I recently sold my Facebook (NASDAQ:FB) stock, booking a profit of about 40%. Since I sold, Facebook is down 2.5%.
The reason for selling has little to do with the Federal Trade Commission’s (FTC) amended complaint against Facebook. The idea that tech companies must only innovate internally once successful, and then only in a way different from any other innovator, is ludicrous.
The complaint is a symptom of a larger problem, one I highlight on my own social media feed. “If you don’t take responsibility for the medium you create someone else will. And they won’t have your interests at heart.”
The Dictator’s Advantage
Facebook doesn’t see itself as a media company. It sees itself as a communications company. AT&T (NYSE:T) can’t be held responsible for what you say on the phone, it argues. Why should it be? (AT&T also practically invented public relations, something Facebook remains very bad at.)
The argument sounds logical, but it has proven to be impractical. When dictators demand Facebook take things down, they’re taken down. Those same dictators then use Facebook to harass their own citizens. They also use it to attack democracy.
Facebook isn’t responsible for President Donald Trump’s election. But its refusal to stand up against foreign manipulation is a national security threat. Facebook gives dictators a huge political advantage. It’s made worse because, in the American system, Facebook can resist calls that it take responsibility, through lobbying and legal briefs.
I have argued in the past against scapegoating Facebook. I have argued that it’s not a social network at all. But American patience with Facebook’s politics has run out. Facebook won’t even let researchers study its manipulation. Meanwhile 10 of its 15 cloud data centers are in the U.S.
Limits of Text and Video
Facebook is also reaching the limits of what you can do with text and video. Copying TikTok isn’t innovation. It will just anger the FTC even more.
Facebook’s big reveal today is the metaverse, on which it’s working alongside game company Roblox (NASDAQ:RBLX) It looks like what Microsoft (NASDAQ:MSFT) Clippy would be doing if he were alive today. It is no more useful than a phone call and shared charts, showing avatars in a virtual conference room.
There are great applications coming for virtual reality and augmented reality. Studios could use virtual stages to cut costs. Resulting files could be usable in both movies and video games. People are already walking into fully digital environments like the Van Gogh exhibit, and these will only become more “real” over time. They will also become virtual, through things like Facebook’s Oculus.
Facebook is also pushing ahead with its cryptowallet. In theory this can be useful. Even Paypal (NASDAQ:PYPL) gets to wait up to a week, and take 10% off the top, on international money transfers. But banks and banking systems depend on credibility to make their systems work, even more than technology. Facebook lacks credibility.
The Bottom Line on FB Stock
Every great company is a dictatorship. Facebook is no exception.
But its services are no longer on the leading edge of technology. Government is doing everything it can to keep it in that box.
Facebook needs to fundamentally change from a collection of services into a true network. It needs to grow up, and take responsibility for its actions, and inaction, the way governments and telecom companies do. There need to be other public faces on its decisions, not just the CEO.
All this can be done, but it will take time to sort out. Until Facebook tends to its image, FB stock will remain under pressure. Until it gets back on the side of democracy, I don’t want to have anything to do with it.
On the date of publication, Dana Blankenhorn held long positions in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.