Those who predicted a correction in tech stock prices before the pandemic have been proved wrong. The Big 5 tech titans just keep getting bigger and more profitable – and their shares have been soaring. What could possibly go wrong? Victor Hill inquires.
Facebook (market capitalisation: $986 billion)
Increasingly Facebook’s users juggle all three of its global platforms simultaneously – Facebook, WhatsApp and Instagram. These three apps are intertwined. For example, you might send someone a WhatsApp message and suddenly, out of the blue, the recipient’s Facebook profile pops up. (People you may know.) All told, that means that Facebook is generating and mining an awful lot of data about us. The secret algorithms of Menlo Park know us much better than we know ourselves. As I have written in these pages before: If the product is free, then you are the product. Perhaps we should be more worried than we are.
About 2.8 billion people have signed up with at least one of Facebook’s platforms at the last count – that’s about 35 percent of the entire population of the planet, and a larger percentage of all adults. No corporation in the history of capitalism has penetrated so many human minds. Hardly surprising then that the company has become one of the titans attaining a market capitalisation in excess of one trillion dollars. ($986 billion as I write this Thursday, to be precise – but what’s a few billion bucks either way these days?) As of now, the value of CEO Mark Zuckerberg’s holding in the company is around $130 billion, making him the fifth richest person in the world.
Yet, according to a new book about the company – An Ugly Truth: Inside Facebook’s Battle for Domination by New York Times journalists Sheera Frenkel and Cecilia Kang – we actually know very little about how the company is run and the people who run it. The names of founder Mark Zuckerberg and COO Sheryl Sandberg may be well known – but that does not mean that their business strategy is well understood. The authors contend that this ubiquitous presence – I have it open in the background as I write this, and my smartphone has pinged three times since I sat down at the keyboard – remains tantalisingly enigmatic.
The popular understanding is that Mr Zuckerberg is the visionary founder, a computer geek who could see the massive potential of social media; while Ms Sandberg (who is 14 years his senior) is the business genius who has monetised the company’s phenomenal reach, notably via advertising.
In practice, of course, Mr Zuckerberg has always had the last word since he still holds most of the voting shares. He might flounce around in ripped jeans and a T-shirt, but he has been described as the most dangerous person in the world. What comes out of the book is that anyone who has opposed the strategic decisions of either of the duo has been forced out. There are parallels between Mr Zuckerberg’s strategy and Bill Gates’s dominance strategy in the early days at Microsoft: any potential competitor must either be acquired outright or destroyed.
One outsider has been allowed to sit close to this remarkable business marriage. That is Sir Nick Clegg who arrived in 2018 with a unique CV – he had been Deputy Prime Minister of the UK (2010-15). He is described by Frenkel and Kang as Facebook’s chief diplomat. He joined Facebook, so he claimed, because he was convinced that lawmakers need to have a serious conversation about whether data-intensive companies allow other companies to share and use data. It was supposedly Sir Nick who convinced Mr Zuckerberg that political regulation was inevitable at some point, and that Facebook should prepare for that eventuality by seeking to be a force for good.
So, for example, once the coronavirus pandemic kicked off in the first quarter of 2020, Facebook drew up rules to censor posts by quack medics. Similarly, this year Facebook has been running a campaign against misinformation about vaccines. Recently, Facebook has attracted both derision and disdain in some quarters by asking users to report friends who post extremist content.
This has created a tension between the pursuit of accuracy and freedom of expression, which has had paradoxical results at times. For example, Mr Zuckerberg, who is of Jewish heritage, permitted Holocaust deniers to post on Facebook until recently. And Facebook even gave the Q-Anon conspiracy movement – which claims that numerous luminaries and politicians are involved in child abuse – some mileage, until they were banned outright last October. Nick Clegg has repeatedly articulated the line that Facebook is just a platform and not a publisher – in other words the company does not take editorial decisions and is not responsible for any content that it makes available.
Nick Clegg even admitted to journalists last year that Facebook would accept payment for political ads without fact-checking them – something that came to look unviable. Facebook is the biggest lobbying force in the USA, and any suspicion of malpractice is likely to encourage calls that the platform be broken up.
