How Google and U.S. Tech Companies Are Under Assault
If it wasn’t clear before, it should be by now: Google and its U.S. peers are under assault.
On Tuesday, the tech giant was fined a record $2.7 billion by the European Union, after losing an antitrust battle regarding its online shopping search engine.
Google’s practice of favoring its own products in its search results was judged to be illegal and anti-competitive by the EU’s executive branch. On top of the $2.7 billion fine, Google was given 90 days to begin ranking its own products the same way it does its competitors, or otherwise face additional fines up to 5% of its annual turnover.
Then on Wednesday, Canada’s Supreme Court ruled in a 7–2 decision that the Canadian government can now force Google to remove search results as it sees fit.
The barrage of governmental opposition was enough to send shares of Google’s parent company Alphabet (NASDAQ: GOOG) off 3.8% in just two days, wiping nearly $20 billion from its total market cap.
Along with Wall Street, free-speech advocates are taking note of this alarming trend, as an increasing number of governments are taking steps to control the flow of information across the web, particularly when it comes to U.S. tech companies.
Censorship of Google and other websites by governments, of course, is not entirely new. China, for one, has long blocked a number of social websites like Google, YouTube, Facebook, Instagram, and others. Russia is also well known for its censorship activity.
All told, 23 countries restrict access to Google, but censorship from Western nations was largely unheard of until recently. With the European Union and Canada now laying foundations for such control, U.S. companies and their investors should be on high alert.
As OpenMedia spokesman David Christopher told Reuters this week following Canada’s Supreme Court decision:
There is great risk that governments and commercial entities will see this ruling as justifying censorship requests that could result in perfectly legal and legitimate content disappearing off the web because of a court order in the opposite corner of the globe.
For Google, its peers, and their investors, the decisions certainly raise a bright yellow flag. While $2.7 billion might be chump change to a powerhouse like Alphabet, it’s the threat of control over Google's display algorithms that’s of major concern.
It may be true that Google tailors its search results in its favor. It may also be true that companies like Twitter and Facebook give preferential treatment to certain content. But at the end of the day, these are independent companies, not state-owned enterprises. International governments controlling the information flow within these websites isn’t going to be good for either customers or shareholders.
As Wired argues in Google's case:
The big issue for Google isn't necessarily the fine, or even the change to its shopping listings. It's the fact that regulators are forcing it to change how it handles search. The company has been retooling its search results to be more than just a list of websites. As Google expands into new areas, such as voice-controlled virtual assistants, it seeks to provide people with what they're looking for directly, whether that's an answer to a question, the address of a restaurant, or a list of nearby movie showings. Today's order chips away at that idea by opening the door to more lawsuits.
The mention of voice-controlled personal digital assistants (PDAs) is something of particular note. I’ve been writing for some time now about the emergence of PDAs and what they mean for the future of search. I’ve spent little time, though, discussing the Orwellian threat that comes hand in hand with this kind of technology.
Governments exercising control over search results is one thing. Governments dictating what a PDA says to you is another. The former controls access to information, while the latter controls the information itself.
Just imagine Big Brother in the ear of every consumer, answering questions, managing schedules, and controlling buying habits while masquerading under a friendly digital persona. This could be the new age of national propaganda.
And as much as this may seem like dystopian fiction, the prospect is rooted not just in literature but in reality now as well.
Germany’s Federal Interior Ministry, for one, moved in January 2017 to set up the “Defense Center against Disinformation,” earning parallels to the “Ministry of Truth” characterized in George Orwell’s 1984.
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Again, it isn’t just Google being threatened by this government creep, either.
In April 2017, Germany unveiled a bill to fine social media networks up to $55 million over what it deems instances of “fake news” or “hate speech.” This is a move that could have dire consequences on companies like Twitter and Facebook.
In June, UK Prime Minster Theresa May and French President Emmanuel Macron floated the idea of fining social media companies as well, jointly criticizing text encryption services like WhatsApp for preventing government spying.
The ramp up of this sort of rhetoric and mounting proposals of government intrusion should be enough to give investors legitimate pause. Current multiples on tech companies like Google, Facebook, Twitter, etc. are based on trajectories that don’t reflect such opposition from nation states.
Adding to the bear case for these U.S. tech stocks, motivations are probably beyond the scope of simply controlling information.
As the New York Times reports, “Europe is Going After Apple, Google, and Other U.S. Tech Giants,” with various penalties and injunctions. This is a growing list that includes other tech staples like Amazon, Qualcomm, and Microsoft as well.
For the broader U.S. market, this is a notable concern because these tech giants have been the foundation of its recent bull rally. No country is going to knock them out completely, but they sure can be taken down a peg or two.
The crackdown on U.S. tech companies by the EU and other U.S. allies is a reminder that global markets can and do get political.
As the Trump administration enacts an "America First" agenda, leaders from across the world are pushing back. Nationalism, it seems, can only be fought with nationalism.
In short, the anti-globalists might just be getting what they bargained for here, and, for Wall Street's darling tech companies, that might not end up so pretty.
Until next time,
Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
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