Facebook (META -3.08%) has been leading the headlines recently, and not for reasons that investors or the general public are happy to see. In this Backstage Pass segment, recorded on Oct. 6, Fool contributors Brian Withers, Rachel Warren, and Demitri Kalogeropoulos discuss the recent allegations about Facebook's business practices made by whistleblower Frances Haugen before Congress.
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Brian Withers: Facebook wasn't the top headline today, but it's certainly in the top five. I wanted to include it as part of the discussion today. The company has come out and disputed the testimony of the whistleblower Frances Haugen, who testified in Congress yesterday afternoon.
It's made headlines because Mark Zuckerberg has come out with a detailed post that he sent to all employees, which includes details like starting reputational reviews for new products and deep dives into existing products to examine how they impact children. Regardless of, they talked a little bit about the whistleblower comments, but mainly focused on what they were doing here.
That's the piece that we're going to talk about just now. Is Facebook doing enough to handle this crisis? I guess, as we're all investors here, do you think it could impact the stock over the short-term or the long-term? Rachel, why don't you take a first cut at this.
Rachel Warren: Alright. It's interesting, as I was thinking about this question and I was thinking to myself, it's kind important, you take a step back and you think about just how a big a role social media plays in our lives today. The conversation we're having now, even 20 years ago, would have seemed like such a foreign concept.
You're thinking about, you have to have reputational reviews of social media products to ensure they're not damaging people because we live in a digital society and increasingly a digital world.
Now, everything from talking to your family and friends to marketing your small business to even accessing news sources for a lot of people, that happens on Facebook or some of their related products like Instagram, WhatsApp. WhatsApp is such a huge way for people to stay in touch in so many parts of the world. I know it has been for me and pretty much everyone I know that travels internationally a lot.
You think of social media in the sense that it's a tool. I often think about it as, how it impacts your life is very much dependent on how you use it. I think time will tell, personally speaking, as to whether Facebook is doing enough to deal with the crisis. I think part of what we're seeing now in a broad sense is damage control.
I understand that there's been some key disputes from management regarding Frances Haugen's testimony. I think we need to see what happens with this Congressional investigation and what it yields. I also think that Facebook's management, they deserve to be heard and share their side of the story as well.
I do think that if Facebook really wants to effectively handle this crisis, and in many ways, it's a PR firestorm, if nothing else. In other ways it raises some concerns on a much larger scale with regards to the role of social media.
But I think they need to deal with these allegations face-on, did they know about this data that there was potentially very real-world harm happening to young people maybe using these platforms, and did they choose to continue with business as usual? I think these are very basic questions that people want answered.
I think until they answer those, if and when, there's going to be quite a bit of a firestorm around this subject. I do think also though, to play devil's advocate, there's also an element of human responsibility with these apps.
Most of the time nobody is forcing you to use them. I think [laughs] it will be healthy for me and pretty much everyone sometimes to take a break from social media. I know one of the arguments they were bringing forth was the idea that no teen under the age of 13 is allowed to be on Facebook.
It's funny because I actually remember, growing up, a lot of my friends that I knew that were pre-teens found ways to get on. You know that it does happen and that there's young people using these apps and many of them aren't at a place to discern harmful targeted ads. I think that's where you have a problem. I think they need to face that head-on. I think they need to deal with some of these questions. I think there needs to be much better controls over this from Facebook's side and much better communication about what it knew and when.
As to whether it will have a meaningful impact on the stock, I honestly think that remains to be seen. In terms of from a shareholder perspective, I would say, I wouldn't be so interested in what's happening over a few days or weeks. I'd be looking more, what's happening over a period of months or longer?
Is this consistently impacting the stock? Facebook's been through, definitely, its fair share of Congressional scrutiny in the past. I think what we're going to want to see is what's happening in the coming months and if that's continuing to put downward pressure on the stock. But for now, from that particular vantage point, I don't think it's a particular area of concern.
