Another Ugly Truth: Facebook's Moat

 Another Ugly Truth: Facebook’s Moat

 

“An Ugly Truth” is the name of a recent book about Facebook, authored by Sheera Frenkel and Cecilia Kang, reporters for the New York Times. The book is an eye-opening, stomach-churning account of Facebook’s history from its birth in 2006 through its role in Trump’s election in 2016, up until the recent history of the attack on the Capitol on January 6, 2021. After reading the book, I considered: Why does Facebook have a Teflon coating, and just keeps growing despite all its missteps, misses and company-first decisions with significant global impact?

 

First, to understand the book’s point of view, present tense, stated in the last paragraph, let’s read it here:

 

“One thing is certain. Even if the company undergoes a radical transformation in the coming years, that change is unlikely to come from within. The algorithm that serves as Facebook’s beating heart is too powerful and too lucrative. And the platform is built upon a fundamental, possibly irreconcilable dichotomy: its purposed mission to advance society by connecting people while also profiting off them. It is Facebook’s dilemma and its ugly truth.”[i]

 

What the book chronicles is exactly the above: As Facebook got bigger (by acquisitions and users) and became more relevant in people’s lives, thus more irresistible for advertisers’ money, the more it became a platform not only for people wanting to say hi to Grandma, but people wanting to overthrow governments, influence elections, and spread misinformation easily to the world’s biggest audience. Of course, the known examples are Trump’s use of the platform before and after his election and defeat (he was at one point Facebook’s biggest advertiser), the Cambridge Analytica scandal, and the insurrection of January 6. How to balance hate being spread on its pages with “free speech” (Oliver Wendell Holmes may be doing spins in his grave) and pissing off users when you take a stand for or against something that may influence their lives (Trump’s BS) or even get people killed (Myanmar), which might lead to loss of users and revenue?

 

Facebook’s “Battle for Domination” becomes a battle to walk the tightrope between revenue and principle- in the public and government’s eyes, with revenue the clear and simple goal. Frenkel and Kang leave no doubt that, to Zuckerberg, the algorithm was and is “Company over Country.”[ii]

 

Fast forward to today, July 27, 2021. Two recent news articles about Facebook reveal the road that Facebook has chosen to walk, at least up to now. The first is, as reported by Reuters, that Facebook will restrict targeting of users under 18 according to their behavior on other sites (they still can be targeted, but only based on their activity on Facebook/Instagram/Messenger).[iii]

 

The other is an article in the New York Times by the same Cecilia Kang entitled, “The F.T.C. asks for an extension to refile its Facebook antitrust suit,” which was thrown out by the District Court in D.C.  and given 30 days to refile (good luck with finding something in the next 30 days that they didn’t find before).[iv]

 

For those who are thinking (again) that altruism and social responsibility has become the mantra at Facebook over moneymaking, ask yourself if Facebook is doing this because they want to protect our children, or because they want to protect themselves? The same question must be asked about Apple’s IOS 14.5 (which gives the users the right to opt out of companies selling their info to other companies) and Google’s new Privacy Policy. 

 

And, I believe the answer to this question for three of Scott Galloway’s Four Horsemen[v] is the same: when they have more to lose than gain, only then will they consider compromising any activity that contributes to revenue.

 

Why can they get away with this and why does their business keep growing significantly (Facebook’s share price has increased 61.44% in the last year[vi])? The simple answer is the same as for every other company- Their Moat.

 

For those of you who are not familiar with the term, an economic Moat is, put simply, a barrier to entry for any threats to the enterprise- be it another company, economic issues, governments or Pandemics. The wider the Moat, the safer the company is to continue its mission and prosper. 

 

Morningstar Investments, the famous investment research company, defines four types of Moats:

 

1.    Switching Costs- The financial and/or emotional cost of switching from one brand/product/service to another

2.    Intangible Assets- Brand image, patents, trade secrets, customer perception

3.     Cost Advantage- Based on:

1.    Economies of scale- eg., Amazon Prime-wide

2.    Process advantage- Be cheaper eg., Payless Shoe Stores, Kmart-narrower

4.    Network Effect- Value grows as people use the brand or service more and more-self perpetuating[vii]

 

Let’s look at each as regards Facebook:

 

1.    Switching Costs- Sure, you can switch social media apps, but a. you want to be where everyone is, is the soul of social media, and b. If you did switch from Facebook, your likely choice would be Instagram, which is—Facebook. Yes, you can go TikTok or Reddit or Snapchat but in the 6+ hours the average teenager spends on the internet, which social media app is where the action is? And what would it take, if it were at all possible, for the invaders of the moat to be a real alternative to Facebook? Switching costs are both financial and functional. And advertisers know that.

2.    Intangible Assets- Facebook is a brand that has withstood governmental attacks, hackers, invaders and their own greed and inability to respond in a timely and correct manner-but it is still—Facebook. And advertisers know that.

