In this episode of Influencers, Andy is joined by early Facebook & Google investor, Roger McNamee, as they cover the American tech industry, the influence of social media, and why Roger says Silicon Valley is 'in a bad place'.

Video Transcript

ANDY SERWER: In this episode of "Influencers," Roger McNamee, early Facebook and Google investor, former advisor to Mark Zuckerberg, and author of "Zucked-- Waking Up to the Facebook Catastrophe."

ROGER MCNAMEE: None of us has a crystal ball, but it feels to me as though what's going on now is the beginning, the middle, or something of a generational bear market. We're in a bad place in Silicon Valley. The culture of the Valley does not honor or respect the people touched by its products. This is the most difficult time I can recall in the 40 years I've been doing this. And it's because there are certain assumptions that I've had about the rule of law and about the way our system of government works that I can no longer be confident in.

[THEME MUSIC]

ANDY SERWER: Hello, everyone, and welcome to Influencers." I'm Andy Serwer. And welcome to our guest, Roger McNamee, early Facebook and Google investor, former advisor to Mark Zuckerberg, and author of "Zucked-- Waking up to the Facebook Catastrophe." Roger, you've been doing this since 1982, this being investing in tech. Lots to talk about. And welcome to you.

ROGER MCNAMEE: Andy, it's always a great pleasure to talk to you.

ANDY SERWER: So let's get started by talking about big picture here, the market, equities, that is, down about 20% year-to-date, a lot of stuff going on in the greater economy. What is your perspective here, Roger?

ROGER MCNAMEE: Andy, none of us has a crystal ball. But it feels to me as though what's going on now is the beginning, the middle, or something of a generational bear market. Every 20 years or so, the market shakes a lot of extreme ideas out. And it feels to me as though that's what's going on here, that we're down far enough that a lot of things reasonably should be able to come back.

But I think we have systemic obstacles here. And I'm speaking specifically here about the issues with China and Russia from a geopolitical perspective and the way that that affects not only supply chains, but the input costs of raw materials, like petroleum. And then I look at the excesses of the financial markets themselves. And then I look at the political issues in the United States and go, wow. That is a stew of uncertainty that the market's going to have to work its way through here.

And it doesn't look to me as though we can avoid some period of higher interest rates. There is certainly a very high risk of the economy having at least a period of recession. And so we don't know whether inflation is structural or not. I'm hoping not. I can see paths through all this stuff. But I think if you're an equity investor, this is going to be a really challenging period of time.

ANDY SERWER: So not just a little bear market blip that we've been used to over the past several decades, really.

ROGER MCNAMEE: Well, I mean, it could be. It could be. But there are a lot of reasons to believe that it's not, because the rise in interest rates, the rise in inflation are things we haven't had to deal with inside the professional experience of 99% of the people who are active in the markets. And when you have something that new, the probability that people will not handle it cleanly, I think, is very high.

And so I'm just saying, I think risk and reward right here are not where you'd want to be an enthusiastic buyer of the market. Let me give you an example, Andy. So there is a fellow in a competing network who put out a list on what turned out to be the low day for tech stocks, the 24 stocks that were the market leaders that were down the most. And the best one was, I think, down 74%, and the worst was down 91%.

And the thing that was really striking about the list is that after those stocks were down that far, I think the lowest one had a price-to-sales multiple of seven. And if you put that in historical context, and I mean, a 100-year historical context, a price-to-sales multiple of seven is in the upper extremes long term. And that's where we were after these stocks had gotten crushed. And many of them, the valuation is actually worse than that because the earnings aren't going to happen.

I think 4 of the 19 companies were profitable. And that would be Netflix and DocuSign and Zoom. But a lot of them are still burning money. And I think a bunch of those guys just are not coming back. And in many ways, I think that's the best thing that could happen for investors, would be to get us back to first principles again, because then you begin a generational bull market. And that could last 20 or 30 years.

ANDY SERWER: What about the FAANGs and those big names? And you mentioned Netflix, which is sort of a baby FAANGish, but you know who I'm talking about, the big platform tech companies. And they've gotten beaten up a bit. But are they a good place to ride this thing out? What's your take on their valuations?

ROGER MCNAMEE: I think that depends entirely on your political view. So when I look at the group, they're not all the same. Apple looks really different from Facebook. Google looks different from Facebook. Amazon is different from Facebook.

