Facebook Inc. (FB), Alphabet (GOOGL) in Totally Different Positions With Fake News

Date Published: 2016-11-15

Author: Ophir Gottlieb

Written by Ophir Gottlieb

BREAKING
Both Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOGL) just released information on how they will try to curb fake news proliferation on their digital properties. While the approaches are similar, the impact of fake news for each of these tech giants is totally different.

STORY
Reuters reported this morning that "Alphabet Inc's Google (GOOGL) and Facebook Inc (FB) on Monday announced measures aimed at halting the spread of "fake news" on the internet by targeting how some purveyors of phony content make money: advertising."

The goal here from each firm is to prevent advertising powered by their engines from appearing on fake news articles and therefore to curb the benefit of creating that fake news. A reasonable belief is that when the monetary incentive has been blocked, the activity in and of itself will stop or at least be crippled.

While that side of the story is likely pretty close to correct, although not at all holistic, it's the other side of the phenomenon that has enormously different ramifications for each firm.

FACEBOOK INC. (NASDAQ:FB)
Facebook Inc. CEO Mark Zuckerberg said that 99% of the news on Facebook was likely authentic and that "overall, this makes it extremely unlikely hoaxes changed the outcome of this election in one direction or the other."

But, there is serious trouble already with this analysis. It is certainly possible, if not likely, that even if 99% of news is authentic, that the 1% that is not authentic could have substantially larger reach. As a simple arithmetic example, assume there are 100 news articles, and one is fake. But, assume the 99 authentic stories get 100 pageviews while the one fake story gets 1,000 pageviews.

This is a totally contrived scenario, but in this case, the actual reach would be 9.2% for inauthentic (fake) news on Facebook Inc. (NASDAQ:FB) calculated as 1,000 page views out of a total of 10,900. It's easy to see how 1% fake news could have a massively larger footprint on the populace at large using Facebook for news. But that's not the problem here for Facebook.

The ad dollars from the fake news are likely trivial to the enterprise at large, and this boils down to a PR issue for Facebook, surrounding issues of corporate citizenry. Beyond that, it is likely a benefit to Facebook to have fake news. It's simply the human condition to seek confirming evidence of our beliefs -- we just can't help it. Whether the news is real or not, if it fits nicely into a narrative that someone likes, then it will be read, and distributed. That likely increases engagement on Facebook.

I believe Facebook would wipe out fake news in one fell swoop if it had the capacity to do so with a magic button, but in the meantime, the problem it faces is one of perception, not one that affects the bottom line.

But, it's totally different for Alphabet Inc. (NASDAQ:GOOGL).

ALPHABET INC. (NASDAQ:GOOGL)
The issue for Google is much larger and totally different. While the ad dollars from fake news are also likely trivial to Google, the issue goes well beyond corporate citizenry and perception.

Facebook is social media and the more content the better as long as it engages its users. Google is not social media, it is a content discovery engine. In its most basic construct, Google Search is the collection of all of human thought for all time accessible instantly. Search and go. This reality has made Google the second largest company in the world. But there's a problem now.

The fake news is showing up in Google searches. Never mind the ad dollars and the banning of those sites from the Google advertising ecosystem, Google Search is infected. Here's a snippet from a Reuters article:

   "

Google's move similarly does not address the issue of fake news or hoaxes appearing in Google search results.

That happened in the last few days, when a search for 'final election count' for a time took users to a fake news story saying Trump won the popular vote. Votes are still being counted, with Democratic candidate Hillary Clinton showing a slight lead.

"   

Source: Reuters

The difference between Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOGL) here is enormous. If Google cannot get a hold of the proliferation of fake news, a punitive monetary move will not fix the crown jewel that is Google Search. And friends, if the sanctity of Google Search is compromised, Google faces existential risk.

WHAT NOW?
The different risks that Facebook Inc. and Alphabet Inc. face are obvious to each company. Google has urgency here -- urgency to clean Google search, beyond just corporate governance. Facebook may have a PR problem, but all of the data we have seen shows that engagement on Facebook (and Twitter) during the election was through the roof. There is no existential threat here for Facebook.

It's likely, though not assured, that the urgency that Google will feel from a corrupted core product (Google Search) will make the firm more aggressive in combating the fake news phenomenon. While both firms face risk, there is a ticking clock for Google, as anyone who watched the small startup take shape remembers when it became the search champion of the world less than two decades ago.

Watch for Alphabet Inc. (NASDAQ:GOOGL) to act swiftly, aggressively, and continually on this issue and take the lead in efficacy over Facebook Inc. (NASDAQ:FB).

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