Two weeks ago, a judge in Washington DC dismissed two anti-trust cases against Facebook. One was prosecuted by the US Federal Trade Commission and another by a comity of 46 US states. They had argued that Facebook was a de factomonopoly. Judge James Boasberg determined that the company did not exercise monopoly power under US Federal law because its products are free, and users are at liberty to access alternative websites. But there are bound to be other class actions in due course.
Facebook disseminated President Trump’s pronouncements for years until the president was defeated and the events of 06 January unfolded – at which point The Donald was unceremoniously cancelled. That too is being challenged from the right.
The furore around racist posts on social media further to the England football team’s defeat by Italy last Sunday (11 July) has unleashed further demands that Facebook et al should instantly delete all posts that cause offence. The problem is that, while Facebook can and does automatically disallow obnoxious language, what constitutes offence is still a matter of (human) judgment. Apparently, a lot of people have taken offence at the UK Home Secretary Priti Patel’s remark that taking the knee was a form gesture politics. But many people might regard that as a reasonable opinion which she was perfectly entitled to express.
Frenkel and Kang argue that Facebook’s failings arise ultimately from its single-minded pursuit of growth. But however sceptical we may feel about Facebook’s reinvention of itself as a force for good, we should admit that the nasty content it often contains was posted there by nasty users. Human beings, in whose psyche entrenched tribalism often lurks just beneath the surface, propagate hate-speech – not social media platforms. The argument about where the line should be drawn between that which causes offence and the right to express an opinion will percolate for some time to come.
When, earlier this year, the government of Australia determined that social media platforms should pay newspapers for stories they post, Facebook threatened to shut down its operations in the country altogether. Eventually, after a showdown, a compromise was agreed. Facebook also attempted to shut down the discussion of whether the SARS-CoV-2 virus might have escaped from a laboratory in Wuhan – only later to change its mind after increasingly troubling evidence.
Of more immediate interest to investors is why Mr Zuckerberg is selling down his holding. According to Forbes this week, since November 2020, the Facebook CEO has unloaded shares nearly every business day, as evidenced by filings to the Securities and Exchange Commission (SEC). About 90 percent of sales were made by the Chan Zuckerberg Initiative (CZI). Mr Zuckerberg now owns about 14 percent of Facebook stock – down from 28 percent when the company launched on the stock market in 2012.
Despite all the recent scandals and controversy, the company’s share price has continued to soar. And the platforms are still expanding in breadth and scope. Facebook is now experimenting with its own video speed-dating app called Sparked. The app pairs people up to go on four-minute video dates. Apparently, Generation Z (that’s the generation who reached adulthood in the second decade of the 21st century) don’t answer unsolicited phone calls but enjoy pre-scheduled video interaction. That’s why TikTok, the content of which is essentially video, seems to be outpacing Instagram (a kind of picture gallery) amongst the young.
Google (market cap: $1.74 trillion)
Google stands at the forefront of perhaps the two most potentially revolutionary technologies of our time: artificial intelligence (AI) and quantum computing (QC). (Of course, the two are intricately linked because QC, once it can be applied, will accelerate AI inordinately). That is the view of Google CEO Sundar Pichai, as told to the BBC’s Amol Rajan this week. AI already exists to the extent that machines can solve problems that people can’t. That entails not just that they can crunch the numbers (computation is old hat) but that they can frame the problems in radically different ways (that’s new). It is not hysterical to conjecture that, one day, super-intelligent but uncompassionate machines could enslave us all.
Google is also resented by many politicos in the UK – but there are politics and personalities involved. Rachel Whetstone was head of public relations at Google before moving on to Netflix. She was formerly an advisor to Michael Howard in the government of Sir John Major. She is married to David Cameron’s former political strategist, Steve Hilton. Eric Schmidt, a former Google CEO was on Mr Cameron’s Special Advisory Board when he was prime minister.
Google/Alphabet reported record profits in April of $17.9 billion – up 162 percent on the previous year. Revenues increased to $55.3 billion, partly on the back of stronger ad sales on its YouTube platform.
Google also faces anti-trust lawsuits from the US government. Under President Obama, Google was given an easy ride (allegedly due to his close personal relationship with Eric Schmidt). Under President Trump, the whole idea of the emasculation of tech fell out of fashion. Now, under President Biden, the political weather seems to have changed. Yet Google remains sanguine for now.
