Facebook, Inc. (FB) and Twitter, Inc. (TWTR) are responding at different rates to cybersecurity issues on their platforms, leading to differing impacts on both their balance sheets and share prices.
FB rose slightly 0.3% on Friday, as Twitter declined 1% two days after executives from both companies testified before lawmakers in Washington.
Alphabet Inc GOOGL, which didn't even show to a hearing this week, declined 0.5%.
Facebook's high-cost security measures seem to have placated the market to a degree, while Twitter's more economical approaches on the security may be a reason for a the market's reaction.
Bill Conner, CEO of SonicWall, a California-based internet security firm, told Real Money that the security of each platform is indeed a serious issue both personal privacy and national security, based on the scale of each company, which suggests spending on security is crucial.
"I think its critically important that they try to police their platforms," he said. "It's not just the size of each company, but it's the fact that they are such target rich environments."
He pointed to the large degree of personal information and intellectual property that each company holds on its users and the influence that one can generate on each platform as risks to letting social media remain a "wild west."
Conner added that the policing of each platform poses a business risk for each company as well, as government's embed regulation into their businesses and try to guarantee user security if the company's themselves cannot.
"As a shareholder you're buying into these multiple levels of communication that now have different exposure to legislation," he explained. "You look at GDPR in Europe for example, this is just the new world that exists for these companies as they've gotten bigger."
With such momentous issues before them and the threat of increased government scrutiny looming, each company outlined their methods for taking action to ensure they can prevent the incursions of bad actors on Wednesday morning.
Facebook Ahead
For Facebook, this means getting out ahead of the potential issues that might confront it.
Company COO Sheryl Sandberg mentioned "AI systems to detect and stop attempts to send malicious content, customizable security and privacy features, [and] AI systems to monitor login patterns and detect the signs of a successful account takeover campaign" as some of the steps that Facebook is taking to be proactive with what technology they can utilize.
"This is why we're investing so heavily in programs like verification," Sandberg said. "[For] being able to see who's running a page, for helping us find what can be very difficult to find."
Further, she outlined the hiring of numerous third-party fact-checkers that can ensure that "fake news" does not have room to spread. Advanced algorithms employed by the company will be used to restrict the reach of any false reports and retard the growth of any untrue campaigns.
Conner specifically highlighted the company's inroads to machine learning and AI as important steps to identify bad behavior.
He noted that his company has used these types of technology since the 1990's and with the large amount of data that is available from this experience, third-party firms can help the companies assess risks in their nascent stages.
At what cost?
Adding a number of third-party fact checkers and hiring thousands of employees to add to its information security teams is not a cheap endeavor.
The effect of the added staff is sure to only add to investors worry over the thinning profit margins for the social media giant, who will be reminded of Mark Zuckerberg's comments in last year's third quarter earnings call, announcing an upcoming spending increase.
"I want to be clear about what our priority is," Zuckerberg said last November. "Protecting our community is more important than maximizing our profits."
Not a shareholders favorite phrase.
To be sure, the added security is not worrying everyone, as some analysts have pointed out the small cost of the cybersecurity spending in Facebook's grand scheme.
Wedbush Securities analyst Michael Pachter said the extra costs linked to Facebook's decision to double its security group to 20,000 employees to fact check content are positives to the long-term health and profitability of the firm.
"In the scheme of a company with a [nearly] $500 billion valuation, an extra 10,000 people is not that significant in the scheme of things."
Twitter Takes a Step Back
Twitter CEO Jack Dorsey endorsed a more "hands off" approach, relying on "behavioral signals" in accounts that would indicate that they are spam or troll accounts after the fact.
He added that instead of taking a cost-intensive approach in hiring numerous fact checkers, as Facebook has, journalists who already use the platform can aid the company in calling out falsities.
"We do benefit that we have this amazing constituency of journalists using [Twitter]," he explained.
Pachter was complimentary of Dorsey's ability to hold up in the face of the grilling by the committee as well, explaining that he acted as an effective representative of his company in the circumstances.
Conner further gave some sympathy to Dorsey as he mentioned that the commonplace anonymity on Twitter, as the authentication process is not necessarily tied to your real-life identity, presents a larger scale problem for the platform than Facebook has to contend with.
The Verdict
Whether or not the companies succeed in calming investors' concerns each day, Washington's scrutiny is a daily reality for all big tech companies given their size and importance in the electoral process -- which are not going away.
"Just like drug companies with their pricing, they have tried to self-police and lay down framework," Conner concluded, noting the necessity of "aggressive" action on this front lest they draw more scrutiny from regulators which puts each company's share price and shareholders at further risk.
