At this point, nobody expects news of another data breach to affect Facebook’s bottom line. Instead, the company’s challenges lie in its dependence on rivals like Apple and Google. On the latest Pivot podcast, Kara Swisher and Scott Galloway discuss why Facebook, whose business model looks bulletproof right now, may face a rougher road ahead — and how it is trying to avoid that path.
Kara Swisher: Half a billion Facebook users’ information has been posted on a hacking website. This is from a hack that happened several years ago, according to cybersecurity experts, but it’s now resurfacing. There are records including names, phone numbers, birthdays, locations. More than 32 million accounts in the United States, 11 million in the United Kingdom, and 6 million in India were affected. A Facebook spokesperson said this is old information and they’d fixed it in August 2019, but did not say if they had notified users at the time. Meanwhile, the company’s stock is at an all-time high. The stock has risen 120 percent since the end of 2019. So through these very difficult times, the investors keep going for it.
And this breach is not a breach. Just to make it clear to people, it’s information resurfacing in these dark parts of the web. But again, it’s just another reminder that you give a lot of information to Facebook and they grab a lot. Scott, what do you think?
Scott Galloway: I don’t know. Does anyone care anymore? You can’t trust Facebook. I mean, okay — hey, take your data, they don’t protect it. If there’s a hack, they will minimize it. I mean, it’s like, add this to the list. “Oh, advertiser. You’re getting a billion video impressions, and it’s worth what you’re paying. Oh, just kidding. You’re not getting a fraction of that, but we’re not going to refund you.”
Facebook is very smart, and if they know, “If we just keep abusing data sets and hiring more lobbyists such that we don’t actually get in trouble other than fines, which we can afford to pay, and we flood the zone with misinformation and information and we keep violating people’s trust, we can get away with it.” We’re now in a shareholder-driven economy where the shareholder classes overrun government, and as long as the stock keeps going up …
K.S.: Tell me why it’s unscathed. Explain for the people why the stock remains unscathed.
S.G.: Well, specifically, we made a prediction when the stock was at 160, 18 months ago, that it would hit 250. And then I got a ton of shit for owning it, and people said, “You’re a hypocrite,” and there was some legitimacy to that. And so I sold my stock, and now the stock is over 300. It’s an amazing business. The bottom line is: The best business model in the world is to be an unregulated monopoly. They have fantastic engineers. They essentially are now two-thirds of all social media on one platform. They massively abused their monopoly power. Anyone that’s a threat to them they put out of business. It’s a complicated business, so they’re able to show up and confuse lawmakers. They now spend more on lobbying than big tech does in any industry in history. And they’ve deployed fantastic lipstick on cancer with very charming executives to run around and talk about gender balance and personal loss to totally delay and obfuscate the damage they do. It’s an amazing business.
Unregulated monopolies are the best businesses in the world, and this is a company that’s doing … it has 90 or 95 percent gross margins, and if you’re an advertiser — if you’re Geico — they say, “We can identify households in New Jersey where someone just turned 16 and then, using other assets, we can track them around the digital world and just keep running Geico ads and then do look-alikes on that.” I mean, it’s just an amazing business and amazing product.
What’s interesting is that Mark Zuckerberg feels like the Kingdom of Saudi Arabia, where they’re desperately trying to diversify away from one platform — oil versus data — and get into other businesses. Their weak point — and people don’t see this yet, but it’s really playing out with Apple — is that Facebook recognizes they’re not an operating system, as they’d like to think; they’re an app. And as long as that app has to go on someone else’s rails, be it Android or iOS, they’re vulnerable. And so what is Facebook doing under the radar that almost no one is talking about?
K.S.: Tell me.
S.G.: They have 10,000 people developing a hardware device.
K.S.: Yeah. They’ve tried it. Bad, bad, bad, bad.
S.G.: I know, but 10,000 people? So they realize, and this is one of the key attributes of any company that wants to be a trillion dollars, you have to be vertical. And at the end of the day — and this is Netflix’s challenge right now, this is Disney’s challenge — at the end of the day, if there’s someone in front of you who is the guardian or the gatekeeper or the distribution, you are vulnerable. And Mark Zuckerberg wakes up every morning and says, “Goddamn it, that Tim Cook.” And there’s nothing he can do about it, because Tim Cook owns the rails. And so essentially Facebook is trying to build the biggest railroad. It’s the biggest railroad history and project. They have 10,000 people trying to figure out whether it’s an AR or a VR headset. They could be working on a phone.
K.S.: Let’s assess the things they’ve done. They bought Oculus, and that’s sort of been quiet, off to the side. And I think that’s not coming soon for people, even the glasses. And Apple is going to move heavily into AR too. This is where they do clash.