Apple (market cap: $2.49 trillion)
It has become apparent in the last year or more that the CEOs of Facebook and Apple are profoundly at odds in their outlook, and they often taunt one another. In April, their mutual feud became policy with Apple’s long-awaited app-tracking transparency tool. Users who install the latest iPhone operating system will be met with a pop-up which reads: Allow [this app] to track your activity across other companies’ apps and websites?
This is clearly aimed at Facebook whose advertising engines track specific users’ internet activity. The overwhelming majority of iPhone users are expected to opt out. That means that many of Facebook’s advertisers will be unable to target iPhone users. Back in 2018, Apple’s Screen Time tracker informed users of how much time they were dissipating on social media, with an option to set time limits. The following year Facebook was accused of paying users to install an app that acquired their iPhone navigation history. Apple responded by revoking permissions for all the apps on which Facebook staff rely.
These two titans may be at odds, but the truth is that they are co-dependent. Apple needs Facebook to keep iPhone users in touch with their friends and contacts. Facebook needs Apple to reach its users, most of whom access the social media platform via their smartphones. In the early days of social media, the young Mark Zuckerberg and the late Steve Jobs were friends. The mutual antagonism between the two companies arose after Jobs died in 2011. Under Apple CEO Tim Cook, a super-manager and game-theorist rather than a visionary, that seems set to continue.
In contrast, there is evidence that Apple is cosy with Google. Google, it seems, pays the maker of the iPhone to be the default search engine within iOS, the operating system which runs on 1.6 billion Apple devices. Is that collusion designed to distort the market – or just a commercial partnership? That question will no doubt be raised in court at some point.
Spotify co-founder Daniel Ek has alleged that Apple modified its App Store policies on purpose to limit choice and stifle innovation (in other words to cut out Spotify’s podcast downloads). Again, that could be a case for litigation.
Microsoft (market cap: $2.13 trillion)
In April, Microsoft reported record profits of $15.5 billion – 44 percent up on the previous year. The work-from-home boom has put rocket fuel into its cloud computing business, which is now second only to Amazon Web Services(AWS). Revenues from the company’s gaming division were up 40 percent, partly due to the favourable uptake of the new generation of Xbox consoles. Revenues from the Office 365 software suite were up 21 percent.
This month sees the launch of Windows 11. I am informed by people who understand these things that it only runs on the very latest hardware (it requires an encryption chip). It may therefore have limited initial take-up.
Amazon (market cap: $1.86 trillion)
It is a colossal online retailer with global reach, a supplier of web hosting services and an entertainments company. But since last month Amazon is also a smart home manager. Using its Echo home hubs and Ring doorbell cameras, Amazon will be able to monitor entire neighbourhoods without even using mobile phone networks. The service is called Amazon Sidewalk. It uses customers’ broadband connections to create a series of parallel networks which can be accessed by Amazon devices such as Alexa. Basically, users give up some of their data allowance in exchange for more fluid connectivity. Thus, Amazon has managed to create its own internet of things – now sometimes called a mesh net. This tech titan never ceases to innovate.
Amazon is also powering up its facial recognition technology programme. There are ethical issues here too. It recently disallowed US police departments access to its Rekognition AI software because of higher error rates amongst ethnic minorities.
Part of the Sidewalk programme means that Amazon joins up with partners such as Level, a smart lock company and CareBand, a company which makes tracking bracelets for dementia sufferers. Soon, your Amazon delivery person/robot will request a smart lock to open your door, so that he/she/it can place the surprise bubbly/chocolates for your partner in the fridge.
Who knows the uses Amazon Sidewalk may be put to? It might even be able to locate lost dogs…
The regulation of social media and the judicious taxation of the tech titans has been high up the political agenda for more than a decade now. And yet it has proven extraordinarily difficult to crack both these nuts, despite evidence of collusion between behemoths.
It is becoming clear that the Big 5 tech titans have created a planet-wide technological eco-system. (True, one from which China is detached, given its own internal tech eco-system.) Each is dependent on the others’ success despite their mutual antipathy; but none can singly control the way in which that eco-system evolves. Nor can governments.
Down with the tech titans! Of course they are much too powerful. The problem is that we just can’t stop using them. In fact, increasingly, we can’t even imagine living without them. For the medium-term at least, they will just keep getting bigger.