Facebook Puts Investors’ Money Where its Mouth is on Security

This week has seen both Congressional hearings on the issue of Russian use of tech platforms to influence US politics and a quarterly financial report from Facebook which made that meddling a theme. There was a stark contrast between the relatively defensive attitude on display in the hearings and the more contrite and proactive approach indicated by Facebook’s earnings call. The social networking company seems far more willing so far than others to put real money behind its efforts to ensure undue political influence is curbed, for better or worse.

Political Fallout Remains Unclear

This week’s hearings were certainly uncomfortable for the representatives (mostly lawyers) sent by the big tech companies to testify in front of Congressional committees. They were on the receiving end of frustrated chastisement from lawmakers, and though they defended and dodged as best they could, they still likely came away licking their wounds. But it’s still far from clear what if any action Congress might take as a result of these hearings – the threats have been general and fairly vague rather than specific enough to warrant real concern on the part of the tech companies.

Certainly, none of those tech companies should consider itself immune from political fallout given the growing unease about their role from both the political right (over perceived bias) and the left (over antitrust and related issues). But for now they may well escape any concrete attempts at additional regulation given their commitments to increased transparency and reporting around political advertising and the like.

Facebook’s Response Stands Out

Though the attitude demonstrated by Facebook in the hearings wasn’t markedly different from that of its peers, its earnings call on Wednesday certainly stood out from the others held by the tech companies appearing before Congress this week. Whereas the others have largely downplayed the financial impact of the current political quagmire in which they find themselves stuck, Facebook’s leadership made a proactive commitment to trying to solve the problem: it committed to spending enough additional money on “security” in the coming months to have a material impact on its profitability going forward.

What’s interesting here is that there is no immediate pressure on Facebook to take these steps, and the decision to take them seems motivated as much by Mark Zuckerberg’s recent conversion to a more responsible and community-centric strategy for Facebook as by any political imperative. The CEO has been through such an abrupt about-face on the issue of Facebook’s role in political meddling over the past year that it’s almost as if he’s a different person from the one who reacted dismissively to suggestions fake news on his platform might have played a role in the outcome of the 2016 elections.

That community-orientedness was evident not only in the security commitments but also in Zuckerberg’s comments on Wednesday’s call about making interaction on Facebook more meaningful – an attempt to return to the company’s roots as a social network rather than the content hub it’s become in recent years. And of course all of this builds on the company’s new mission announced earlier this year to focus on community building and bringing people closer together.

People and Technology but no Change in Business Model

Facebook’s approach to solving what it frames as the security issue involves both people and technology: Facebook will double its ten thousand strong moderation team (many of them likely outside contractors) in the coming year, but will also continue to apply its AI and machine learning skills to the challenge. The cost of additional employees and contractors will therefore have by far the biggest financial impact on the company.

But one thing the company is notably not proposing to do is change its business model, which is interesting because it’s that business model that’s been at the root of the company’s problems with regard to political interference. Making its platforms far less open, and its algorithms more tightly controlled would certainly do a great deal to mitigate election meddling, but it would also have a massive effect on its top line, which continues to grow rapidly despite its dire warnings over the past year of coming slowdowns.

Facebook says that the investments it will make will precede the improvements to the user experience and therefore healthier user and revenue growth in the longer term, but that the latter will come eventually. However, there’s a real risk that all the dollars it spends on neutralizing political criticism with stronger moderation and smarter AI don’t really solve these business model-driven problems and leave it both poorer and in the same place politically as it is now, while big competitors like Google and Twitter try to ride out the political turmoil without making such drastic changes.

Facebook is here putting its investors’ money where Mark Zuckerberg’s mouth is – there was a palpable sense of disappointment at the financial commitment being made here among financial analysts on its earnings call, though also some acknowledgment that the moves might be necessary. The risk here will be borne by those investors, while the upside is still far from clear, and the real motivation seems to be a personal desire from Zuckerberg to feel better about the role his platform plays in the world. The next few months may alternatively demonstrate his wisdom in taking these bold steps or reveal them to be misguided and expensive.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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