Some Risks Facebook Will Have To Address

Facebook (META -0.52%) is a titan of a company, but it still has huge potential for long-term investors. But no company is without obstacles to growth, and Facebook is no exception.

In this clip from Industry Focus: Tech, Motley Fool tech analyst Dylan Lewis explains some of the most significant risks that Facebook will have to address in the next three to 10 years. Find out more about what Facebook might be able to do in countries that have a popular alternative platform to Facebook, some issues they'll have to work around before they can bring internet access to underserved parts of the world, and much more.

A full transcript follows the video.

This podcast was recorded on Feb. 10, 2017.

Gaby Lapera: There are countries where there is no Facebook. China, for example, they have their own social media platforms. Do you think that would be a problem in any other setting for their expansion? Do you think they would just buy those companies?

Dylan Lewis: No, I think that's a legitimate risk. One of the things that, in addition to these regional upstarts that we have, the idea of demographic shifts maybe pushing people out of Facebook, or having them not come in to Facebook, is something that I'm a little worried about. I think about how, Facebook has been in the U.S. for 10 years at this point. In the tech world, that's an eternity. That's a long time. You think about how you might have looked at Myspace or something back in the day and been like, "Ah, I'm not a part of that," and instead gone to Facebook. I think there's the risk not only internationally of their being more entrenched platforms that are specific to certain countries, maybe, and have really great traction there, but I'm a little bit more worried about people that are coming onto the internet now, younger folks, maybe early teens, looking at the offerings that are out there in the social networking world and instead deciding to go with maybe Snapchat, rather than going to Facebook, because they see Facebook as this old, dowdy --

Lapera: It's an old person thing.

Lewis: -- internet relic. Like, "Oh, my parents are on Facebook, I don't want to be on Facebook."

Lapera: My grandma is on Facebook. [laughs]

Lewis: Both my parents are on Facebook. I'm not friends with my dad. Interesting. [laughs] But one of the things I'm really excited about with that is, Snap will be going public. So, we will be getting some color on their business and customer acquisitions, hopefully. You can watch those two track each other. To mitigate some of that, Facebook has been pretty good recently about bringing in Snapchat-style functionality.

Lapera: Like Facebook Live, right?

Lewis: Kind of.

Lapera: Is that a thing?

Lewis: Facebook Live is a thing.

Lapera: I've seen that advertise on bus shelters.

Lewis: Yes. They are pushing that like crazy. But the Snapchat-style functionality of stories and little posts and things like that that are disappearing, that is...

Sarah Priestley: [laughs] Who does that remind us of? I don't know...

Lewis: [laughs] Yeah, right? That is being brought to the Instagram and Facebook Messenger platforms. So, I think they're seeing what resonates with people and bringing it there as a point to attract them to these platforms. That was a roundabout way of answering your question.

Lapera: No, that was a really good answer. That made me think about things that I hadn't thought about before, so I really appreciate that. My last question is actually about internet regulation. This is for whoever wants to answer it, I guess, but you made me think of it when you were talking about the 10-year plan to get more people on the internet. In the past and likely again, there have been bills that talked about internet throttling and stuff. That could be a problem for online businesses. What do you see? Do you see potential future regulations as a problem? Do you think we're moving away from that as a society? This is a touchy-feely question, I know, but I'm interested in hearing your opinions on this.

Lewis: When I think about regulation and Facebook's 10 year plan, I tend to focus on the net neutrality side of the internet.org offering.

Lapera: Do you want to explain net neutrality really quick? It's complicated.

Lewis: Absolutely. Net neutrality is basically a free and open internet, and the idea that people are not getting restricted versions of the internet, or censored versions of the internet. Some of the push back that Facebook has met with in India when they were trying to roll out internet.org there and build out connectivity is, the suite that is part of internet.org is basically, you have access to these at the time, it was like 30 or 40 platforms, and they were a mix of messaging, social networking, job hunting, news, that kind of stuff. But it was a curated package of all these different internet properties. And the regulatory push back they got was, "Well, that's not the internet. That is a hand-picked version of the internet. If people come online and see that, they might confuse Facebook for the internet, and that's it. And they might not realize that there's all of this indexed world out there that they can explore, and it might lend itself to some monopolistic forces." I think, with the big tech pushes from Facebook, and Alphabet is getting into this as well, the benefits from having more of the world connected probably outweigh the competitive risks of having it being pushed by major tech titans that have an interest in staying entrenched in that space. I think those will probably win out. They might have to do it in a watered-down way that gives people more access generally. But I'm more worried about the net neutrality side of stuff than internet throttling, if that makes sense.

Lapera: No, that's totally fine. It's an interesting thing. And every time it has come up recently, it has been defeated. But there's a new administration, we'll see what happens.

Lewis: And the domestic side of that is a whole nother host of issues. We could spend a whole episode on that. [laughs]

Lapera: There you go. Do you have anything you'd like to say about that?

Priestley: No, I completely agree. It's interesting because back home in the U.K., there's a lot of companies threatening to leave because the actual internet infrastructure isn't as good as they would like. So, you have those issues, too, which I realize is separate from that big macro issue. But, I would say the U.S. is in a particularly good place with the wireless and online infrastructure.

Lapera: Yeah, it was wild, I studied abroad in Australia for a few months, and this was many years ago, many many moons. It was wild because here, there was wifi on campus everywhere, and you paid one set amount and you had access to the internet. And sure, you could pay more for faster speeds. But there, you literally paid for how much data you used. The more data you wanted to use, the more you had to pay. Here, it's the faster, the more you pay, but they don't put a cap on your data, in theory, for your computer internet. It's interesting.

Lewis: And not to plug Facebook again in this conversation --

Priestley: You know, I feel like you're getting a lot more airtime. [laughs]

Lewis: Speak up, then. [laughs] But with the focus on mobile, and that being where a lot of their revenue is coming from, most people first come online, in a lot of developing areas, via mobile devices and not desktop.

Lapera: Which do have data caps.