Facebook and Google’s duopoly status might not be so safe

This year, the narrative shifted, giving way to a rising tide of anger directed towards Facebook and Google — arguably two of the most influential companies of our time. George Soros summed up attendees’ negative sentiments when he accused the “duopoly” of monopolistic practices, called for tight regulation, and even declared their days of ascendancy numbered.

To be sure, it’s been a rough year for both companies. Facebook earned notoriety for enabling the spread of fake news and for becoming a favored tool of influence for Russian agents. Google has come under fire for monetizing violent and extreme content on YouTube — including videos in which children appear to be endangered. And these issues produced an uproar among Facebook and Google’s true customers: the brands whose ads are appearing next to objectionable content.

Unfortunately, many of these problems are of both companies’ making, and they bear an eerie similarity to the self-manufactured crisis that upended the financial sector in 2008 and 2009.

A decade ago, major financial institutions bundled together bad debt with good debt, packaged it all into CDOs and presented them to investors as safe, AAA instruments. Facebook and Google earn the lion’s share of their revenue from selling advertising inventory, but their approach is analogous to debt securitization. Neither company produces quality content, be it compelling journalism, music, or film. Instead, they package a small amount of other people’s quality content alongside a massive amount of low-quality, user-generated content (UGC) — cat videos, amusing memes, viral articles, and, yes, fake news.

Given their sheer reach and scale, Facebook and Google offer advertisers the opportunity to reach clearly-defined audiences across their platforms. So they can sell advertising inventory at a healthy premium. What they don’t tell advertisers is that there is a surfeit of low-quality and risky content beside which their ads may appear. As was the case during the financial crisis, the system hums along until the subprime inventory bubbles to the surface.

However, while the game might be up, the backlash is not (yet) reflected on the companies’ balance sheets. Facebook recently announced earnings of nearly $13 billion in Q4 and saw its stock price rise to an all-time high. While Google’s stock fell on news it missed Wall Street’s profit expectations, it still raked in nearly $32 billion in revenue. Together, the Facebook-Google duopoly takes up nearly 70% of the U.S. ad market, and both companies have market caps on par with the GDP of major economies like Turkey and Sweden.

The question then becomes, how long is this sustainable? How long will advertisers continue pouring money into a system that poses a serious brand safety risk? How long will consumers keep returning to platforms they perceive as damaging to their communities and political systems?

Even now, the cracks are beginning to show. Plenty of advertisers have decreased spend with Google following its content controversies. While Facebook’s earnings are strong, its daily active user count in the U.S. and Canada fell for the first time ever this quarter. It also appears that Facebook’s attempts to insulate its newsfeed from fake news, by de-emphasizing viral video and publisher content, may cause users to disengage further.

Facebook and Google will also see fiercer competition for ad dollars over the next few years as traditional media companies consolidate to challenge them. Disney and 21st Century Fox have joined forces to create perhaps the largest catalog of high-quality content in existence. Meanwhile, AT&T wants to buy Time Warner, which would allow the combined entity to combine robust user data with quality video.

These mega-companies may match the scale and reach that Google or Facebook currently offers. But they also have something that neither of the behemoths can offer: quality curated content. For marketers, this combination will pose a far lower brand safety risk — at the very least, they can probably expect their ads not to appear next to jihadi recruitment videos if they spend with Disney. Combine quality content with user data for enhanced targeting, and you’ve put a huge dent in Google and Facebook’s marketplace position.

If this scenario plays out, Facebook and Google may have to learn how to become content creators themselves. We already see Facebook moving in that direction with the launch of its original video offering.

But can Facebook and Google really keep up with the likes of Disney and Time Warner when it comes to original content? We’ll see. Given the size of the task, perhaps Soros’ prediction of decline isn’t so far off.