Fall of Google? Investigations Heating up, Privacy Concerns, USAF Cloud Contract

Fall of Google? Investigations Heating up, Privacy Concerns, USAF Cloud Contract

February 4, 2020 – A flurry of news regarding the U.S. & U.K. antitrust investigations, as well as privacy concerns, search engine dominance & manipulation among other issues like financial overvaluation may herald the end of the Google era.

According to a January 23, 2020 article in Forbes by Sergei Klebnikov entitled Investing in Facebook, Apple, Netflix & Google Is A Big Mistake Right Now, Says One Portfolio Manager,’ there are potential red flags for investing in the FANG companies this year.

High-growth technology behemoths like Facebook, Apple, Netflix and Google—the FANG stocks—have boosted the market in recent years, but their skyrocketing valuations have led investors to ignore the costs and risks of these businesses, according to a portfolio manager at a $13 billion dollar investment firm.

‘Investing in FANG stocks today is similar to stepping on the gas while you drive around a bend and admire the view in the rear view mirror,’ says Micky Jagirdar, a senior vice president and co-portfolio manager of Global Concentrated Strategy at Ariel Investments. ‘There’s too much focus on past performance and growth.’

These giant stocks have a disproportionate influence on the overall market, and the hype around them has resulted in ‘crazy investor behavior with respect to FANG valuations,’ says Jagirdar. 

He points out that while these big tech companies have enjoyed impressive revenue growth in recent years, it hasn’t translated to free cash flow growth or good dividend yields. Since investors traditionally focus on earnings-per-share or price-to-earnings ratios, they’re missing important metrics such as capital expenditures, which show that growth is coming at a cost, Jagirdar says.

With shares of FANG stocks trading at high premiums in an already-overvalued stock market (the four companies have a whopping average price-to-earnings ratio of 64, while the S&P 500’s ratio is 22) it’s clear that these technology giants will need higher spending to keep up their growth momentum, he describes. – Forbes

Google is an advertising-dominant business. In recent years it has had to rely on mergers and acquisitions to maintain its image of being a high-growth company. The antitrust investigations into Google’s alleged anti-competitive business practices may also effect this.

The Verge today reported a privacy breach in Google Photos. The article entitled ‘Google Admits it Sent Private Videos in Google Photos to Strangers‘ goes into detail about the breach:

Google is alerting some users of its Google Photos service that they’ve had their private videos sent to strangers by the search giant. Google’s Takeout service, that lets people download their data, was affected by a ‘technical issue’ between November 21st and November 25th last year. It resulted in a small number of users receiving private videos that didn’t belong to them.

Google’s nonchalant email alerting users doesn’t provide any details on how many people were affected, nor the amount of individual videos that were distributed incorrectly per account. Google fixed the issue after five days, and 9to5Google reports that less than 0.01 percent of Google Photos users who used Takeout were affected. Google Photos has over 1 billion users, so even a small percentage will impact a significant number of people. Google has apologized ‘for any inconvenience this may have caused.’

‘We are notifying people about a bug that may have affected users who used Google Takeout to export their Google Photos content between November 21 and November 25,’ explains a Google spokesperson in a statement to 9to5Google. ‘These users may have received either an incomplete archive, or videos — not photos — that were not theirs. We fixed the underlying issue and have conducted an in-depth analysis to help prevent this from ever happening again. We are very sorry this happened.’ – The Verge

This is not the first security breach suffered by Google recently.

Diane Bartz of Reuters yesterday claimed in a report, ‘Justice Department Meeting State AG Offices Tuesday to Discuss Google: Sources,’ that suggests the possibility of collaboration.

Justice Department officials will meet on Tuesday with representatives of state attorneys general to discuss their investigations of search and advertising giant Google, according to sources familiar with the plans.

The meeting is in the afternoon, according to one source, and will include officials from six or seven states, including Texas, according to a second source familiar with the matter.

The Justice Department and nearly all state attorneys general have opened investigations into allegations that Alphabet’s Google has broken antitrust law. The probes focus on search bias, advertising and management of Google’s Android operating system.

