A full transcript follows the video.
This video was recorded on Jan. 26, 2018.
Dylan Lewis: I think one of the very interesting ones -- we've centered so much of this conversation on how regulations have impacted these U.S. firms. The reality is, these regulations have also had a pretty big impact on the digital ad market in China, specifically when you look at that bullet point about companies being required to verify the identity of advertisers. That came from a place where we were in this Wild West era of digital ad spend in China, and there were a lot of unseemly businesses getting really good placement on some paid posts and paid search results.
Danny Vena: That's true. In 2016, Baidu, which is the search giant in China, sometimes called the Google of China, got itself into trouble because a 21-year-old student there died after receiving an experimental treatment that he found on Google search. Since then, Chinese officials have updated their advertising requirements, and they're really strict now on anything having to do with medical treatments, with prescriptions, unlicensed hospitals. There were a lot of fake medical groups on there, people who claimed to be support groups for people who were experiencing certain medical conditions when in fact, they were drug companies or even unlicensed experimental treatment companies who were trying to get users to buy their product.
Lewis: Earlier, you said "Google search" colloquially. I believe the actual search result was on a Baidu search result, correct? That cancer treatment?
Vena: Yes, absolutely. I'm sorry, I misspoke there.
Lewis: Which is a testament to Baidu's standing in China, given that that's the association you have there. These regulations went beyond just "We need to reshape how we're looking at this." There were also some fines that were levied. Not very big ones, but they were all targeted at the really big internet players in China.
Vena: That's true, Dylan. The Chinese government has gradually been trying to seize control of the internet. Now, obviously, for a long time, they have already been able to effectively ban most of the content that comes in from foreign countries. What they were trying to do, like you mentioned earlier, the Wild West mentality that was going on on the internet, it was a free-for-all there. And the government decided to clamp down on that. Their regulations are pretty specific, in kind of a broad way. The say they're disallowing the spread of information of violence and terror, false rumors, fake news, pornography and other information that jeopardizes national security, public safety and social order. So, there are some pretty specific things, but then there's also those broad-based ones that they throw in there, so that if they want to, they can go, "This falls under here, so we're going to get you on that."
Lewis: And you look at these regulations, and I think the expectation when you think of a government that's kind of known for censorship and walling off itself from the world is, these are all control-oriented, that they are to preserve the status quo. But, looking specifically at the medical element here, with that really unfortunate episode with the cancer treatments and some of the other health forum things that you mentioned, some of these regulations are really good for consumers. These are things that needed to happen in order for the digital ad market to take the next step, and for people to be on the hook for what they're pushing people toward, in terms of treatments and in terms of information. There's a responsibility there that all of these platform businesses have.
Vena: Right. Honestly, if you look at some of the clampdowns that have been happening in the United States, and the European Union regarding companies like Facebook, and there have been clampdowns there. There's a lot of talk about fake news, they're trying to ban pornography, they're trying to keep terrorists from using them as communication tools. So, a lot of that is the same. But as you mentioned, there's also some protectionist measures there. China is known for favoring their hometown companies when it comes to regulations.
Lewis: And we're going to talk about that on the second half of the show. To wrap this part of the conversation, though, I would be surprised to see Facebook in particular in China anytime soon. Actually, news broke earlier this month that Wang-Li Moser, Facebook's liaison to Beijing, just stepped down. This is someone who had been putting in years of work, in addition to Mark Zuckerberg learning to speak the language and making all of these appearances in the country. They had done quite a bit on the policy side to try to work with the Chinese government and find some middle ground that they could eventually enter the country on everyone's terms. Her stepping down, to me, says that's probably not happening anytime soon.
Vena: Facebook is having enough trouble as it is in democracies, countries that allow free and open press, free exchange of ideas, anybody can say virtually anything that they want to on social media sites, and they're still having problems with terrorists using the platform to communicate, stories about fake news, issues that have come up recently having to do with the platform being cited as, people spending too much time there tend to be depressed. And if he's dealing with all of that in the rest of the world, I can't imagine how much trouble he would have in a country like China.
Lewis: There's a lot on Mark Zuckerberg's plate right now, safe to say.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares) and Baidu. Dylan Lewis owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. The Motley Fool has a disclosure policy.