Facebook, I think, right now has huge issues, because in their core business, the growth that they were expecting from Instagram is being kneecapped by TikTok. And so it's not like Instagram's going to go away. But younger people, folks under 20 are way more TikTok focused than they are Instagram focused. And if that's true, if Instagram's audience is going to age now, that's going to prevent that from being a big growth engine for Facebook. Apple, with its application tracking transparency initiative, has taken, I think the estimate is $10 billion out of Facebook's revenue this year. That's a really significant number.

And then lastly, Facebook's just been setting money on fire with the metaverse with a business plan and that opportunity that I just think is nuts. I mean, I believe that virtual reality is a great market opportunity. I believe we still have a lot of work to do there. But the approach that Facebook is taking to it, where they're trying to replace real life with synthetic life, I think that's just the wrong way to go after it. And I just think technically they're never going to get there with that approach. So those things, I think, make Facebook an unattractive stock relative to the others, almost no matter what happens.

Apple has really high exposure to China. That is, at least in the current moment, a form of uncertainty that's quite huge. And otherwise, I think Apple is doing many things incredibly well.

I look at Google, I look at Microsoft, and I look at Amazon, and those are companies where the threat of government intervention on surveillance capitalism relative to both Microsoft and to Google and relative to the way that Amazon behaves in the markets, that threat, whatever you think of that will drive how much enthusiasm we have for those stocks. At the moment, I don't think the US is much of a threat to regulate intensely. I think Europe is continuing its regulatory initiatives, the enforcement of which has been at a pretty low level. But to the extent the enforcement increases, that's a problem for all of them.

But I would tell you that I think Microsoft and probably of all of those guys has the cleanest situation from here. And I don't think it's going to be enough to ride through a bear market. But my rule of thumb is when a bear market starts, all you care about is what you own when it ends. It doesn't matter what your cost basis is on the things in your portfolio now. You want to look at it and say, do I want to own this coming out the other side?

And I think Microsoft is a stocks you'll want to own coming out the other side. And I think Apple probably is also. And how you feel about Google and Amazon depends on how you feel about regulatory intervention.

ANDY SERWER: Hmm, fascinating. So much to drill down in there. But let's do a little more on Facebook, because, obviously, you've written about them. And you were there at the beginning. In fact, Roger, I love the note about you talking Mark into not selling out to our parent company, Yahoo, in 2006. I mean, you were there for so many of these things.

A recent interlude, of course, is Sheryl Sandberg leaving the company. And I know you've been critical about her. You also said you are also impressed by her. But is this a net positive or a net negative for the company?

ROGER MCNAMEE: I am concerned about it in several different dimensions. The first is that I don't understand why, but either Mark Zuckerberg or Sheryl Sandberg is better off with Sheryl leaving. Now, her staying on the board may be enough to keep the prisoner's dilemma that they were in going.

But Facebook as a company has gone across a lot of lines. Some of them are lines that give rise to felony issues. Specifically I would point to there is a lawsuit in Delaware from a bunch of large pension plans, about Facebook failing to properly disclose what it knew about Cambridge Analytica when that scandal broke. And as part of that, they also accused the management team of trading on insider information.

The scale of that is, I think, two orders of magnitude bigger than the largest insider trading case in history. I think Zucker sold like $10 billion worth of stock. And he basically hadn't sold anything before that. So it's kind of cut and dried. And the SEC hasn't done anything with it yet, but that threat is out there.

And there is a case that was brought by the attorney general of Texas and joined by, I think, 10 other states that alleges a price fixing scheme in digital advertising between Google and Facebook. And there's apparently a ton of evidence, including emails going back and forth, including emails from Sheryl. And again, I haven't seen any of that stuff. But that is what is alleged.

And it has been described to me by people in the highest ranks of the antitrust establishment, people who have been Republicans and Democrats in government working in antitrust. And it's one of the cleanest price fixing cases in history. And price fixing is three and a half years in prison for each count. And there are two counts here. And that's a normal sentence.

And so if I'm looking at things from Sheryl and Mark's point of view, their big defense was stay together, deny everything, delay everything, stay really close. When Facebook is suggesting it's going to investigate Sheryl for improper use of corporate assets, that doesn't strike me as having a happy ending for either one of them. And Sheryl's an incredibly capable person. And what she did at Google, what she did a Facebook created extraordinary shareholder value at both companies.