3.    Economies of Scale- In this case, Scale above all is reach. Half the world outside of China is on Facebook. And advertisers know that.

4.    Network Effect- Why Facebook keeps getting bigger and bigger. The huge trove of data feeds the monster and it perpetuates itself. And advertisers know that.

 

Is there anything that can readjust the balance between social responsibility, actually protecting users from hate and misinformation, and the constant flood of increased revenue without overbearing government control, which would taint the experience? 

 

Well, as Frenkel and Kang have aptly stated above, if there is an answer, nobody has found it yet. Even if government is successful in breaking up the company, it will be broken into pieces so big that they may be able to regenerate to an even bigger tomorrow. But yet, given the absolute fact that our children are digital-native and are influenced more and more by what they see and hear on social media, where they may spend most of their day, it is a problem that must be solved for the good of society. Will today’s teenagers and young people demand more social responsibility of companies they deal with? I have polled every class I teach about this, and they all say yes. 

 

But, the question really is, are they the influencers or the influenced?

 

And Facebook, with the rest of the Four Horsemen, goes on.

 

Author’s Note: An Ugly Truth is a well-written, totally engaging, at times stomach-turning, book that everyone should read, if they live anywhere in this world.

 

---

[i] Sheera Frenkel and Cecilia Kang, “An Ugly Truth: Inside Facebook’s Battle for Domination,” (New York: HarperCollins, 2021), p. 300.

[ii] Ibid., p. 117.

[iii] Reuters.com, “Facebook will restrict ad targeting of under-18s,” https://www.reuters.com/article/us-facebook-advertising/facebook-will-restrict-ad-targeting-of-under-18s-idUSKBN2EX1OS

[iv] NewYorkTimes.com, “The F.T.C. asks for an extension to refile its Facebook antitrust suit,” https://www.nytimes.com/2021/07/23/technology/ftc-facebook-antitrust-lawsuit.html

[v] Scott Galloway, “The Four: The hidden DNA of Amazon, Apple, Facebook and Google,” (New York: Portfolio/Penguin, 2017) p. 2. 

[vi] Seekingalpha.com, https://seekingalpha.com/symbol/FB

[vii] Morningstar.com, “Types of economic moats,” http://news.morningstar.com/classroom2/course.asp?docId=144046&page=5

The American Responsibility Act

 The American Responsibility Act

 

Since he took office, President Biden has been promoting Rooseveltian legislation aimed at bringing America up to speed in many ways. Such acts as the WPA-like American Jobs Plan, For the People Act, and American Families Plan are not forward-looking legislation so much as they are playing catch up ball with what we messed up or neglected in the past. Is it too little, too late? Now, it can only be too little, but it could be too late if Congress play games with the needs of the American people. Could happen.

 

Good for President Biden for taking this direction; it is urgently needed to offset years of inaction. Or, in some cases, hundreds of years. Let’s see some examples:

 

·      Infrastructure- We basically built our last interstate highway in 1956[i]. The total of 46,720 miles was surpassed by China in 2011 with 52,800 miles and China main highways stood at 100,040 miles (161,000km) in 2020.[ii]

·      Computer Chips- Only 12% of the world’s computer chips are made in the US,[iii] with China positioned to become the world leader by[iv] 2030.Taiwan Semiconductor and Korea’s Samsung are two of the market leaders. Even Intel, the leader by volume, makes some of its chips in China.[v]

·      Taxes- It has become embarrassingly clear that billionaires like Jeff Bezos probably pay less taxes than you or I do. The income inequality level in 2019 reached its highest level in 50 years. Economist Larry Summers has estimated that if the US had the same income distribution it had in 1979, the bottom 80% would have $1 trillion (or $11,000 per family) more and the top 1% would have $1 trillion, or $750,000, less.

·      Political Gridlock- Our United States Congress is anything but united. Now we have partisan gridlock on just about everything; when something does get done, it becomes like food that tries to please everyone, but ends up pleasing nobody.

 

Let’s move on to social issues. For a country that has a Statue of Liberty still standing in its gateway, and E Pluribus Unum (From many, one) on every bill, we are sadly NOT living up to that image. Some prime examples:

·      Racism- Black Americans- Slavery was abolished in 1865, 10 of the first 12 American Presidents were slaveholders, then Martin Luther King was assassinated in 1968 campaigning for civil rights, yet on May 25, 2020 we had George Floyd’s murder. And many more incidents up until today. 156 years after we passed the Thirteenth Amendment into law, we passed Juneteenth as a national holiday to celebrate it.  Why? Because racism is in our cultural DNA. And in many places little change of attitude has taken place over the centuries. Case in point is that the state of Mississippi did not certify the Thirteenth Amendment, thus actually banning slavery, until 2013.[vi] Don’t believe me? Look it up.

