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Silicon Valley faces make or break moment amid big tech backlash

Gone are the glory days of glowing praise and good PR for big tech companies.
Image: Google
A man looks at his phone at the Google stand at the Mobile World Congress (MWC), the world's biggest mobile fair, on Monday in Barcelona.Pau Barrena / AFP - Getty Images

For years, tech giants and their CEOs could count on glowing praise and friendly media coverage that hyped up just how much their products would change the world.

Those changes are now the subject of growing skepticism from politicians, academics and that same media. Election meddling, concerns about privacy and questions about technology's role in our daily lives have muddied the waters for the Silicon Valley giants, which now face tough questions and scrutiny like they've never seen before.

The technology industry could be in the midst of the biggest corporate backlash in decades. While big banks were the targets of scorn after the financial crisis, public contempt is now focused squarely on Silicon Valley and big tech.

"All of this combined to be a perfect storm," said Jonathan Taplin, director emeritus at the Annenberg Innovation Lab and author of "Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy."

Even some high-profile voices in Silicon Valley, who started their own companies or were early employees at Facebook and Google, agree — and are doing so vocally. A number of early employees from Facebook and Google launched the Center for Humane Technology earlier this month, with the goal of "reversing the digital attention crisis and realigning technology with humanity's best interests."

Salesforce CEO Marc Benioff, an influential figure in the tech community, likened Facebook last month to Big Tobacco and said there's a need for regulation.

"We're the same as any other industry," Benioff told CNBC. "Financial services, consumer product goods, food — in technology, the government's going to have to be involved. There is some regulation but there probably will have to be more."

Facebook appears to already be trying to get in front of any potential regulation in the United States. CEO Mark Zuckerberg has pledged to "fix" Facebook this year to focus on "time well spent." Facebook said time spent by its users on the platform dropped 50 million hours per day after the company retooled its algorithm to focus more on friends and family, and less on publishers and brands.

Big tech may already simply be, well, too big, according to Taplin.

Facebook and Google combined to grab 88 percent of all new online advertising revenue last year, he said, and that may be a problem.

"The original idea of the internet was a very decentralized system and a democratic space where everyone could have a place to talk," Taplin said. "The big three online, Google, Facebook and Amazon, are more and more becoming monopolies, so it is a winner-takes-all business."

Corporate America is also getting in on the tech backlash. Unilever, the multibillion dollar consumer goods company that makes everything from food to cleaning and hygiene products, warned tech giants that it was willing to use its $9 billion advertising budget, much of it spent on Facebook and Google, as leverage to get the tech giants to clean up their acts. Last year, several consumer brands pulled their ads from Youtube after an investigation by The Times of London found that their ads were running next to videos of scantily clad children. YouTube vowed to urgently fix the issue.

Facebook executives have said they're already taking steps to address the same concerns Unilever's chief marketing officer raised at the Interactive Advertising Bureau's annual leadership meeting.

But when Congress called on Twitter, Facebook and Google to testify last year, on Oct. 31 and Nov. 1, none of the CEOs showed up. Instead, each company sent their general counsel to be hammered with questions that were met with little substantive answers.

When Big Tobacco was called to testify in 1994, the companies sent their CEOs.

The backlash overseas

While technology companies have largely avoided regulation in the United States, they're already in the crosshairs of European regulators.

Google was hit with a $2.7 billion fine last year over charges that its search engine unfairly favored its shopping business over competitors. Another EU ruling last year called on Apple to repay the Irish government $15.4 billion in back taxes, over charges the company benefited from unfair tax loopholes — even though the Irish government doesn't want the money.

The EU is also about to establish a new rule in May called General Data Protection Regulation, or GDP, which covers how companies store data, and requires them to alert authorities within 72 hours of a data breach.

Even without regulation being passed in the United States, the new rule is expected to have serious impact on American companies, which could be fined 4 percent of their global revenue or 20 million euros — whichever is higher — if they don't comply.

"The interesting thing is, as the Europeans regulate these platforms, much of that regulation applies to the platforms globally," Taplin said. "The effect of European regulation will be felt here in the United States."

The first big attempt at regulation, the Honest Ads Act, was introduced last year. The bill would require technology companies to be more transparent about who is paying for online ads. It could change the way tech companies, which rely heavily on advertising, conduct business, but four months after it was introduced, it's still lingering in the Senate.

"Slowly but surely, they are coming around to accept responsibility," Taplin said of the big tech companies. "But they are also trying to avoid having any regulations passed."

Re-evaluating the role of technology in our lives

Big tech's business practices are being put under the microscope, but so is the presence of technology in our daily lives — particularly with the emergence of smartphones.

Last month, active investor JANA Partners and the California State Teacher's Retirement System sent Apple's board of directors a letter asking them to "think differently" when it comes to kids.

The letter pointed to a number of studies purporting to show the effects technology has on children and teenagers.

"There is also a growing societal unease about whether at least some people are getting too much of a good thing when it comes to technology, which at some point is likely to impact even Apple given the issues described above," the letter said.

The groups said there is "no good reason why you should not address this issue proactively" and noted the notoriously secretive company could perhaps already be working on the issue.

Apple has had parental controls available in iOS, the operating system used on the iPhone, for the past decade. A statement issued by Apple last month, in response to the letter, said the company has "always looked out for kids ... while also helping parents protect them online."

In addition, Apple's statement said there are "new features and enhancements planned for the future, to add functionality and make these tools even more robust."

The former Facebook and Google employees who mobilized to start the Center for Humane Technology are working alongside Common Sense, an advocacy group focusing on children and technology.

But addressing those concerns could mean rethinking what has made tech companies so successful. Tech business models "often encourage them to do whatever they can to grab attention and data and then to worry about the consequences later, even though those very same consequences may at times hurt the social, emotional and cognitive development of kids," James Steyer, CEO and founder of Common Sense, said this month. He called on the industry to "change its ways and improve certain practices."

And if ever there was an inflection point, and a critical and necessary place to do it, that time is 2018, according to experts. How tech companies handle this year could potentially be do or die.

"Initial reaction from the platforms was, 'We have nothing to do with this, or this was just imaginary,'" Taplin said. "Then slowly but surely, they are coming around to beginning to accept some responsibility."

"What they are really trying to do is avoid having any regulations passed because they have lived in a world without regulation for 25 years — and they don't want it to start now," he said.