S.G.: They have Portal.
K.S.: Cook was saying, “We’re not competitors.” But they will be when AR—
S.G.: They all say they’re not competitors.
K.S.: Well, I know, but right now, Apple is not in the social-media business. They don’t have so many points of conflict, except that they have to live together, essentially. So how do you beat an Apple or a Google in the phone business? I have the Facebook Home still … I have it in a drawer somewhere. So how do they get in from a device point of view? Headsets are just not happening yet.
S.G.: That’s an outstanding question. I don’t know. I’m thinking, Whose handset division could they buy? They couldn’t buy Samsung’s handset division; it’s too expensive. Samsung wouldn’t sell it. I think people don’t want to wear VR or AR. That takes the virginity rate up to 50 percent when all young men start wearing headsets. The only wearable that has ever worked is the Apple Watch, and that’s because they put billions behind it. Wearables are one of the biggest technology head fakes over the last ten years. So I don’t know if they are going to be in the phone business, the smart-speaker business. They tried Portal …
K.S.: They’re way behind in smart speakers.
S.G.: Way behind, but they have 10,000 people working on it.
K.S.: Someone gave me one, and I actually threw it out — one of their Portals. I was like, No way am I putting this near my house.
S.G.: You had to plug it in.
K.S.: I’m not taking it out of the box.
S.G.: It’s supposedly a good product, too.
K.S.: Well, I hardly want the Amazon one in there, and Apple has sort of gotten out of the business. So where did they go, though? What do they do? It’s very difficult — the phone from Facebook is probably the least appealing thing to many, many people unless they buy some other phone-maker.
S.G.: I don’t know, because there’s only so many entry points. There’s wearables, which it feels like that’s where they have the most progress or traction, and that’s what they’ve publicly said they’re going after. But that — to your point and my point — that just so far has been a big thud. There’s the gaming industry as a portal, but that’s crowded. Smart speakers …
Amazon has more open job listings in their voice group now than Google has across their entire company. Amazon’s making an unparalleled investment in voice, which I think is the technology in the next decade. Right, and so is it interfaced with cars? I don’t see Facebook with cars.
K.S.: Too many competitors there.
S.G.: Is it a phone? If Google can’t figure out a phone, can Facebook? And by the way, the Pixel is supposed to be a great product.
K.S.: It is a good product.
S.G.: They still couldn’t get it right. The honest answer is: I don’t know.
K.S.: Here’s my thing: They’re not good in any industry they have to compete in or have to be innovative in. They can buy and they can copy, like they just did the other day, again, with another thing. What did they borrow from? From Clubhouse or whatever. They just can’t do anything innovative. I just don’t know how they can get to consumers and then face the barrage of criticism if they have a device. Why would you trust a Facebook device at this point? Especially just getting back to the data. There is nothing I would put on a Facebook account.
Just the amount of information they have, then when you add on the disinformation stuff and misinformation stuff on top of it, it’s just like, No, thank you. I don’t know, it’s going to be hard, I think. If this social-media system stays in place, by all means, buy Facebook. I just … I don’t know. I have a feeling the next five years is going to be a lot harder for Facebook than the last five years.
S.G.: I think you’re right. I think Facebook is the most vulnerable of all of them—
K.S.: Of all of them.
S.G.: Because they don’t control the end consumer experience, and they have the most people gunning for them.
K.S.: And they have to go into competitive, really competitive, markets. Again, you look at someone like Microsoft, which wasn’t considered innovative, and they’ve done a great job. If Facebook stays in social media and does something innovative, they certainly can shift around their fortunes the way Microsoft did. But I don’t know. Look, if you’re an investor, you should buy it because it’s going up, and if you’re an advertiser, you have no choice but to go to Facebook.
S.G.: That’s right.
K.S.: I mean, you really have limited choice, and it’s all problematic everywhere you go. I suppose it’s the least problematic, it’s the best choice for you. Every single person who advertises on Facebook says, “We have no choice. We hate them. We have no choice.”
S.G.: Or Google.
K.S.: Yeah. They just don’t feel like they have any choice. Anyway, this is a fascinating area. Nonetheless, the stock is up. Do you feel bad about selling it?
S.G.: Yeah. I mean, I’d rather have held on to stocks that have gone up, but no. You know, it’s like when people say, “Scott, you can’t criticize Amazon or Apple.” I’m like, “I think they’re net goods for the world.” I’m a capitalist. I’m comfortable owning them. Facebook really bothered me. I think Facebook is a net negative for society, so I kind of gave into my better angels and sold that stock, and I really don’t regret it.
Pivot is produced by Rebecca Sananes. Erica Anderson is the executive producer.
This transcript has been edited for length and clarity.