Digital Cancer – Will Facebook go the Way of the Tobacco Companies?

The market has apparently shrugged off the platform outages and whistleblower testimony on Facebook’s prioritisation of profits over people. Or is Facebook mortally wounded and a regulatory quietus inevitable? Can the social media genie be put back in the bottle?

Blain’s Morning Porridge 6th October 2021 – Will Facebook go the Way of the Tobacco Companies?

“There is something rotten in the state of Denmark…”

This Morning: The market has apparently shrugged off the platform outages and whistleblower testimony on Facebook’s prioritisation of profits over people. Or is Facebook mortally wounded and a regulatory quietus inevitable? Can the social media genie be put back in the bottle?

The big story this week should be Facebook. Whistleblower Frances Haugen was in the papers earlier this week saying she didn’t want to kill Facebook, but make it safer… Then she did a pretty brutal hatchet job on the firm in her US Senate testimony – describing a corporate culture that won’t change unless it is forced to. She blamed founder (and Global Business Personality most likely to be an actual Bond Villain), Mark Zuckerberg by name, accusing him of “profits over people”.

Her comments about the company increasingly caught in a negative feedback loop of employee dis-satisfaction and client disengagement were fascinating in themselves – and speak of a company we should be worried about – although the main threat is regulatory.

But, take a look at the following day’s stock price action and you wouldn’t know there was a problem. The market is ignoring the existential threat to Facebook – shrugging off any doubt. Instead the stock climbed from its low after Monday’s 6 hour unexplained platform outage – which itself is another reason to wonder what the devil is really going on in Menlo Park.

But first… a digression on corporate failure:

The one thing we can say for certain about being caught up in the death-throes of a corporate is its never anyone else’s fault. Sometimes – very rarely – it’s a single “no-see-um” unpredictable event that causes a company to spiral into oblivion. As hard as I tried, I could only think of one: Barings Bank in the 1990s, brought down by the actions of a single rogue trader.

Every single other corporate collapse leaves a trail of forensic clues as to why its end became inevitable.

More often than not it’s something fundamentally mistaken or rotten at the failing firm’s core that investors should have noticed, analysed, understood and sold out on. It might be accounting fraud like Enron and Wirecard– the first of which ultimately brought down their accountants Arthur Andersen for failing in their duties, and the second of which has made German regulatory oversight a laughing stock! (Both of which are lessons: don’t trust professionals like bean counters, bureaucrats and especially not rating agencies. Key mantra: you’ve naebody to blame but yourself if you don’t keep doing the diligence.)

Or it might be recognising a brilliantly performing investment is actually a Ponzi scheme like Madoff – before it unravels. It may be sniffing out bad actors like Robert Maxwell raiding the pension fund, or Asil Nasir stealing Polly Peck’s company assets. It might be recognising overexpansion and bubbles – like Evergrande. It might be understanding dangerous politics – again Evergrande.

It might be spotting the outright lies spouted by the Theranos pair. It might be not being sucked in by bluff and bluster about massive riches just over the horizon – a common factor since the South Sea bubble, encompassing Gold Mines that never hit the motherload, and all the way to dot.coms with no profit potential. It might be that greedy management that cause company values to collapse – like has happened to Boeing, although it hasn’t gone bust yet.

Occasionally I get it right… I called the implausibility of WeWork’s profit expectations spot on. I called Tesla wrong – I expected it would fail, swamped by debt. Instead, it’s equity rose so high it was able to refinance itself.

Bubbles fuel bubbles. I remain unconvinced on the viability of many disruptive firms to ever achieve meaningful profits, and believe the “adoption” of cryptocurrencies is fuelled entirely by the desperate hopes of get-rich-quick speculators praying someone else will ultimately buy them. (Which is why the con artists behind them keep reminding the greater fools to HODL while they exit…)

So…. What about Facebook?

There is something rotten in the state of Menlo Park, and I’m trying to work out what it might be…. The charge is it fosters, enables and disseminates false information that causes actual damage and hurt to platform users. The testimony suggests it’s a proven case.

I am trying to work out if Facebook’s deathblow might have already been delivered in Washington – or will it continue to dodge regulatory bullets? If its a proven social ill it is doomed. If so, then Facebook’s approaching quietus is going to be very, very different from all the cases I’ve listed above. It will likely be a judicial killing, but you can bet the stock price will have shattered long before the long-drop trapdoor opens.

It begs a host of questions, including: can you hang a concept?

The concept in question is Facebook’s dominance in the field of being able to sell our digital selves to the highest bidder.. If Facebook isn’t doing it – someone else likely will. At its heart is privacy and who owns our digital selves? I’m not pleased to think Zuckerberg owns mine…

This morning I’ve tried to unthink everything I previously thought about Facebook, its revenues, the model and its personalities to work out the essentials of what Facebook has actually become.

I started from the basic proposition – no one gives anything valuable away for free.

That’s been implicit with Facebook since its inception. In return for free access, they get your valuable data. We perceived the model as 2 headed, the essentially harmless Dr Jekyll and the somewhat evil Mr Hyde:

  • It’s a “harmless” addictive social pastime. Who can resist pretty kitten pictures, checking your messages and seeing what your chums are doing on FB?
  • The money comes from monetising these platforms – they are designed to categorise, profile and sell us. It’s a money making machine that works out what we are, our needs and desires and then sells these to whomever will pay the most for access.

Now we are beginning to understand the social harms and distortions from the addiction and the information it feeds us. Now we recognise the unintended consequences of digital access – fake news fed to the most likely believers.

The whistleblower revelations expose the platforms for what Facebook has allowed them to become: digital cancer. Simply put, Facebook is guilty of peddling addictive social platforms in the pursuit of profit over the protection of the public.

