Facebook and Google are “surveillance states” and face further government regulation

Facebook and Google have been described as “surveillance states” by a former Facebook employee and social media investor, who has claimed that both are likely to come under greater government regulation in the future.

The comments were made by Chamath Palihapitiya, a former Facebook executive and right-hand man to CEO Mark Zuckerberg, who is now the CEO of Social Capital, a Silicon Valley venture capital firm, in an interview with CNBC’s “Fast Money: Halftime Report”.

Speaking from an investor’s perspective, Palihapitiya claimed that Amazon was a better investment opportunity because, despite their scale, they still only hold a very small proportion of global consumption and therefore still have plenty of room for future growth and expansion.

However, he was less positive about the investment prospects of Facebook and Google and it is the reasons he has given for this which triggered the most interest.

Facebook and Google are data companies

Palihapitiya described Facebook and Google as being ‘constrained’ by a business model which was dependent on advertising revenue alone. But he also warned that the fact both companies hold so much personal information about their users could cause real problems in the future.

Facebook and Google effectively are surveillance states”, he said. “They have so much personal, private information about so many citizens of so many countries. They have to deal with some very sensitive issues…. [They] are [both]massive data companies… Facebook is not really a social network, it’s a data company in disguise. Google is not really a search business, it’s a data company in disguise.”

As a result of this, Palihapitiya concluded that “the regulatory overhang is much higher in the case of Facebook and Google than it is for Amazon.” In other words, both companies are likely to find their business model constrained by government regulation in the future, whereas the nature of Amazon’s business makes them less vulnerable to this.

Regulation already affecting both companies

It is an interesting theory, particularly coming from a former employee of Facebook and someone with such a detailed understanding of how Silicon Valley works. And there is plenty of recent evidence to back it up too.

Facebook has regularly faced challenges from regulators over how they go about their business. Just last week, we reported on a €1.2m fine handed down by the Spanish data watchdog over illegal practices. Whilst this figure is a drop in the ocean for Facebook, they are challenging it through fear that it could lead to much larger fines when the EU’s General Data Protection Regulations come into force next year.

Meanwhile, Google has already fallen foul of the EU regulators, with a huge €2.42bn fine being handed down earlier this year after it was found to have “abused its market dominance as a search engine.” When you factor in increased calls for tech companies to cooperate with Government over terrorism and extremist content on their sites and Palihapitiya’s point begins to make sense.

State regulation either a blessing or a curse

Such regulation of tech companies like Facebook and Google could be either a blessing or a curse for users. On the one hand, regulation has the potential to stop these companies abusing the powers they have over users data, as many have over the years.

But on the other hand, it risks Government over-stretching their powers and enforcing excessive restraints and censorship onto tech companies at the expense of online freedom.

It is clear that a balance has to be struck and it remains to be seen whether big tech companies like Facebook and Google can work with Governments around the world to achieve that. From an investor’s perspective, the uncertainty this brings to the market undoubtedly does impact on the desirability of the likes of Google and Facebook.

But perhaps that kind of financial threat is the incentive these companies need to get the regulatory balance right.

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