On Wednesday, hedge fund manager and social activist George Soros penned an op-ed for Project Syndicate suggesting that the unbridled influence of certain Web venues would eventually force government regulation upon them.
The message was a cogent one, too, rekindling a nagging concern owners of FB and GOOGL stock have contended with more than once in recent years.
Underscoring Soros’ message — and the timing couldn’t have been better scripted– is the fact that a couple of the recent nominees for the open slots on the nation’s Federal Trade Commission said they weren’t against the idea of at least discussing the possibility that websites deserve to be treated as public utilities.
Though far from an indictment, for an FTC that’s been mostly unwilling to even think about wielding that kind of power, it’s a subtle sign of societal change.
If you’re really worried about governmental interference in how your favorite search engine functions, though, don’t be.
Pressing the Issue
Soros’ concluding remarks make everything he said before them rather obvious. His parting shot? “It is only a matter of time before the global dominance of the US Internet companies is broken. Regulation and taxation, spearheaded by Vestager, will be their undoing.”
Vesteger, by the way, is the EU Commissioner for Competition. Soros anticipates the U.S. crackdown on major internet-information hubs to look much like the one that’s slowly but surely materializing in Europe.
It’s not exactly the kind of theory loyal owners of GOOGL stock can brush off. Neither is something FTC nominee Joseph Simons said during a Senate confirmation hearing: “The place most likely to have antitrust problems are places that have market power. Those are the places you want to look the most.”
Look at, and look for, what? He didn’t say. But his rhetoric echoed sentiments from his fellow nominees.
Though hardly law yet, the frequency and passion with which these discussions are happening could readily lead investors to think that’s the shape of things to come.
Fortunately for GOOGL stock holders, the law and logic (almost) always prevail.
Not a Utility
Not to wax philosophical, but the hotly contested and highly divisive presidential election process prompted good citizens to forget the difference between “speech we just don’t like” and “speech we think we have a legal reason to silence.”
But the matter at hand goes well beyond the scope of those seeds. The matter has morphed into chatter about seizing control of venues and platforms to accomplish a one-sided agenda while saying it’s an action being done in the name of fairness.
Indeed, FCC Chairman Ajit Pai commented last year that “utility is a very seductive word to those who want inflate it into something that is useful to me,” with the key words there being “useful to me.”
That’s the long way of saying Google won’t be regulated like a utility, because it’s not a utility.
Services like water and electricity utilities are highly regulated for a reason. Those reasons are the government believes (and understandably so) that all have a right to have access to them. In some regards, they’re life-sustaining. The federal government also regulates them because in most cases only one provider is accessible at any given home or business.
Services like television and high-speed internet are a cousin of water and power. They’re not essential to life, though they certainly make life easier and better. And, though there are theoretically multiple providers in most areas of the country, regulators know that a limited amount of competition for such services opens the door to potentially unfair practices.
That’s why the FTC and the FCC have worked to maintain a reasonably balanced market on these fronts, but without reaching too far into the market’s operation itself.
Google and Facebook, conversely, are neither essential to life nor a given right. They’re also distinct choices made by consumers. Snapchat is an alternative to Facebook. Yahoo is an alternative to Google. Google and Facebook only draw their respective crowds because they deliver what consumers want the most.
And that’s where Soros’ argument breaks down.
In his essay, he opined “Social media companies deceive their users by manipulating their attention, directing it toward their own commercial purposes, and deliberately engineering addiction to the services they provide.”
He’s not wrong, broadly speaking, that the two companies in question deliberately try to make their platforms as sticky as possible. Thing is, all businesses are doing that. That’s what business is. The same applies to the company Soros’ fund owns.
This reality is also why FTC nominees can only speak generally about the matter, limiting their views to a broad assessment of the current digital landscape and its impact. Regulators simply can’t get into the business of telling the internet’s biggest middlemen how and what they can and can’t do despite the politicization efforts clearly underway.
Bottom Line for FB and GOOGL Stock
The counterargument is that the federal government was never in the health insurance business before, either, and then got into the game by voting in favor of the Affordable Care Act (ACA) in 2010. While the government didn’t become a provider, there’s no denying the deep tie-up between mandates and the for-profit industry’s players. It can happen.
For better or worse, though, the ACA mostly imploded on itself, underscoring how governmental overreach is more than capable of doing significant harm as well as doing good.
It’s a not-so-subtle reminder to the FTC and other potential overseers of the internet’s top websites what may happen when the wrong things are tweaked in the name of fairness and democracy. The internet is already democratized by the people who prefer Facebook and Google.
Sure, Facebook and Google were unknowingly running political ads paid for by Russia, and that has to stop. If that’s the only thing Soros is talking about, that’s a relatively easy problem to solve.
That’s not what he’s talking about, however. Soros made that clear by explaining “social media companies exploit the social environment. This is particularly nefarious, because these companies influence how people think and behave without them even being aware of it.”
That’s one step away from suggesting people shouldn’t be allowed to think for themselves, and it does suggest people don’t realize the internet is chock full of self-serving messages.
To that end, while providing access to the internet may be deemed a utility, how individuals find and utilize that information isn’t. If that were necessarily the mindset, regulators would also be manning the nation’s libraries, quizzing readers when they returned books about their interpretation of what they read. Ditto for television, school lessons, art galleries and more.
Of the number of risks GOOGL stock faces here, this kind of overreaching regulation is the last one owners of GOOGL stock need to worry about, even in a world where it seems like anything’s possible. As tough as it may be to believe, the U.S. government and its people aren’t that naive yet, even if news headlines suggest otherwise.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.