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Last week the biggest U.S. Internet companies flexed their earnings muscles and added billions in market value. This week expect these leaders to experience what all who achieve great success always do: extra scrutiny.
As The Economist observes in this comprehensive roundup, the era of gooey-eyed support for the wonders of the Internet age are over. Amazon’s (AMZN) destruction of everyone else’s business isn’t cute anymore. Facebook (FB) and Twitter (TWTR) made for a friendly platform for Russian propagandists. And Google (GOOGL) has hollowed out the traditional media industry, threatening democracy in the process.
The spotlight grows harsher. This morning a human rights group associated with the World Economic Forum releases a long white paper arguing that as “an alternative to government regulation … companies like Google, Facebook, Twitter, and Microsoft (MSFT) should assume a more active self-governance role. Corporate leaders need to take greater responsibility to vindicate such core societal interests as combating harmful online content and elevating journalistic reporting and civil discourse.” Already, a Republican lobbyist has circulated a presentation comparing today’s Internet moguls with the robber barons of yesteryear. On Thursday, the general counsels of Google, Facebook, and Twitter will testify before the House Intelligence Committee’s “Russia Investigative Task Force.”
It doesn’t sound like a lot of fun for them.
The New York Times had a good piece last week on Square, the payments company started by Twitter co-founder Jack Dorsey, which we highlighted in the newsletter on Thursday. I similarly observed nearly two months ago, in a piece called “How Everyone Missed Square’s Comeback,” that low-profile Square (SQ) had more than outshone troubled Twitter. The Times piece, while solid, had some unfortunate timing, given that it predicted Square could shortly surpass Twitter in market value. It appeared just before Twitter turned in a quarter that pleased investors, sending its value to nearly $16 billion versus Square’s $13 billion.
If, like me, you’re trying hard to understand China’s Internet giants, I highly recommend a month-plus-old piece in The Economist that discusses the arcane maneuver many of them pulled to go public outside China while maintaining controls for their Chinese founders. The dense but important piece calls this structure, known as variable interest entities, or VIEs, “a polite legal fiction that papers over serious problems.” It’s one of those techniques that works great—until it doesn’t—and therefore merits close attention.