Facebook Faces Big Headwinds

Elevation Partners Founder and early Facebook investor Roger McNamee tells Emily Chang that Facebook has saturated the market for its existing products in North America and Western Europe, that the big tech sector is out of touch with the change of public sentiment, and that investors need to recognize that Facebook being a good stock for now does not mean it is the right thing to invest in for society’s sake.
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I’m curious what you find most alarming about these documents
that have been obtained by Bloomberg and also the revelation of

Frances Halligan over the last couple of months. What do you
what troubles you the most. So to me Frances Halligan is

incredibly courageous for bringing these documents out. The
impact of them is that they’ve shifted the conversation about

Facebook from a focus on free speech issues to where it really
belongs which is on a business model that essentially puts 3

billion people onto a network with no boundaries and then
unleashes a business model that promotes inflammatory emotion.

So hate speech disinformation and conspiracy theories are given
an economic advantage on Facebook. And the result is that ideas

from the fringe things like antivirus and white supremacy have
been mainstreamed. And that’s undermined democracy it’s

undermined public health it’s undermined privacy. And this a
huge problem. And if you’re an investor this Facebook is been a

great stock for you. But on a looking forward basis you have to
ask the question if the U.S. loses its ability to be a democracy

and if each one of us loses the ability to make our own choices
because they’re being made by Internet platforms is that a good

trade. Right. I think last throes usually comes up here. And if
you’re an investor in Facebook today it was a great day for

Facebook and Facebook up close. Facebook up three and a half
percent after the close on the back of these results that are

mixed. And on the same day that these you know thousands of
pages of documents have been pored through by multiple different

news organizations. If that’s not going to send Facebook stock
down what is. Well to be clear I don’t think the stock’s a good

measure of what’s going on here. I think the stock market
operates in a completely different time scale. And so I think

investors are making the correct judgment which is the numbers
were terrific least relative to what you would’ve expected.

Looking at SNAP the other day the impact of Apple changing
privacy had a dramatic effect on snap it at Facebook. They have

a lot of dials to turn. They can lower the quality of the ads
that they show. They can allow people of new users onto the site

that if you will are not authentic. There are lots of dials that
are available to them to make the numbers look good. But that’s

very short term. And I think investors have a super short time
horizon here. Where’s the stuff going on with government’s going

to take time to process. You have legal issues relative to the
FCC with disclosure relative to insider trading. There’s a big

case in Delaware six large pension plans that are accusing
Facebook of insider trading around Cambridge Analytics. These

things are felonies. There are Department of Justice cases
relative to price fixing in digital advertising related to.

There should be an investigation of the whistleblower’s
information about human trafficking or about the January 6

insurrection where again Facebook has been implicated time and
again in both the radicalization of people into Q and on and

into stop the steal and then allowing them to organize. The
protests and then the insurrection itself on Facebook and its

obvious management knew about all of this stuff and they’ve
dealt with without proper ties profit does does timespan on

Facebook among teens dropping 16 percent. Does that alarm you.
Is that something that Facebook should have been more

transparent about. Is that something that investors had known
coming directly from the company itself. You know would the

stock be continuing to rise. Would revenue be continuing to grow
with 30 billion dollars quarter after quarter.

So I think the issues that Facebook really faces is that in
North America and Western Europe its most profitable markets it

is reach saturation of the population. And there’s no question
that tick tock is draining people away from Instagram. And I

look at this and the bad press that Instagram is getting right
now should accelerate that departure. And I don’t think there’s

anything Facebook can do about it that’s legitimate. They’d love
to change the conversation to the metaverse but that technology

is not good enough to replace
the hold that is being left in their business. Facebook is a

mature company. It’s not going to grow as rapidly. The numbers
are higher in the short run. That’s coming out of the future.

And investor just need to be more careful. They should really
they should take an opportunity. Do you think the metaverse

actually is for Facebook Roger. I mean Mark Zuckerberg wants to
bet the future on this. A potential name change on this. I mean

is that going to pick up this big name change has nothing to do
with. The name change is about distracting us from the fact that

the company is going to face a series of legal problems and Zuck
personally is going to face some legal problems here. And you

know this is a real test for our system right. We’ve allowed
this company and Google and others to run without any

supervision. They’ve caused tremendous harm. They’ve made
investors a fortune. And investors are incredibly thankful. But

the rest of the country is pretty unhappy about it. And the
question is are we going to do something to try to restore some

balance. Or are we not going to do so. And the metaverse is
literally a dream. And if you look at the demos they’re

horrible. And to my mind
Facebook is going to spend so much time dealing with the

problems that are being exposed now both in court and in
Congress that the metaverse. But if they ever get it to work

it’s going to come very late. And you’re not going to want to
wait from here to there on the hope of the metaverse. The name

change is literally a distraction. It’s literally something that
they’re just trying to do two things to get us to look

elsewhere. And they want to somehow find a way to insulate Mark
Zuckerberg from legal liability for the problems that have

already been created. And you know.
At this point Roger what kind of regulation do you think is

realistic and right. Reid Hoffman an investor in Facebook in the
early days just like yourselves told me that he’s disappointed

in Facebook as well but he thinks that breaking up Facebook is
the wrong approach because that’ll make it even harder to set

you centralize all of these systems and the technology that’s
needed to combat hate on a global scale. What do you think. I

think we have three areas we need to regulate and they need to
cover not just Facebook but all of technology. We need to have

safety regulations something that functions like the FDA that
sits there and says wait a minute. Facial recognition deep fakes

have no valid commercial use. They shouldn’t be allowed in the
market until they prove a valid use. The same would be true of

the pharmaceutical companies like Google and YouTube and
Instagram. And Facebook would have to make changes in their

business practices to make them safe for people. And that would
be something that this FDA like thing would look at every year.

The second area is privacy. This whole notion that companies are
allowed to use data to manipulate the choices and behavior of

people. That is really not an American idea. I mean it’s
basically taking over from right to self-determination. So it’s

like child labor. It’s the sort of thing that we should ban
outright. And then thirdly on antitrust I think the root thing

is to allow for competition. To me if you’re going to break them
up that comes downstream. But first you have to open up markets

and prevent companies from monopolizing the way everything takes
place in the economy. You saw it happen when Facebook went down.

The millions of small businesses depend on Facebook were shut
down by that and that that’s what monopolies do. And that’s not

good.