Google, Facebook, And The Coming Big Tech Disruption

2018 has turned out to be the year in which the seemingly invulnerable tech majors started to come unstuck. So far, Facebook has fallen the furthest in both the eyes of regulators and the general public upon whom it depends for multi-billion revenues. The Cambridge Analytica scandal, which broke in March of this year, brought to the fore Facebook’s dependence on monetising its user engagement, from which it earned 98.5% of its Q2 2018 $13 billion revenue. This unwelcome linkage followed the controversy around Facebook’s role in influencing voters during the US 2016 presidential election, through the dissemination of fake news, and the potential role of overseas state actors to sway voters’ perceptions of US candidates through Facebook-delivered ad campaigns.

The appearance Google CEO Sundar Pichai before the US House Judiciary Committee yesterday was seemingly inevitable, considering Google’s role as the single biggest distribution platform for data – accounting for 90% of global website search (excluding China), and its stated desire to return to the Chinese market which it exited in 2010 due to concerns around state censorship obligations. Its proposed return to the Chinese market under the working title Project Dragonfly would involve pre-selecting prohibited search terms to comply with existing Chinese censorship requirements. As well as raising significant ethical issues around compliance with the Chinese state, it also raises the spectre that Google could potentially utilise this technology in other markets. Pichai pointedly stated yesterday that Google was yet to decide whether or not it would return to the Chinese market.

Tech does not operate in a vacuum

Google’s project is also coming up against the escalating trade war between the US and China, which – so far – resulted in the arrest of Huawei CFO Meng Wanzhou last Thursday, on charges of subverting US trade sanctions on Iran through her involvement with serving on the board of Skycom Tech-A Hong Kong-based firm accused of selling embargoed computer equipment to Iran’s Mobile Telecommunication Co.

This was followed by a ruling from a Chinese court that effectively blocked the sale of  specific models of the iPhone in China due to alleged copyright infringements with Qualcomm.

The existence of Google’s Project Dragonfly therefore has significant geo-political, as well as ethical implications for parent company Alphabet. It is no surprise then that US legislators are zeroing in on the tech major.

Opaque direct-to-consumer monopolies are increasingly out of step with the times

Facebook is the only mainstream social media app tracked by MIDiA Research with 69% weekly active use in MIDiA’s 2018 global consumer survey. Google, in addition to capturing 90% of the international search market (excluding China), accounted for 68% of the US digital ad growth in Q2 2018 and 72% of all global social video activity. Google’s de facto monopoly in these areas alongside its dominant Android OS position will increasingly come under strain, and not just from regulators.

Alphabet and Facebook also face fundamental revenue generation challenges. In Q2 2018, 86% of Alphabet’s $32.7 billion revenue originated from its advertising segment. For Facebook its dependence on monetising user data is even higher, with 98.5% of its Q2 2018 $13.2 billion revenue being derived from advertising. As mainstream digital consumers becoming increasingly savvy about how their data is monetised on free-to-access services, the shift to subscription alternatives will accelerate and these ad-based digital empires will also need to accelerate their shift towards more transparent business models.