Surveillance Capitalism Bubble
I drive my kids to school a couple days a week. On the way, I get to rock out to my son's playlist, loaded with Clash, Sex Pistols, and Ramones. But once he's safely at school, I start acting my age, which means 20 minutes of Bloomberg radio as I finish my commute to work.
Bloomberg is not your typical CNBC-style stock market fluff. They get into the real nitty-gritty of how the markets work, and the guests are very candid about where they see risk and opportunity. It is not at all uncommon for me to come into the office with some reading to do, so I can fully get my brain around what somebody was talking about.
Last Friday, a Bloomberg radio guest used the term "surveillance capitalism" to describe the new business model pioneered by Google, Apple, Amazon, and Facebook.
That description is genius.
When the NSA records and saves every cell phone conversation in the U.S., we get all bent out of shape about how big data is feeding Big Brother our most intimate details. But we will happily let Alexa listen to every single conversation we have within our own homes. We have no problem letting Siri look over our shoulder as we type bank passwords into our iPhones.
1 billion people have a Gmail account. 2.2 billion people are on Facebook — that's 30% of the entire global population and 56% of internet users!
We willingly share with these companies personal data that, if asked about on a job application, would be grounds for a slam-dunk lawsuit.
Do not forget, just a few months ago, it was possible to use Facebook's automated ad tools to send ads to Facebook users who fell into the category "Jew Hater."
This is wrong on so many levels...
Google, Facebook, Amazon, and Apple know your intimate details. They package your desires, habits, and online activities and sell them to advertisers.
It's all because we have given these companies unprecedented access to our lives in exchange for some convenience and gee-whiz gadgetry. And let's be clear about this: They get all this access basically for free.
I mean, sure, Facebook has to buy servers to store everything. And it has to pay programmers to make the website work. Still, Facebook's operating profit margins are right at 50%. Add in income tax, and the net margin is still an incredible 40%.
Crazier still, with Amazon and Apple, we actually pay them to collect our data.
This isn't a small thing. Our intimate details and personal data support $2.7 trillion in market value. The four companies are in the top nine biggest American companies, and three of the top four.
It's pretty obvious that what we think of as "the internet" is really "Google's internet" or maybe "The Internet, as Imagined by Google." Everything runs through Google search. If you're trying to sell on the internet, you'd better meet the finicky parameters of Google's algorithm, or you will simply not show in search results.
Very often we thank Google for this. I remember very well when my email inbox was full of Viagra emails. Google cleaned up the internet for sure. Still, I wish it had a better search engine. Trying to find old articles is virtually impossible...
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"Your Margin is My Opportunity"
So, I Googled that quote, because I wanted to get a little backstory for it, find out when Jeff Bezos said it. I got a bunch of articles for "Top 10 Bezos quotes." Then I tried "when did Bezos say Your Margin is My Opportunity," and I got the same results. The Google search algorithm apparently doesn't want to give me a primary source.
That's pretty interesting. If you think about it, social media hates primary sources. Nobody wants truth, or even a reasoned opinion. It's all a feedback loop deigned to reinforce your own gut feelings, half-baked opinions, and beliefs. Google shouldn't like primary sources, either. Otherwise, you might not want to be limited to The Internet, as Imagined by the Good People at Google.
OK, I realize I've entered into "rant" territory. I swear I had a valid point when I started...
Technology tends to run well ahead of social and cultural understanding. Humans tend to ask "can we" long before they grapple with the question "should we."
And so surveillance capitalism has emerged into a dominant industry in about 10 years, 15 tops. We still don't fully understand its ramifications. But these companies — Google, Facebook, Apple, and Amazon — are in the driver's seat for the U.S. economy and the stock market.
As investors, we should wonder how much more successful these companies could be. The question "Can Facebook maintain a 40% net margin?" is very much akin to the question "Can trees grow to the sky?"
This is absolutely an opinion, based on exactly zero scientific research, but have you ever considered that we might be at Peak Facebook? That there might be a surveillance capitalism bubble?
Does History Rhyme?
European regulators have already hit Google with the biggest antitrust fine ever. And U.S. lawmakers are starting to mull whether these companies really are quasi-monopolies.
We've seen this before. There was a time when Microsoft's business model seemed perfect. Windows made computers easy to use (the PC, as Imagined by Microsoft)...
Then on April 3, 2000, the Department of Justice ordered that Microsoft had violated antitrust laws and had to be broken in two. That week, the share price fell 16%, from $44 to $37. It would be 14 years before Microsoft shares got back to $44.
So I'd pay close attention to the surveillance capitalism companies. Sure seems like they can do no wrong right now...
Until next time,
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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