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Modifications to Section 230 could create a ‘greater risk of liability’ for Big Tech: NYU Professor

NYU Professor of Marketing Scott Galloway joins Yahoo Finance Live to break down what modifying Section 230 could mean for Big Tech.

Video Transcript

AKIKO FUJITA: The CEOs of Facebook and Twitter grilled for more than four hours on the Hill yesterday as they testified before the Senate Judiciary Committee on the issue of content moderation. Republicans and Democrats divided yet again, with Republicans talking about censorship on the platforms, while Democrats say more needs to be done to rein in hate speech and disinformation.

Let's bring in Scott Galloway. He is a professor of marketing at NYU. Scott, it's always good to talk to you about these big tech issues. You know, yesterday, it seemed like sort of the similar arguments that we've heard from previous hearings coming out yet again. But I'm curious how, as you look ahead to a Biden administration, how you think the regulatory environment shifts for these big tech companies.

SCOTT GALLOWAY: Yeah, it definitely feels like Groundhog Day at this point when you look up and you see in your Twitter feed testimony from Dorsey or Zuckerberg in front of a senator or a congressperson posing for the camera with a statement disguised as a question.

So in terms of what likely happens, I think you're probably going to see a modification of Section 230, where there'll be some carveouts around things such as national defense or health or security-related issues that create greater liability or greater risk of liability for the platforms. I mean, you've seen these platforms, all of a sudden, find God.

And to their credit, they've done a better job of labeling misinformation around the novel coronavirus. The question is, how come they haven't done it for the last 10 years? So the shadow of a Biden administration is casting a long shadow. And I would argue it's already having more impact on their behavior than anything previously.

AKIKO FUJITA: When you talk about those carveouts with Section 230, how is that likely to move through Congress, especially given how divided it's going to be again? I mean, when you look at the arguments from yesterday, it doesn't feel like there's been a whole lot of movement to the middle on where either party feels like Section 230 should go.

SCOTT GALLOWAY: Yeah, but they're bipartisan in their dislike for these platforms. And even the president was calling for the removal of 230. So anything that is seen as holding these firms more accountable I think will likely get enough support from both sides to pass. Something's definitely going to happen here. They have become-- they've kind of gone from everyone's favorite rock star.

The biggest argument four years ago was, who is-- which of these CEOs or Sheryl Sandberg was going to be the Democratic nominee for president, to which company is a bigger menace to society? I mean, it's just striking. We don't notice it because the changes have been incremental. But in the last four or five years, these companies have been hauled in front of Congress more often than to big tobacco or big oil ever was.

So something's definitely going to happen. The legislation, how it's crafted, what's required to get it passed, I don't know. But I think that'll probably be one of the first things you'll see in the first year of a Biden-Harris administration.

ZACK GUZMAN: Yeah, professor, it wasn't too long ago, I remember Zuckerberg's tour around America, his listening tour as people were talking about potentially him running for president, too. It's a good flashback. But when we think about the pressure now mounting, in terms of these people not just being, you know, powerbrokers in America, but also the CEOs of the companies themselves, you've been pretty outspoken about Jack Dorsey's failings in leading Twitter. I'm curious to get your take on what you made of his appearance before the Senate yesterday and where you think he should be changing his role in how he's running that company now.

SCOTT GALLOWAY: Well, let me start with the last part. The change of role, should he be-- he should be fired. Any board that lets a part-- I mean, this is a big company with thousands of employees. It plays an important role in the discourse of society. And about 1:00 PM every day, he peaces out and he goes to another firm. I'm on the board of several or been on the board of several public companies, and I've never met an individual who can manage a company like this part-time.

So unless there's some superpowers we're not aware of, I think it's just, starting right there, the fact that he's a part-time CEO, and 89% of his wealth is tied up in his afternoon job, renders him totally incapable of providing the attention and leadership that this company needs. And distinct of to the regulatory conversation, I just think if you look at product innovation, Twitter looks scarily 2015. So I just don't-- the role for Jack Dorsey is for him to declare victory and leave and be kicked upstairs to chairman.

So in terms of his comments, I find his comments are slow and thoughtful. And the beard and the nose ring don't make you thoughtful. They just make you slow. I just find his comments are encephalitic, irrational, nonsensical, anemic, and make no damn sense. I don't think there's any excuse.

I think our idolatry of innovators is in full swing here, where we decide someone who's a billionaire and the founder of a tech company should play by different standards than every other CEO or every other leader in corporate America. This is a company that is fueled on rage, fueled on hate, and has done to the ultimate slow roll, not as effectively as Facebook-- they invented this slow roll-- but has delayed and obfuscated any real change. And we continue to see this platform be weaponized by bad actors.

ZACK GUZMAN: Yeah, and we were kind of split here on the beard. I think we were going back and forth. Some people like it. Some people didn't. But when you look at the metrics themselves in the way that Jack Dorsey has been running this company, you've also highlighted the fact that they failed to monetize and really implement some of those changes when we're talking about subscribers and paying subscribers and the potential there on the platform, that it's taken too long to get that done. What have you, I guess, made of that and the longer it takes and how investors are growing a little bit, I guess, worried about that?

SCOTT GALLOWAY: There isn't a single platform that has the influence of Twitter that isn't trading at 20 to 30 times the market capitalization. And disclosure, I'm a shareholder. I think that if Twitter commands the space it occupies, it moves to a subscription model, it doesn't have the scale, the requisite scale of a Facebook or a Google to be in the ad-supported business.

