surprise. But given that it's not an outright sale and it's likely Oracle taking a 20% stake in TikTok, it makes a lot more sense why it's Oracle and not Microsoft coming out of this. There's always a big question of, hey, what in the world is Oracle, an enterprise software database company, going to do with TikTok, which is a consumer app?

And really in my mind's eye, that's Oracle kind of buying cloud business. Because when we think about the cloud platform providers, there's AWS, there's Azure, there's kind of Google, and then you'd need a telescope to see where Oracle is when it comes to the cloud wars. And this is them trying to get a really high profile customer onto the cloud platform and kind of get that trust of data privacy and data residency.

In terms of President Trump's announcement of potentially, or banning the app, to me, that's a little bit of a negotiation tactic. That an initial kind of outcome that the president wanted was for TikTok to be majority owned by an American company. And in my mind, to me, it looks like putting that out there is a way to try to force an outright sale or an IPO or something of TikTok so that it's not going to be majority owned by ByteDance or by a foreign owner anymore. So that's kind of how I've taken these two developments.

MYLES UDLAND: Rishi, just a kind of broader question. Are your clients as interested in this story as the tech media seems to be?

RISHI JALURIA: Not as much. I think it's about kind of the follow on and what does it mean for Microsoft, what does it mean for Oracle, what does it mean for Fastly, that's the company where TikTok is our largest customer. But I'm, that's because I'm an enterprise software analyst, I'm not an internet analyst. I think if I were an internet analyst covering Facebook, maybe there'd be a little bit more on there. People definitely care about these developments and are following them closely. It's just it's anyone's guess what's going to happen, because things change so quickly here.

SEANA SMITH: And Rishi, I know you just mentioned that you don't specifically cover Facebook, but I'm just curious just about the competitors out there and what position that puts them in. Because if you take Facebook, for example, one of their competitors now potentially being removed here from the US. And we heard TikTok's interim CEO earlier today issuing a statement, saying that this type of ban isn't good for anyone in the industry. What do you think about that just in terms of what exactly it means for some of those other social media competitors out there at this point?

RISHI JALURIA: Yeah, I actually look at the developments. Even if TikTok, everything goes through and it doesn't get banned, just the amount of kind of controversy that's emerged with TikTok with ByteDance's ownership and the close ties with the Chinese government. I think that actually puts Facebook and even Snapchat kind of in more trusted status. And so all these developments are good for them, even if there is no ban. Even if there is no moves like that, it's still a positive development just in terms of trust of the American consumer, that maybe TikTok's lost a little bit with all the developments that have kept happening.

INES FERRE: Rishi, Ines, here. And talking about that possible ban, I mean, a true ban doesn't seem like it would be likely until November 12. That would be after the elections. So it is the case here really about who owns TikTok, about security concerns? Is this more posturing? And do you see a deal where you could have the security concerns that are not there anymore with Oracle involved, but then it's not majority owned by a US company?

RISHI JALURIA: Yeah, I think that's kind of where things are headed right now with the minority ownership. That Oracle would still have control of all the data, making sure there's all the residency and governance capabilities. And at the same time, they have exposure to the underlying code to make sure no data of American users is being leaked outside of the US.

So I think that seems to be kind of the compromise here. Is there a lot of posturing going on here? Absolutely. I think there's no doubt in my mind that there's a lot of political stuff attached to this. And I think that's creating a lot more noise than that might even be warranted around the TikTok situation.

SEANA SMITH: And Rishi, real quick, just, I have a question about the software space, just in terms of the broader implications of this, not only in social media, but what about the potential the Chinese cloud providers out there? What in turn could this type of discourse and this type of, I guess, tension between the US and China mean for some of those big names?

RISHI JALURIA: Yeah, it's a great question. And look, you talked at the top of the segment about WeChat being the other app that is facing a ban with downloads. Not that it's super popular in the US, by any stretch. But remember, their owner also has their own cloud service. There's Tencent Cloud, there's Alibaba Cloud. I think, the way I'm looking at it is, the Chinese cloud providers, if they were going to try to make a move outside of China and try to get adoption here, that move is kind of starting to fade away.

And I really don't see that happening. And at the same time, there's probably going to be some reciprocal pressure that happens. And so with American enterprise software companies that should they try to enter China, I think it's going to be a little harder for them as well.

SEANA SMITH: Rishi Jaluria, I'm sure we will talk to you soon, as this story does not seem to be going away anytime soon. The senior vice president, senior research analyst at DA Davidson. Thanks for taking the time.