Google, Facebook, Amazon and Apple are all the focus of federal, state and congressional investigations following complaints that the four tech giants abused their clout in dealings with smaller companies.

The probes are being carried out by the Justice Department, the Federal Trade Commission, state attorneys general and the House Judiciary Committee. U.S. Attorney General William Barr has said he would like to see them wrapped up this year. – Reuters 

I have concerns about the committment and depth of the investigations considering that the Attorney General William Barr is claiming he would like them wrapped up this year. This doesn’t address what they might do to prevent election inference nor allow time for a real probe.

An article in the Houston Chronicle by Erica Greider also raises concerns about the case. Entitled ‘Texas Attorney General is Oddly Determined to Pick Fights with His Own Constituents,’ the article claims the AG leading the Google antitrust probe, “has been under indictment since 2015, facing three felony securities fraud charges related to past business ventures” which he claims were politically motivated.

Texas Attorney General Ken Paxton should get a new job, perhaps.

Granted, Paxton might struggle to find a lucrative position in the private sector. He has been under indictment since 2015, facing three felony securities fraud charges related to past business ventures (he contends the case, which has been inexplicably delayed for years, is politically motivated). Meanwhile Paxton seems to enjoy the public platform his office provides, as well as the chance to file lawsuits challenging Obama-era environmental regulations and the Affordable Care Act…

…And more importantly, Paxton doesn’t just represent conservatives, or Christians.

‘The attorney general is supposed to be serving all Texans, and he’s not doing that,’ says Angela Hale, a senior advisor to Equality Texas.

Paxton, it should be said, is not solely responsible for the politicization of the attorney general’s office. In a sense, he is simply following in the footsteps of his predecessor, Greg Abbott, who served three terms as the state’s chief law enforcement officer before deciding to run for governor in 2014.

As attorney general, Abbott famously took pride in his record of picking fights with the federal government, particularly during the presidency of Barack Obama, a Democrat. And both Abbott and Paxton seem to have turned their sights on other adversaries since the election of Donald Trump, a Republican, in 2016. – Houston Chronicle

It’s unclear whether or not these pending cases will effect the Texas attorney general’s ability to conduct the investigation.

Google appears to continue to insinuate its tentacles into more and more industries and organizations, such as the World Health Organization and education.

Google Classroom will bring the tech giant into children’s classrooms across the nation.

And then news came that one of the top Department of Justice officials overseeing the antitrust case was recusing himself due to a potential conflict of interest.

It’s also interesting timing that Google just released its earnings for the besieged YouTube, which has been under fire for its community guidelines and Terms of Service (TOS) changes, lack of accountability or transparency and the absence of creator advocacy.

In his blog post on Google’s manipulation and obfuscation, Mr. Kint notes that:

People ask me why I think the ‘duopoly’ conversation resonated so profoundly when DCN began to use the term in 2015. I think it’s because publishers had long-sensed something was wrong with the widely proliferated and utterly misleading growth stats of digital advertising. They were ready for someone to call b.s. and start open conversations about it because many weren’t seeing the purported ‘growth.’

I’ve been told that executives at Google and Facebook dismiss the term duopoly as a marketing gimmick invented by publishers to go after the two companies. They are dead wrong. This discussion didn’t surface in some public relations brainstorming meeting. Sure, it’s useful if you can describe an entire marketplace in one word. But at the end of the day, the duopoly label resulted from simple number crunching, the results of which challenged conventional wisdom on who was actually benefiting from the growth in digital advertising. Perhaps now is a good time to dig deeper and take a closer look at some Google math.

A whopping 50% of the US Digital Advertising Market is recorded as a single line in Google’s financials, deftly titled ‘Google Properties Revenues.’ This single line includes advertising on Google Search, YouTube, Gmail, Google Shopping and more and will surpass $100 billion this year – a number larger than the entire US digital advertising market. Let that sink in for a moment and then consider the fact that we hardly know anything else about it…

…There is also near zero transparency in how this revenue is shared with the ecosystem. In the case of major cable companies, we know very clearly how much they pay each year, measured in the tens of billions, to the programmers who create valued news and entertainment for their services. This is helpful information, and revenue. Transparency is a hallmark of a healthy ecosystem.  On the other hand, we have no idea how much Google spends on news and entertainment because they bury this programming expense in multiple places. In terms of YouTube, we’re left to run our own analysis and we only know the members of DCN see less than $100 million of the billions that YouTube is raking in.

