I told you so.
It’s finally happening.
The Department of Justice (DOJ) preparing an antitrust probe on Google (GOOGL) was never about if but when.
The Federal Trade Commission is in the fold as well, as they have secured the authority to investigate Facebook (FB).
The probe will peel back the corrosive layers of Facebook and Google’s businesses such as search, ad marketplace and its other assets in order to excavate the truth.
Investors will get color on whether these businesses are gaining an unfair advantage and perverting the premise of fair competition that every tech company should abide by.
Tech companies skirting the law and living on the margins are in for a stifling reckoning if these probes pick up steam.
Facebook is about to get dragged through the mud kicking and screaming facing an unprecedented existential crisis that have repercussions to not only the broad economy for the next 50 years, but far beyond American shores with America mired in a trade war pitted against the upstart Chinese most powerful tech companies.
Even though I have consistently propped up Alphabet on a pedestal as possessing a few of the most robust assets in tech, I have numerous times flogged their dirty laundry in public view, referencing the regulatory risks that could rear its ugly head at any time.
These companies have been playing with fire and everyone knows it, but in the world of short-term results via stock market earnings report, this trade kept working until governments decided to get their act together because of the accelerating erosion of government trust partly facilitated by technology apps.
As much as a handful of Americans have monetized Silicon Valley to great effect, I can tell you that I spend a great deal of my time abroad, and American soft power is at a generational low ebb.
Blame technology – our dirty secrets are not only exposed in frontal view but it’s pretty much a 3D view of the good, bad, and the ugly and there is a lot of ugly.
I am not saying that punishment is a given for these ultra-rich firms swimming in money.
Historically, Alphabet has stymied regulators before beating out an antitrust investigation in 2013 after a two-year inquiry ended with the FTC unanimously voting to halt the investigation.
Remember that this time around, the probe follows the fine in Europe when The European Union slapped Google with a $1.69 billion for actively disrupting competition in the online advertisement sector.
The European Commission claimed that Google installed exclusivity contracts on website owners, preventing them from populating on non-Google search engines.
It was quite a dirty trick, but do you expect much of anything else from one of the most crooked industries in the economy?
And this wasn’t the first time that Google has run amok.
EU regulators levied a $5 billion penalty on Google for egregious violations regarding its dominance of its Android mobile operating system.
Google was accused by the EU of favoring its in-house apps and services on Android-based smartphones giving manufacturers no alternative but to bundle Google products like Search, Maps and Chrome with its app store Play ensuring that Alphabet would benefit from a lopsided arrangement.
Anti-trust legislation has a myriad of supporters including the current administration who have stepped up its onslaught on Silicon Valley.
President of the United States Donald Trump has even hurled insults at Amazon (AMZN) creator Jeff Bezos and even claimed that Alphabet’s artificial intelligence has aided China’s technological rise.
To say FANG companies are in the good graces of Washington would be laughable.
I would point to Facebook to accelerating the regulatory headwinds as investors have seen Co-Founder and CEO Mark Zuckerberg fire every major executive that has opposed his vision of merging Facebook, Instagram, and WhatsApp into a cesspool of apps that pump out precious big data.
The tone-deaf boss has doubled down to reinvigorate the growth after Facebook sold off from $210.
Board members want Zuckerberg out and he is defiant against any attack on his leadership spinning it around as a vendetta on his reign.
Facebook is walking straight into a minefield and the rest of Silicon Valley is guilty by association, the contagion is that bad.
Facebook is the one to blame because of the daily nature of social interaction on its platform and the pursuance of revenue through hyper-targeting data that 3rd party companies pay access for.
They have no product.
Amazon sells consumer goods which is not as bad.
Facebook facilitates the social dialogue that has unwittingly boosted extremism of almost every type of form possible.
It has given the marginal and nefarious characters in society a platform in which to engineer devastating results and Facebook have an incentive to turn a blind eye to this because of the lust for user engagement.
This has resulted in heinous activities such as terror attacks being broadcasted live on Facebook like the 2019 New Zealand massacre at a mosque.
The former security chief at Facebook Alex Stamos hinted that Mark Zuckerberg’s tenure should wind down and the company needs to shape up and hire a replacement.
The security implications are grave, and many Americans have uploaded all their private information onto the platform.
What is the end game?
Facebook is in hotter water than Google, not by much, but their business model engineers more mayhem than Google currently.
Facebook could get neutered to the point that their ad model is dead and buried.
If Facebook goes down, this would unlock a treasure chest full of ad dollars looking for new avenues.
Facebook’s most precious asset is their data which might be blocked from being monetized moving forward.
Without data, they are worth zero.
The existential risk is far higher for Facebook than Alphabet.
No matter what, Alphabet will still be around, but in what form?
Assets such as YouTube, Google Search, and Waymo, which are all legitimate services, could get spun out to fend for themselves creating many offspring left to sink or swim.
In this case, YouTube, Google Maps, Chrome, Google Play, and Google Search would still possess potent value and offer shareholders future value creation.
Waymo would become a speculative investment based on the future and would be hard to predict the valuation.
Then there is the issue of whether Chinese companies would dominate the collection of FANGs after the split or not.
As I see it, Chinese tech companies will not be allowed to operate in the U.S. at all, and anti-trust repercussions will have many of these homegrown tech companies carved out of their parents to reset a level playing field in a way to re-democratize the tech economy.
This would spur domestic innovation allowing smaller companies to finally compete on a national stage.
The government finally clamping down epitomizes the current volatile tech climate and how Alphabet who has some of the best assets in the industry can go from barnstormer to pariah in a matter of seconds.
As for Facebook, they have always had a bad stench.
The cookie could still crumble in many ways, each case looks high risk for Facebook and Google for the next 365 days.
Stay away from these shares until we get any meaningful indication of how things will play out, but I have a feeling this is just the beginning of a tortuous process.