Is Elizabeth Warren Really an Existential Threat to Facebook?

Senator Elizabeth Warren, a leading candidate for the Democratic presidential nomination, has made Big Tech a major target of her campaign. Breaking with more moderate Democrats, Warren has called for the outright breakup of large tech companies, including Amazon.com Inc. (AMZN, Financial), Alphabet Inc. (GOOG, Financial) (GOOGL, Financial) and Facebook Inc. (FB, Financial). As we have discussed in previous research notes, the potential for antitrust action against these companies represents a serious black swan risk for investors.

While all the tech giants could find themselves in Warren’s crosshairs post-election, Facebook appears to be the most vulnerable. The social media behemoth has earned plenty of negative political and media coverage for its perceived laxity in managing “fake news” and other perception-manipulating posts and ads. Heading into an election year, these threats will only mount.

Existential threat

Warren may not win the Democratic nomination, but her call to break up Big Tech will not die with her candidacy. While more moderate Democratic hopefuls like former Vice President Joe Biden are not likely to follow her lead, other left-leaning candidates will. Indeed, some already have, including Senator Bernie Sanders.

Facebook CEO Mark Zuckerberg believes the threat is serious. In a leaked recording of a speech to employees on Oct. 1, Zuckerberg said Warren’s efforts represent an existential threat to Facebook:

"You have someone like Elizabeth Warren who thinks that the right answer is to break up the companies...if she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge. And does that still suck for us? Yeah. I mean, I don’t want to have a major lawsuit against our own government...But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight."

That was the first time Zuckerberg was caught speaking about Warren as a credible threat. The presidential hopeful was quick to capitalize on the leak, taking to Twitter to further beat the drum of anti-Big Tech sentiment:

“What would really ‘suck’ is if we don’t fix a corrupt system that lets giant companies like Facebook engage in illegal anticompetitive practices, stomp on consumer privacy rights, and repeatedly fumble their responsibility to protect our democracy. I'm not afraid to hold Big Tech companies like Facebook, Google, and Amazon accountable. It's time to #BreakUpBigTech...If Facebook finds my scrutiny uncomfortable, here's what Mark Zuckerberg and his team could work on: Ending his company's illegal anticompetitive practices; Protecting consumers' privacy instead of Facebook's profits; Ensuring Facebook isn’t undermining our election security.”

Danger of isolation

One problem facing Facebook is that, despite her antipathy toward Big Tech, Warren is quite popular in Silicon Valley. According to Vox Recode’s October canvass of Silicon Valley fundraisers, the senator from Massachusetts remained highly regarded, and has even gained ground among liberal tech grandees:

“Warren is making significant inroads with some of tech’s wealthiest Democrats. That progress would have been unthinkable just six months ago after she called for the industry’s iconic companies to be split asunder. Warren has not moderated her at times vitriolic rhetoric toward Silicon Valley. But tech elites are not, as often caricatured, single-issue voters driven by tech policy. And the two dozen tech executives, investors, and veteran fundraisers who spoke with Recode outlined three key reasons why their industry is making this unexpected shift toward Warren: They say they respect her policy rigor. They see her as less radical than once imagined (and especially when compared to Bernie Sanders). And perhaps most importantly, she has a reasonable path to winning the nomination, and there’s nothing Silicon Valley loves more than a winner.”

Silicon Valley’s desire to ingratiate itself with Warren is understandable. However, as Vox’s Teddy Schleifer has pointed out, these efforts have largely failed to alter Warren’s political position:

“Silicon Valley has developed some strange new respect for Elizabeth Warren. The only problem? Warren absolutely refuses to play the Silicon Valley donor game. At all.”

While other big players in Silicon Valley have begun to make their peace with the possibility of a Warren presidency, even if they have not yet figured out how to get her on their side, Facebook has found itself under escalating political fire from the candidate and her allies. An isolated company is a vulnerable one.

Enemy of the republic

Zuckerberg has hardly done himself or Facebook any favors in terms of public and political perceptions. His decision to push back against calls by politicians to restrict political ads on Facebook has made him more enemies, and raised the specter that the social media mogul may not be an ally of open, democratic political discourse. Indeed, his longtime fascination with Augustus Caesar is especially alarming. In a 2018 interview with the New Yorker, Zuckerberg reflected on his love of the first emperor:

"Basically, through a really harsh approach, he established two hundred years of world peace. What are the trade-offs in that? On the one hand, world peace is a long-term goal that people talk about today. Two hundred years feels unattainable."

Praising Augustus – the man who ended the Roman Republic and became the first Roman emperor – is arguably an especially bad look for a business leader in a political climate that seems increasingly to flirt with anti-democratic sentiment. As Business Insider reflected in a 2018 article, Zuckerberg’s Augustus obsession may raise eyebrows in policymaking circles:

“Zuckerberg rightfully concluded that the Pax Romana ‘didn't come for free’ and vaguely acknowledged that Augustus ‘had to do certain things’ in order to secure the peace. Today, people around the world are beginning to question the impact that tech giants like Facebook are having on democratic societies. That's not to say that Zuckerberg is a calculating ancient despot like Augustus. But social media platforms are having a real impact on the political realm.”

Verdict

Facebook looks very vulnerable right now. Grueling public and media scrutiny will likely wear on the company, especially as the long presidential election cycle kicks into high-gear in 2020. Warren is hardly guaranteed to win either the Democratic nomination, or the general election for that matter, but that is not terribly important in the long run. Of greater concern is the normalization of the notion that Big Tech can – and perhaps should – be broken up. If that idea gains widespread appeal, it could mean serious trouble for many highly-valued tech stocks.

Disclosure: No positions.

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