·      Racism-Anti-Asian Hate- This has always existed in the United States and been promoted and protected by law. IN 1882 The Chinese Exclusion Act was passed, which was not officially reversed until 1965.[vii] Of course, in 2020 Anti-Asian Hate was promoted publicly by the President and his staff. So what is the result? In 2021, anti-Asian hate crimes increased by 223% in New York and 140% in San Francisco, two cities with large Chinese populations.[viii]We cannot write this social disease off to “a few people;” it has had official sanction for most of our history. 

 

Think about it, and it gets worse. We have in this country anti-black racism, and anti- Asian hate, not to mention prejudice toward other groups. Along with many other immigrant groups like those from Europe, Chinese, Black, Latino and other countries, immigrant groups have built this country and still stand as some of its most sturdy pillars. If you accept this, and you must if you are not in denial, then please explain why there are no Anti-Italian or Anti-Irish hate spikes? Is it because all of those facing prejudice and racism look different? I am afraid so.

Worse, are we teaching our children to hate or fear anyone who doesn’t look like them? Yes, we are. This is our Xenophobic reality.

 

The most popular excuse, and it is just that, today is to blame China for our ills. Does this make sense? OK, did the Chinese take our jobs in building their economy? Did they build all those roads and metros against our will or were they just doing what they should do?

 

China did not take our jobs, fellow Americans; we handed them to China, gladly. As income inequality grew and our standard of living plummeted, we happily gave up competing in basic industries, and eagerly shopped at Walmart so we could get more for less. I remember back in the 80s when I reached out to American textile and garment owners asking them to compete with overseas industries by using automation and efficiency, they either ignored me or called me traitor for suggesting that we were losing the action to yellow and brown people. At that time, I was just one lonely voice. Maybe I still am, but I haven’t given up telling the Plain Truth.

 

But, why do so many Americans think like Trump? Or like Trump? Because politicians, good ones without a soul, are the most highly skilled at making people think the way they want them to think. Which, in every single case, never serves the influenced but always serves the influencers. Hitler was a master at that. We haven’t had a Hitler yet, maybe we survived a doppelganger, but we need to admit that those in Germany and in this country who are influenced by unscrupulous politicians are usually willing victims.

 

So now we come to the title of this Article- The American Responsibility Act. I am not suggesting that President Biden introduce legislation of this sort; this is because, as I have suggested in all my writing, that legislation cannot solve embedded racism; it can suppress it, but not solve it. To purposely demean the deception that Xenophobics resort to, it is like when a kid gets caught doing something bad; he or she never admits to it, but seeks every creative way possible to deflect the blame, usually on someone less fortunate—the little brother or sister, the dog, etc.

 

The hallmark of emotional maturity is when a person learns to admit their own mistakes and learns from them; they also learn that admitting the truth to yourself is a prerequisite to solving the problem—unless, of course, the continuing existence of the problem is of benefit to you. That isn’t the case for most of us.

 

So, as an individual, what I am proposing you do is the other meaning of the word act. In addition to being a piece of legislation, an act can be something that you do, which goes to the next level and speaks louder than words. 

 

You do something about racism, prejudice and the unfairness of our system; you speak up for spending whatever is needed to bring our economy up to speed. You don’t let the soulless politicians speak for you. How? By taking responsibility as an American for where we are and not blaming China or Chinese, or Asians, or Blacks, or Latinos. Why? Because youhave a soul. An American Soul, that resonates with the intent of our Constitution which we need to turn into the Acts that define our daily lives, and what we will pass on to our children.

 

 

 

 

 

 

---

[i] Waycaretech.com, “The US Interstate Highway System,” https://waycaretech.com/us-interstate-highway-system-why-it-took-62-years-to-complete-and-how-the-idea-arose-in-germany/

[ii] Wikipedia.org, “Expressways of China,” https://en.wikipedia.org/wiki/Expressways_of_China

[iii] Businessinsider.com, “Why the US doesn’t make chips,” https://www.businessinsider.com/why-us-doesnt-make-chips-semiconductor-shortage-2021-4

[iv] Ibid.

[v] Wikipedia.org, “Semiconductor Industry,” https://en.wikipedia.org/wiki/Semiconductor_industry

[vi] www.civil-discourse-history-blog.com, “Mississippi Finally ‘Bans” Slavery,” http://www.civildiscourse-historyblog.com/blog/2017/6/7/mississippi-finally-bans-slavery

[vii] Wikipedia.org, “Chinese Exclusion Act,” https://en.wikipedia.org/wiki/Chinese_Exclusion_Act

[viii] CNN.com, “Anti-Asian Hate crimes surged in early 2021, survey says,” https://www.cnn.com/2021/05/05/us/anti-asian-hate-crimes-study/index.html