Regulation. That word strikes fear into the hearts of tech investors like no other. The specter of increased government scrutiny over companies that derive their market valuations largely from giving data to advertisers is truly a scary one. Facebook has been raked over the coals in 2018 over its unethical data sharing practices, most notably through the Cambridge Analytica scandal, but today it was Google's turn.
This article from today's Wall Street Journal, an excellent price of reporting, shows how Google identified but chose not to notify regulators of weaknesses in its Google+ social media platform. My first thought was "ugh, I need to check my Google+ account," something I haven't done since the days when I also had a Myspace account. But this is not a case of “no harm, no foul” for the folks in Mountain View simply because Google+ never took off. No, the article paints a picture of a company with an extreme concern for self-protection--bordering on paranoia--and little concern for the use of its customers’ data after it leaves its servers.
I am writing this article on my Chromebook in Google Docs while checking messages on my Android phone and listening to jazz on Google Play. I am deep, deep into Google's ecosystem, and the fact that Android is by nature an open-source system is its main appeal to me. By opening its application programming interfaces (APIs) to developers around the globe, Google has been able to encourage (without paying for) the creation of a universe of cool apps. By giving away Android to handset makers, Google has been able to put its Chrome browser and related search app front and center of the homescreen on well over a billion cell phones worldwide.
That is a ridiculous number of eyeballs trained to type (or ask, using Google Assistant) into Google for search results. That’s really what matters. Search, search, search, and the data, data, data, that can be fed to advertisers. My friends who work at Google are always quick to remind me that this data is in the form of profile, not specific personal details, and I certainly hope they're right.
Reading about Google’s Project Strobe certainly brought to mind a closed-loop star chamber, though, not a company composed of employees devoted to openness when not sharing the foosball tables and ball pits. As the WSJ noted:
"The question of whether to notify users went before Google’s Privacy and Data Protection Office, a council of top product executives who oversee key decisions relating to privacy, the people said."
That does not reek of transparency.
Alphabet Inc, is doing some amazing things outside Google and given my background as a sell-side auto analyst I am most intrigued by the Waymo autonomous vehicle unit. Alphabet CFO Ruth Porat refers to these non-Google businesses as “other bets” and while some will end up as epic fails some, owing to the high ratio of smart people at the company, surely will not. Make no mistake, though, Alphabet is valued at $790 billion because of the profitability of Google’s paid search business. There’s just no diluting that.
Would I feel better about using Google's codes thousands of times of day if I thought the company were dedicated to transparency and had corporate culture dictated by a CEO who mandated that? Yes, I probably would. Google can certainly come across as some sort of Politburo run by the retiring Sundar Pichai.
Do, I have a choice? Yes, I could go with Apple products or cobble together a Microsoft and Blackberry strategy for my publications business. Do I trust any of those companies with my data more than I trust Google with it? No, not really.
That’s the reality of the situation in 2108. Privacy is gone, and in signing approximately 23,467 EULAs (end user license agreements) over the past 15 years, I have signed that away myself. I could have read them, but I chose not to.
Will the government protect me? Do we feel so powerless against these FAANG tech companies that we would ask government bureaucrats, of all people, to protect us from them? Yes, possibly. It is that possibility (and the fact that they do not pay dividends) that has kept me out of the stocks of Facebook, Amazon, Alphabet and the like, and it is only in the last few days that my firm’s relative performance is catching up to that of the overall markets, which have been driven by the FAANG stocks for most of the past two years.
Market participants often miss inflection points, and please don’t think that regulation cannot cause one among big tech stocks. Be careful. It is October, after all.