We also know that Google is using billions in cash to shore up its monopolies. Google invests heavily to secure the default position over any browser that competes with its ‘free’ web browser, Chrome, including Apple Safari and Mozilla Firefox. It subsidizes its lock on a majority of mobile devices through its ‘free’ operating system, Android. We also know that billions go toward populating the long-tail of the web with Google’s AdSense text links. Once again, all of this undisclosed money is lumped together and buried in a few lines of Google’s financials. This leaves everyone in the dark while making it easy for Google to spin its way around those who question it – in Washington and in the press.

Heck, we even learned that Google pays off ad blockers to whitelist its own ads. But once again: We don’t know how much. This is a distasteful situation considering the leadership position Google has chosen in the future of solutions for ad blocking. Google is literally blocking publishers’ ads while paying an undisclosed amount to have its own ads whitelisted. Say what now?- Jason Kent

Jason is one of the most astute observers of Google and I think he is largely correct in his assessment that Google is manipulating the numbers. He rightly asks “where have the billions gone?” and where is the real transparency?

Again, this analysis is spot on. Google has many problems right now and they have not done enough to address them, in some cases doubling down on failed policies.

We also have Bloomberg reporting on the recent privacy and international antitrust issues the company is facing.

The article goes into detail about Google’s market dominance and ability to disrupt entire industries on a whim.

One has to wonder if the DOJ official who just recused himself from the subject case and who was a former Google lobbyist himself, had a conflict of interest in relation to the policy experts being flown into Washington.

Other, better news for Google this week was the announcement of the U.S. Air Force awarding of a $2 Million Cloud contract to the company:

Frank Konkel of NextGov reports in an article entitled ‘Air Force Taps Google for IT Security Assessment‘:

The Air Force has awarded Google’s cloud business a $2 million contract it hopes will ultimately provide its tens of thousands of airmen more secure, higher-quality data.

Announced Friday, the other transactional authority contract is part of broader Air Force Enterprise IT-as-a-Service, or EITaaS, effort to reduce risk and test the feasibility of commercial solutions. EITaaS covers network-as-a-service, end-user services and computing and storage capabilities, and under the contract, Google will conduct technical assessments to determine whether alternative capabilities can meet Air Force requirements.

‘We want to understand how Google provides secure and reliable access to data,’ Capt. Trey LaSane, EITaaS project officer in the Command, Control, Communications, Intelligence and Networks Directorate, said in a statement. ‘We ultimately want to enable a more secure platform, where we are able to identify users and ensure they have the appropriate permissions to connect them with the data they need.’

According to the statement, Google will assess the Air Force’s current IT landscape and measure the digital experience of airmen, who make up the majority of its user base. The Air Force also expects Google to develop a plan to integrate commercial solutions at an Air Force test site. – Frank Konkel, NextGov

Google already has a close working relationship with the U.S. Government. In fact, it appears to be an extension of it. From the very founding of Google, the company was gifted with taxpayer subsidies and grants from the CIA and NSA.

Perhaps the end of the Google era is upon us. Members of the general public seem to be more concerned with big data companies than ever before. With complaints about workforce discrimination, sexual harassment and abuse of the H1B-visa workers, Google has much to be worried about.

Politicians are calling for the behemoth to be broken up. The iconic co-founders, Larry Page and Sergey Brin have also recently resigned from the company and turned the reins over to current CEO Sundar Pichai. With the increased scrutiny of the company and questions about its work with Communist China, its possible the company could be broken up.

Attorney General William Barr has claimed he intends to hold these tech companies to account. Whether or not that actually comes to pass, remains to be seen.

This story is still developing, please check back for updates. 

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