You may have been surprised by news of Oracle, one of the oldest enterprise technology companies, making a play to acquire Tiktok. The trendy, video-centric social media platform is being pressured to sell its US technology operations to an American company, amid an ongoing foreign policy dispute between the United States and the People’s Republic of China.

At the time of this post, no deal has been finalized, and any arrangement will be subject to further governmental scrutiny. But on September 13th, ByteDance, the Chinese firm that currently owns and develops TikTok, announced Oracle’s proposal had been selected over the bids of several competitors. The most notable competing offer was from Microsoft, who already owns the social media company LinkedIn, and has courted entertainment consumers for years with its Xbox gaming console and related products.

But while the market case for Microsoft's bid struck many people as fairly straightforward, Oracle's efforts turned some heads. Some prominent business commentators even speculated their offer was nothing more than a ploy to boost their stock price. After all, what could an old-school tech giant, founded in the 70s and known for corporate database software, want from partnering with arguably the hottest social media startup, especially one primarily popular with teens and twenty-somethings?

In a word: scale. TikTok now boasts over 100 million US-based users (partly what makes them such a touchy subject diplomatically) and Oracle needs that sort of scale in its cloud computing business to begin truly challenging industry leaders. All of the major public cloud providers heavily promote their new breakthroughs and innovations, but success in the space has historically been mostly a factor of raw size, necessary for achieving the economies of scale needed to competitively price commodity infrastructure. These services (servers, managed databases, and cloud storage volumes) comprise the overwhelming majority of industry revenue, and can often be the difference-makers in winning over large enterprise customers.

In fact, leveraging the scale of existing technology infrastructure can be credited with establishing the category in the first place. Amazon Web Services (AWS) was founded in 2006 as a way for Amazon to sell the excess capacity and relative cost advantage that resulted from their need to run data-centers for the company’s primary retail business. Google and Microsoft, tech giants with similar in-house infrastructure operations, soon followed suit with Google Cloud Platform (2008) and Microsoft Azure (2010).

These three now dominate cloud computing, collectively making up an estimated sixty percent of global market share in the nearly $50 billion dollar industry. And each has sought to win large corporate anchor clients, not just as a way to signal credibility in the space, and not simply for the immediate revenue, but for the greater scale and capacity these big-name partnerships help make possible. AWS, the market leader, has big deals with Netflix, Facebook, and Twitch. Google serves Target, Spotify, and McKesson. Microsoft won the $10 billion dollar annual US Department of Defense contract late last year. Most enterprise buyers use more than one public cloud, but typically forge a special partnership with one of the top platforms.

Other competitors in cloud computing infrastructure, like Oracle, IBM, and Alibaba have made their way as more niche providers, focusing on facilitating so-called hybrid cloud deployments or specialized services (such as IBM’s Watson). With the TikTok partnership (or potential partial equity acquisition), Oracle could, at least in theory, gain some of the size it needs to get a leg-up on other emerging competitors to the Big Three. And with cloud IaaS spend growing an eye-popping 37.3% in 2019, even a few percentage points of share can yield some serious revenue. Oracle still has a ways to go in order to be considered a head-to-head alternative with Amazon, Microsoft, or Google, but their pursuit of TikTok is not as unrelated a play as it may initially sound.

Does your business need help working with the cloud? Our team at Earlybird has over a decade of experience working with these platforms, and can help your organization reach its technology goals. Contact us today to discuss how we can potentially work together.