It struck me its broadly similar to the Tobacco Companies.

For all the tobacco firms once told us how manly, how medically proven cigarettes were – we now realise they were peddling poison. They have rightly been cracked down upon. The algorithmic addictions Facebook feeds its money making machine are no different from a tar-laden cigarette.

It was 1962 when the Royal College of Physicians finally exposed the Tobacco industry lie that cigarettes were good. It then took years for advertising bans to be enforced. “Voluntary agreements” with the tobacco Barrons proved hollow shams. It took 10 years to put health warnings on packets. Lunch cancer deaths continued to rise for decades. 20 years after the news smoking was bad broke, players were still wearing tobacco logos at Wimbledon.

Can we now close the door on Facebook, and the explosion in social media has opened to targeted fake news, advertising, digital coercion and other social ills? Can we ever control the way in which conspiracy is marketed and sold across Facebook and its clones? Or lessen the anxieties it creates?

I suspect that genie is out the bottle and is not going back in.

But, the market will wake up and listen… Facebook now looks a proven social ill – any firm that claims it’s an ESG focused investor should be carefully considering whether Facebook meets their ethical investment parameters. Any firm advertising on Facebook should be taking a long hard look at it… and do it before government does it for them.

Five Things to Read This Morning

FT – Facebook whistleblower reignites bipartisan support for curbing big tech

BBerg – Zuckerberg Responds – Claims that Facebook Prioritises Profit “Just not True”

WSJ – Facebook Whistleblower’s Testimony Builds Momentum for Tougher Tech

WSJ – Cotton Prices Surge to Highest Level in a Decade

FT – Record gas prices hit bonds as investors fear wider damage

 

Out of time, and back to the day job…

 

Bill Blain

Strategist – Shard Capital.

7 Comments

  1. https://theconservativetreehouse.com/blog/2021/10/05/facebook-whistleblower-is-a-democrat-activist-demanding-big-tech-and-government-crack-down-on-free-speech-republicans-pretend-they-cannot-see-whats-going-on/

    Ok that is a Republican Trump supporting site which I found via Zerohedge (like I found you!).
    But Frances Haugen as part of a Democrat plot to contain free speech makes a lot of sense.
    I mean if you can ban Trump from Twitter and FB and almost everywhere else, you are in total control!
    Well of the media if not the voters.

    in which case the target is not FB but simply its censorship powers. Once you control FB censorship, then you go out and kill all the opposition. It is not as though FB does not already support the Dems financially.

    • Oh dear…..
      Ok – so its Facebook that stole the election…? Or Frances Haugen is a democrat stooge who is simultaneously trying to crash FB while also ensuring it no platforms Trump?
      Excuse me if I am confused…. but this where social media and fake news gets us… Total and utter chaotic speculative b***sh*** balderdash and twaddle.

  2. Comment sent to me on Linked In:

    Excellent again Bill and i 100% agree with you. It has already been proven that its services are bad for society and mental health, its server farms bad for the environment when working and its dual shareholding structure bad for any type of management oversight and governance…
    FB still proves the old adage that advertisers still dont know which half of their money is well spent ..as it is all now fake accounts and bots ..
    but whilst regulation and proper responsibility for its materials will come, i think the best solution for those who want to be spied on and used for profit – not me – is for FB to pay their users for their data…say $1000 usd per annum ? multiply that by 2 bn users and FB will have to create a better model ! or vanish…

  3. I recognized how toxic FB and IG had become long ago but only waited until the last year or so to start to de-platform myself. Anyone that has an account can probably tell about their own personal experiences of exchanges via text that would never occur in person, and the amount of blather from both ends of the political spectrum endured in the feed. As a mature adult it still rankled me how toxic things were but I could deal with it generally, up until it became so irritating that I had to shut it down in my life. For a young person without the jade and callouses it’s not hard to see how horrific this would become.

    Furthermore, as an adult I understood the deal: I was the product, and until recently was fine with that. I still use Alphabet products, so am used there as well (another topic I’m sure) in similar fashion, but don’t have to endure the barrage.

    FB stock I think is more a phenomenon of the crazy-town markets than the story most recently. BTFD was probably more at play then whether the company faces truly harsh action or not. It is the most recent and most influential example of the evolution of human interaction and, like Sears and My Space et al, will most likely eventually go the way of all flesh. I think it’s story will likely be driven more by the internals revealed than regulators, though the moral will probably be about how to control things we have unleashed on ourselves without due consideration of the consequences.

  4. I think what is missed in this article is that our economy today is based upon fleecing people, for profit or control, and not caring about the implications. So terms like “Ethical Investing” are just a great marketing phrase for investment groups to make people “feel” better about allowing that group to manage their investments! Facebook will not fail because “fleecing people” has become the norm in our society today! And the “fleecing of people” to gain power over them has extended to our government! All the digital revolution did was allow those who have the power a more direct route to fleecing and controlling people!

  5. Once again Bill – Thank you for your reasoned and penetrating analysis. Truly, your work is also a genuine public service. While Facebook and similar vehicles might be truly toxic for a variety of reasons, they remain to be both large cap and significant reservoirs for capital with a seemingly virtual interest bearing component. As such, I believe that these entities will continue to be allowed to exist as they function as a means of bubble inflation / bubble support. Certainly, Facebook is of significant dis-utility to the goal of a wholesome society. Yet, Facebook is of significant utility as a financial conduit. Alas, I fear Facebook and similar descendants will be continually corrupted and allowed to grow in perpetuity.

  6. I’m not looking to give FB a pass, but if we are worried about the kids, and that was the central narrative of the Senate testimony, why aren’t we at least mentioning Tik Tok?

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