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Facebook’s ad business is under attack on several fronts: starting with privacy concerns which led to congressional testimony by CEO Mark Zuckerberg, and coming to a head with the Washington Post breaking the story that the Justice department is looking into some of Facebook’s business practices as well.
One of the major issues is that Facebook dominates social media, and therefore dominates social media advertising. Sixty-Nine percent of U.S. adults say they use Facebook (as of February 2019, according to the PEW Research Center), with Instagram (owned by Facebook) and Pinterest weakly following at 37% and 28%, respectively. The other major online platform that has been dominating the internet has been Youtube, which is currently owned by Google.
Google is currently under the same microscope as Facebook. In addition to owning Youtube, Google dominates online search, commanding nearly 85% of U.S. Search Market Share in the last year (according to GlobalStats statcounter) which includes their various platforms such as Google Images, Youtube, and Google Maps.
So, if Facebook and Google’s main and most-lucrative operations (ad space on social media and web search) are under a microscope, how diversified is their revenue?
For now? Not very.
They do have diversified portfolios of potential new revenue streams. Facebook owns what has been deemed the best virtual reality platform- Oculus. They’re also now involved with cryptocurrency and blockchain, internet infrastructure, among other ventures. Meanwhile, Google has developed their own innovation hub called Moonshot projects, and invests in other tech companies through Google Ventures. But these are currently very minor income streams for these companies.
Let’s take a step back. What does history say about how this may play out?
We’ve had a variety of results in the past when the government decides to step in. We’ve seen monopolies that have been broken up (AT&T) and others successfully fight off charges (Microsoft).
Investors in big tech companies like Facebook and Google now need to consider whether they believe Facebook and Google can quell government concerns, all while preserving the potential of future projects.
In short, for many companies, you would normally look at potential revenue and profit growth, as well as competition. With government concerns about monopolistic behavior and scrutiny over breaches in users’ social rights, there are new serious factors that needs to be measured.
Disclosure- the author of this article has no personal holdings in the stocks mentioned above.