The End of Meta's Beginning

That $6mm that Meta and YouTube are paying out after being found liable for creating addictive platforms for children is the sort of money you’d think Mark Zuckerberg carries on him to a Bachelor party. Or maybe his assistant does. The second order effects of the judgement, however, aren’t going to be a mere rounding error. I found myself thinking of Winston Churchill famous quote after the defeat of Rommel’s army in North Africa: “This is not the end. This is not even the beginning of the end. It is, perhaps, the end of the beginning.”

And in the beginning, internet publishers were shielded – via Section 203 of the Communication Decency Act of 1996 – from liability for user generated content. They still are, with most courts siding with Big Tech Meta in particular, has impressively maintained a balancing act by claiming to be something akin to a communications utility when it’s business model is essentially an advertising company sucking up user data to short-circuit brains into mainlining free content. It’s impressive technology and an outstanding model.

And most people can see the havoc these platforms are creating, and that children are getting the worst of it. Articulating the damage of a technology that most of us don’t understand, however, is slippery. Laws are written, narrow-context, and specific. Generally speaking, if you can’t articulate a crime or causality of damages, the law is of little use.

Lawyers have taken a novel argument that doesn’t address shielded content, but the endlessly scrolling platforms that are addictive by design and targeted at children. The $6mm verdict came the day after a jury in New Mexico found Meta liable for the way in which it’s platforms endangered children, including sexually explicit material and contact with sexual predators. That resulted in an order to pay $375 million in damages. Parent’s have long thought of social media as a fire-hose of crazy they are unable to shield their children from, and now they’ve found a chink in the armor. Expect them to press their advantage. Thousands of lawsuits are tee’d up. There will be more.

While it isn’t that hard to buy-off our august lawmakers, they do need to stay within the elite enclosure to make themselves available for a good price. The last broad-based electoral upset was happened to the Democrats when people got feed up with what the progressives were teaching children at school. It’s hard to see how this doesn’t end up with tighter regulation following precedents in Australia, the EU as well as countries mulling over similar legislation across Latin American and Asia.

The Knock-On

To be clear, these damages so far will barely move the needle for these cash cows. But is does feel like social media is having its Tobacco Moment - where in the face of legislative inaction, juries take matters into their own hands. The second-order effect may be that children step outside, blinking at that big yellow thing in the sky, talk to each other like humans and develop a taste for hose-water. Like the lawsuits, it won’t be the only knock-on.

Social Media usage peaked in 2021, and has been in a steady, if gradual slide since. Changes to the platform - through legislation or voluntary risk mitigation – to make them less addictive will only speed up this trend. And that will pinch revenues. Meta and Google are advertising companies, and that is how they have that ocean of money to plow into a splashy AI build-out - from data centers, model development, computing and the energy infrastructure needed to power the whole ecosystem.

The Big Tech “Mag 7” is already looking a little winded as investors rethink the return on the astronomical cost of a technology build out. The danger is that in the short-term depreciation costs stemming from new investment in AI will keep rising as revenues take longer than expected get going. And for Meta and Google, driven by eroding ad revenue may feel the pinch harder before the theoretical AI cash bonanza starts.

That the stock market is both expensive and being driven-by a few outliers is already a precarious situation. Reduce the outliers to a number you can count on one hand makes it trickier still.