Demitri Kalogeropoulos: I agree, that was some great points. I mean, especially like you said, this firestorm situation isn't new to Facebook. They've been through a lot. It almost seems like almost continuous. I was thinking of obviously there's a lot of heat on them in the U.S. presidential election, around that.
Even the IPO had a lot of controversy. I don't know if you recall that period, but Facebook does seem to be -- I don't know if it's a lightning rod or what to these kinds of controversies.
I've been a Facebook shareholder for a few years and I'm definitely not tempted to sell my stock because of this news personally. But I do think it highlights some risks. They're worth watching, I guess, for investors.
Because I don't think it's a good thing when your product releases have to go through an extra layer of review to make sure they don't cause press nightmares or impact the brand or hurt members of society and things like that. Just add that to the last couple of months, we've had a few of these challenges show up in Facebook's.
In this regard, I'd put the way that iOS Apple has been doing that iOS switchover, which has been allowing users to opt out of targeted advertising. We know that that's impacting Facebook's, the effectiveness of their ads, because they can't serve those targeted ads as much now. I've been seeing this from other companies that advertise on Facebook, for example.
They talked about how they've had to switch some of their ads onto different platforms for that reason. Then we had more recently the Instagram for kids service they were talking about that's been paused according to the reporting in the Wall Street Journal and then these leaks, internal documents that have been sparking all these critical reviews in the Wall Street Journal and in these Congressional hearings.
It's a tough environment for, I think, management to operate in. That said, it's definitely a pillar of the Internet. We saw that with one service [that] went down for a couple of hours this week. It has over 2 billion engaged users and it's still growing, so there's not a challenge there, but I think it's worth understanding that it operates in a lot of sensitive areas that touch on really hot topics.
Sensitive topics, public health, election security, misinformation, self-esteem issues, teens, kids, and all these issues raise the stakes for this software. Maybe a little harder for Facebook to innovate when it's working on the platform than some of the other big tech stocks like Apple (AAPL -2.01%) or Netflix (NFLX -2.12%).
Brian Withers: Yeah, that's a great point Demitri. When I look at this, what's going on with Facebook today, I'm really not surprised. From the beginning Facebook was always set up with trying to serve two masters.
They've have a set of users who use the platform. But their customers, the ones who pay for the platform, are really the advertisers. It's hard to serve both. You have this set of users that has a certain set of criteria and want to have a great experience. But these advertisers as well -- a little bit are aligned with these users having a great experience, but they want their ads shown.
For Facebook to make money, it's got to make sure that the advertisers continue to be happy and continue to stay on the platform as well as its users. I was looking at a book, there's a book by David Kirkpatrick that I highly, highly recommend. It's an older book, but it's the inside story of Facebook from the beginning and it's called The Facebook Effect: The Inside Story of the Company That Is Connecting the World.
Early on, you can see this struggle between growing the user base as well as at the same time growing the customer base who's having to pay for these. From the beginning, it's just something that the company had to deal with over time. About what it's doing today, and is it doing enough?
It seems strange to me. I guess, I don't know if they're doing enough and I think absolutely Rachel's great point about time will tell. But it's weird that all of a sudden now Zuckerberg is talking about reputational reviews.
Have these been there before? It's a social media platform. It's part of what you do on a social media platform as you interact. This obviously could've been done way earlier.
Regardless, I don't know that there's much that Facebook can do to screw this up. It is so connected. I remember a while back people were upset at Facebook because it was late to get on board with filtering political content or whatever the issue was.
Everybody is like "drop Facebook," there were Twitter (TWTR) things about getting out of Facebook and they didn't miss a beat. [laughs] They may have moved some people. People may have deleted the app off their phone, but they've continued to grow exceedingly well, even as large as they are.
This could be, I remember one of the congressmen talking about "this is their tobacco moment." Well, the [laughs] tobacco companies survived. They still make money, and the tobacco executives to me handled that crisis the worst way that they could.
It's certainly not the growth companies that they were in the past, but they didn't disappear overnight. This one will be interesting to watch for me anyway, from the sidelines.