Another week and another problem with the global digital platforms. Advertisers including Disney, Fortnite creator Epic Games, Hasbro, AT&T and Nestle pulled all advertising from Alphabet’s (the parent group of Google) YouTube after their advertising ran next to videos featuring children where paedophiles had infiltrated the comments section.
This comes less than two years since the last major advertiser boycott of YouTube and on the back of enquiries, investigations and hearings with Google and Facebook over their role in election influencing, fake news, poor data security policies and ad fraud.
The big five tech companies (Alphabet, Facebook, Amazon, Apple and Microsoft) spent a record $64m on lobbying in Washington last year according to the New York Times – with Alphabet contributing a third of that spend. The flow of scandals increases the scrutiny and the risk of regulation.
The threat of regulation is rising but poses very different risks to the different tech businesses. This is because while they get grouped together, they are very different kinds of business. Amazon is retail and cloud, Apple is hardware and services, Microsoft is software and cloud.
Alphabet and Facebook are potentially more similar, however the regulatory risk is very different. Alphabet’s biggest risk is around YouTube because of the user generated content model. It will always have to fight a battle with unacceptable and dangerous content with advertising running next to unsafe content or comments.
However if faced with regulation and an existential anti-trust ruling it could offload YouTube to protect the rest of the company. The core of Alphabet’s business is still Google and its advertising business – this business doesn’t attract anything like problems that YouTube does.
Facebook’s situation is much more difficult. Like Alphabet, Facebook owns other huge brands, Instagram and Whatsapp, but the core of their business in revenue is the advertising business of Facebook and Instagram. The negative effects of Facebook, and to a lesser degree, Instagram, are fundamental to the platforms and their business model.
Connecting people around subjects, news and content they find interesting is what Facebook is about. However in ‘making the world more open and connected’, they open up democracy to subversion and people to fake news and hate speech.
When Facebook acts to limit how or what is shared in order to demonstrate that they get the problems, and in Zuckerberg’s 2018 mission to ‘fix Facebook’ they directly act on their own business model.
So, if or when the regulators come knocking, the risk for Facebook is greater than for Google. Mark Zuckerberg can’t take the ads out of Facebook, stop the spread of fake news or stop people retreating to their bubbles – it’s what Facebook is for. And if you try to reduce sharing stuff you like/believe, you restrict the behaviour that makes people want to use it in the first place – and what makes it valuable to advertisers.
Google wouldn’t want to lose YouTube or any other part of its business, but it could. And it would remain a dominant player in search and online advertising with a growing and massively valuable business. Regulation for Facebook would be a lot more difficult and potentially existential.
In the meantime, as the problems and risks mount up, Amazon is quietly growing its own ad business. Which, according to eMarketer will have grown from around $2.5bn in 2017 to $15bn in 2020. In the less dangerous environment of a retail rather than a social platform, advertisers are increasingly drawn to advertising where they see how their ads drive sales.