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Bonfire of the vanity platforms | accountingweb
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Bonfire of the vanity platforms

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Tech industry high rollers have hit a patch of rough luck that has cost them billions and billions of dollars. But have the stakes become even higher for the rest of us?

3rd Nov 2022
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“The bird is freed,” tweeted tech billionaire and Tesla founder Elon Musk last week to signal the conclusion of his byzantine takeover of the social media site Twitter for $44bn.

Fuelled by an “absolute commitment to free speech”, the tech mogul changed his mind after making his initial bid and then changed it back again after the jilted suitor launched a punitive damages claim. Such prevarication is not unknown among Conservative politicians and party members, but you would hardly expect it from the world’s richest man.

Once he got his hands on Twitter, Musk fired its CEO, CFO, policy chief and general counsel. Next on the agenda could be his publicly announced intention to allow the former US president Donald Trump back onto the messaging service. 

Meanwhile, almost before he was out the door, Twitter founder and former CEO Jack Dorsey was unveiling plans for Bluesky Social, his new, experimental open-source social media community.

Compelling psychodrama

While it makes for a compelling psychodrama, the transformation of one of the internet’s defining social media platforms into a Silicon Valley oligarch’s vanity project has not come at a good time for California’s tech elite. Many of them saw billions knocked off their personal fortunes after tech share prices crashed last week.

The share price of Google's holding company Alphabet is down a third over the past year, and slumped nearly 10% last week when the company reported its fifth consecutive quarter of slowing sales growth. More disturbingly for the parent company, YouTube experienced its first-ever drop in advertising revenue during Q3. 

Two days later, the share price of Facebook owner Meta took a 25% nosedive on news that profits at Mark Zuckerberg’s social media company had halved during the third quarter. As with YouTube, Meta’s social platforms Facebook and Instagram were learning for the first time what happens when economic conditions force advertisers to cut back on spending.

And, lest we overlook the world’s second-richest net tycoon, Jeff Bezos, the shares in his Amazon e-commerce platform followed the social media platforms downwards after predicting lower than expected sales for the crucial fourth quarter of 2022. 

Wish fulfilment

Many industry watchers have been pointing out how tech stocks have been riding a wave of aspirational wish fulfilment for several years, so it is not surprising to see the long-predicted correction occurring after some initial contacts with economic reality.

But there’s more to this story than enjoying a bit of schadenfreude at the misfortunes of California’s tech elite. Like the house price index, the stock market is a pivotal element of the US national psyche. There’s a general glow of satisfaction as long as it’s on the rise, but investors begin to lose the plot if the value of their assets starts moving in the wrong direction.

Life on the burning platforms

There’s another reason to pay attention to the trials of the FAANG tech giants (Facebook-Amazon-Apple-Netflix-Google). These platform players and their mega-rich founders are the pinnacles of a generation that has turned the digital economy into a near monopoly.

In my own industry, media, Google generates more revenue in a month from pay-per-click ads against the search term “MTD” than AccountingWEB makes in a year. Facebook, Gumtree and Craigslist between them have taken over the classified advertising market that used to sustain most local newspapers.

Elsewhere Apple and Google’s app stores, Amazon’s e-commerce juggernaut and the likes of Uber and AirBnB haven’t just disrupted traditional business models, they’ve bulldozed swathes of bricks and mortar industries. The network really has become the economy.

The household-name social media platforms, meanwhile, have done much the same to news reporting and public discourse. As I wrote about Mark Zuckerberg’s metaverse play earlier in the year, the platform players have become or are trying to make themselves the financial infrastructure for the digital economy.

Keeping pace

In this week’s podcast, Jason Croke raised the point about how the Uber Supreme Court decision illustrates how law and regulation have struggled to keep up with the pace of digital transformation. And the VAT settlement that prompted his comments revived the ongoing debate around how these extra-national cloud-based platforms are taxed.

There’s no way I can weave all those threads into a single, 800-word column, but the recent market wobbles are a reminder about the interdependence and sustainability risks we face if these powerful and unrestrained entities become unstable. Tech investors have been playing at a giant digital casino for the past decade. But what kind of economic wreckage is going to be left behind when the roulette wheel stops spinning? And who’s going to pay the bill to clean up the mess?

 

Replies (3)

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By Hugo Fair
03rd Nov 2022 19:53

And at no 1 in this week's Rhetorical chart ... "And who’s going to pay the bill to clean up the mess?"

I paraphrase but as the Branson said many moons ago "Once you've got your first billion, only a fool invests his own money in each future opportunity".
Or, in other words, those that run the casinos play with the punters' money - and take a portion of their gains (but crucially none of the losses).

Thanks (3)
Tornado
By Tornado
04th Nov 2022 11:42

"And, lest we overlook the world’s second-richest net tycoon, Jeff Bezos, the shares in his Amazon e-commerce platform followed the social media platforms downwards after predicting lower than expected sales for the crucial fourth quarter of 2022."

I see from my Account that I have been a customer of Amazon for over 20 years, but I am now becoming disillusioned with the system.

I see many of my clients paying very high commissions and fees to Amazon for the service they provide which reduces their profits so much that it hardly seems worth it.

The alternative is to sell product at a higher price which means that when I, as a consumer, look at what is on offer, I can no longer be sure that I am getting a good deal. In addition, underhand algorithms can trace my purchasing history and show the price of a product to just me at a higher price than others.

The worst problem is that there are specific delivery instructions on my account but Amazon persistently try and deliver at times where there is no one at the delivery address, and last week, a parcel containing a valuable item was left on the doorstep of my office and it was only because I looked by chance at my CCTV that I could go and retrieve it.

I try to use Amazon Lockers now as that system works well but even that is becoming a problem now as there are often no spaces left in the lockers or the product being purchased cannot be delivered there.

This is not the service that I have been used to for many years and I now think twice about placing an order through Amazon. There are still reliable alternatives available and I am looking at these more closely.

Thanks (0)
the sea otter
By memyself-eye
07th Nov 2022 13:39

Tech stocks were heading for a fall once the flight to value gathered speed - recessions tend to do that. Boring recession proof stocks like Aviva, with its' 8% yield and share buyback programme suddenly (or maybe gradually) become attractive.
Twas ever thus.

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