February 4, 2019 / 10:09 PM / 3 months ago

Breakingviews - Google and Facebook are begging for a watchdog

A neon Google logo is seen as employees work at the new Google office in Toronto, November 13, 2012. REUTERS/Mark Blinch

By Jennifer Saba and Robert Cyran

WASHINGTON/NEW YORK (Reuters Breakingviews) - Google and Facebook have made their quarterly case for a watchdog. The search engine’s parent, Alphabet, reported soaring sales and profit just days after Facebook’s blowout earnings. Concerns about fake news and the wanton commercialization of consumer data have done little to clip their dominance of online advertising. It’s all the more reason for regulatory oversight.

Alphabet’s revenue rose 22 percent in the fourth quarter of 2018 from the same period the previous year. The company’s digital advertising business continues to go gangbusters. Revenue from that part of the business rose 20 percent year over year, and accounted for over 80 percent of the company’s total revenue.

This mirrors the results at Facebook, where notwithstanding an astonishing amount of public and press ire against the company and CEO Mark Zuckerberg, revenue increased 30 percent in the fourth quarter, to $16.9 billion, and monthly active users increased 9 percent, to 2.3 billion people. Furthermore, both companies continued to throw off astonishing amounts of cash even as they increased spending on futuristic ventures ranging from therapies to defeat aging-related illnesses to virtual reality.

It’s telling to contrast the replicating, machine-like growth of these firms and their profitability with the increasingly dire public perception. Stories emerge nearly weekly about Google and Facebook’s efforts to strip-mine personal information to sell advertising.

Yet market forces to topple the twin powers seem futile, or at least a long way from succeeding. Consider that fellow FAANG Amazon, which also has a fast-growing ad business, is nowhere near sapping their strength. Canaccord Genuity figures only 1 percent of Google’s search revenue is vulnerable to the competitive risk from Jeff Bezos’ firm. The idea of a startup eclipsing the two giants seems even more far-fetched in light of recent jobs cuts at Vice Media, BuzzFeed and Verizon Media, all of which depend on online ad sales.

Google and Facebook’s domination of search and social media, their profits from internet advertising, the data they have collected, and the infrastructure they have created make it hard to see anything – outside regulation – curbing either company over the next several years. Given their deep wells of consumer information, this also sets them up nicely to rule the next wave of internet things to come.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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