But it does have so many influencers, whether it's from media, the economy, or celebrities, that they need to better monetize it through subscriptions. Say, 0 to 10,000 followers are free. 10,000 to 100,000 are 10 or 50 bucks a month. And anyone above a million followers pays $1,000 to $10,000 a month. There's tremendous value when you have that type of influence and followership on the platform.

And the moment they move to a subscription model, as we've seen Apple has done, Apple hasn't increased its earnings tangibly nor its top line revenues. But its stock has doubled over the last 18 months. Why? Because they've moved from 9% of revenues that are subscription to 24%.

If Twitter can grow its subscription revenues with a series of verticals that are starting to charge its users, you could see its revenues decline 10% or 20%, but you could see the stock double. So it is time for this company to move to a subscription model. They've threatened that. We'll see if they come through with it. But that's why I'm a shareholder. I think this company has tremendous value to be unlocked via the exiting the advertising industrial complex and moving to a subscription model.

AKIKO FUJITA: One of the companies that have emerged that are trying to take market share away from Twitter is Parlor, which I know you've been following closely as well. Obviously, a huge chunk of the user base on Twitter now believes that there is a form of censorship. They don't believe that conservative voices-- or they believe that conservative voices are being suppressed there, whether even if there is no evidence to that.

Is social media kind of headed in the way that we've seen sort of cable news, where we see this division of where your party affiliation is will determine which social media platform you use? I mean, what do you make of this sudden rise of Parlor? Is this just sort of an election year phenomenon? Or do you think there's something bigger behind it?

SCOTT GALLOWAY: I'm all for Parlor. I think we need something to skim the waste and the toxicity off of the pool of information here and dispose of it somewhere. And if Parlor ends up being the septic tank for the misinformation and conspiracy theories, more power to them. Let them be the amoebas that clean up the toxic waste or the dump.

And this notion-- you know, censorship is effectively editing. And it's about time that these companies were acknowledged that they are media companies. And ultimately, even an algorithm is going to have a bias. I don't think there's anything wrong with that. I think it'd just be easier for them to get on with life if they said, yeah, we have editors. It's the Wild West. We end up with hate speech. We end up with bots. We end up getting weaponized by the GRU.

We're going to see more and more polarization in media unless we get rid of an ad model. If you'll notice, Netflix, HBO, and LinkedIn haven't been weaponized by the GRU. And the discourse is just much less toxic. Because when you have an ad-based model, it goes to the lowest common denominator. And rage is a fantastic way to get engagement and serve more Nissan and opioid-induced constipation ads.

So your temptation is the algorithm just constantly figures out the way to get you more and more engaged, is to anger and enrage you. So media-- social media is nicotine. It's not-- it's addictive, but it's not necessarily bad for you. The things that gives you ad-- the thing that gives you cancer, the tobacco here, is the ad model. Because it leads to algorithms that want to put people in a left or right positioning and then enrage them.

So until we bust out of that and move to a subscription model, we're going to continue to have platforms where novelty and conspiracy takes precedence over truth. Because, quite frankly, truth is just kind of boring. And misinformation and falsehood spreads seven times faster, meaning there's seven times more Nissan ads to be served, meaning there's more shareholder value. This is a huge issue. We need to bust out of the advertising model.

AKIKO FUJITA: And to the point of it being addictive, we did hear Jack Dorsey yesterday sort of acknowledge that in the hearing, saying there are addictive elements of the platform. Let's talk about two companies that are now coming to market, Airbnb and DoorDash. We had the S-1 filing coming out.

Certainly, these are companies, as we've seen with so many tech companies, that are in their growth mode. But it does feel like these two companies have their finances in order a little more. I mean, what do you think is the appetite for a company like Airbnb, for example, coming to market right now?

SCOTT GALLOWAY: I think Airbnb is going to be one of the most successful IPOs of 2020. If you were to type in Hilton Orlando, Marriott Orlando, Four seasons Orlando, and then you did that Airbnb Orlando, and you did that across the 50 biggest tourist markets in the world, by far the number of searches done for Airbnb and that city are greater than all the other hospitality or airline searches combined.

91% of all the traffic to Airbnb comes from non-paid direct traffic, meaning this may be the first consumer unicorn to bust or break out of the stranglehold that is Google and Facebook that exact a toll on all traffic. So this is a company I think that has one of the biggest moats in business. Because, Akiko, if you and I had 50 million bucks, we could start a ride hailing company. We could create the supply, drivers, and the demand, ride hailers in the city of Denver.

But in order to compete with Airbnb, we'd need billions. Because we not only need local supply of people willing to rent their apartments, you need global demand because 90 plus percent of the people running those apartments are from different corners of the earth. So they have the ultimate moat. They have, arguably, the biggest brand in the history of hospitality already. And it's a company that was profitable in Q3.

And they were able to get in fighting shape. A crisis is a terrible thing to waste. They did not waste it. They cut marketing costs by over a billion dollars. They cut their staff by 25%. So when you reduce costs and the economy and travel comes back, what you have is a path to profitability that is much wider and much shorter. I think Airbnb is arguably the most successful tech IPO of the last several years.

I'm obviously very bullish on Airbnb. I think it's an incredible company. And instead of arbitraging gig workers, as DoorDash and Uber does, it's arbitraging assets, and it's set up a fund for hosts. So 40 million people on the platform, 7 million rooms, simply put, as you can tell, I'm very bullish on Airbnb. I think it's going to be an outstanding IPO and an outstanding performer.

ZACK GUZMAN: Yeah, and a lot of those hosts taking part in the IPO as well, getting a little bit of the kickback here, once that company goes public. So a lot of people hoping for the same thing--