I think from my perspective, Facebook overshot by a lot. And they forgot that it's important for companies not to hurt the people who use their product. It's important not to destroy the politics or the public health of the countries in which you operate.

And Facebook just, they were so laser focused on their goal that they allowed their platform to be used to undermine democracy, public health, the human right to self-determination, and innovation [INAUDIBLE]. They did all those things. And the government hasn't chosen to do anything about it. And we don't know.

But along the way, they've also done some things that create felony risk. And for Sheryl and Mark, that's a big thing. And to the extent that they're fighting with each other, the probability of something happening there, I think, goes way up, because from Sheryl's perspective, if Mark's going to attack her, her correct call is to become a whistleblower.

ANDY SERWER: Wow. One point that really struck me, Roger, in "Zucked" is you comparing yourself to Jimmy Stewart in "Rear Window." And can you explain that metaphor?

ROGER MCNAMEE: So I was involved with Facebook from 2006 to 2009. So when Mark reached out to me in 2006, he was facing a crisis. And I wasn't told what it was. But I guessed.

And I helped him resolve it. That was the sale of the company to Yahoo, which would have happened, because everybody around him was telling him he had to do it. And he didn't want to. And so I helped him navigate through that.

So I spent three years when the company-- remember, when I first started working with them, they didn't even have Newsfeed. There were no like buttons. There was nothing. It was basically just your photograph, your personal information, and your relationship status. And it was only high school and college students.

And I helped him rebuild management team. And the key things were you need to swap out the CFO. You need a new person. And so I helped to bring Sheryl Sandberg into the company.

In 2009, Sheryl was in there. The company still didn't have a business model. But I was there to help them rebuild the team. That was done. I thought Sheryl and Mark were going to be great partners and were going to create not just great value for shareholders, but do it in a way that was going to be safe.

And I went off about my-- I'm in the investment business. So I went on to my other investments, the things that needed my time. And so I wasn't really paying attention.

And then when I retired at the end of 2015, I was a very heavy user of Facebook. And all of a sudden, I started to notice things in the context of the 2016 presidential primaries-- hate speech in Facebook groups being amplified, people advertising to promote hate speech in Facebook groups. I'm going, that's really weird.

And then I see Facebook expelled a company that was using the ad tools to gather personal information of people who expressed an interest in Black Lives Matter. And then they sold that data to police departments, who then went and harassed the people. Now, Facebook expelled the company, but the damage has already been done. Tens of thousands of people were being harassed.

And then, of course, Brexit happens in June of 2016. And that's when I realized, oh my god, you can use the ad tools of Facebook to undermine the election. So I spent three months trying to make sure I understood what I was seeing. And then I went to Mark and Sheryl and said, hey, guys, I think there's something about the culture, the business model, and the algorithms of Facebook that lets bad people harm innocent people. And I really think this is a serious problem.

And you should treat it the way that Johnson & Johnson treated Tylenol when somebody put poison in bottles of Tylenol in Chicago and killed a few people, which is to say you withdraw the product, you go to the government, you beg mercy, and you work with the government to solve the problem, because I couldn't see any way for Facebook to succeed if people understood that it was undermining civil rights and that it was undermining democracy. I mean, that's just bad for your brand. And so I went as their friend and spent four months just pleading with them. But they really weren't interested.

And the Jimmy Stewart thing is just like, every once in a while you see something and you can't believe it. And you realize, no, it really is what I-- my eyes are actually telling me the real thing. And, I mean, Andy, you and I have known each other a long time. I've been a true believer in tech since 1982.

And so the notion that Facebook, a company I've been involved with, could possibly be on the wrong end of the undermining of public health and democracy and people's right to make their own choices, that just, that had not occurred to me before 2016. And when I first saw it, the cognitive dissonance was huge. And I was really careful to make sure I knew what I saw before I went to Mark and Sheryl.

And then I took another five or six months to make sure I really knew what I was seeing before I went public, because these were friends of mine. This is a company I believed in a world that had been in my world professionally for at that point 35 years. It was yeah, not-- activism was not something I took, I sought out. It was something I undertook reluctantly, and in a sense accidentally.

ANDY SERWER: Is it just that these guys, or it's just Mark now and his team, just want to make money and that's what they care about? I mean, obviously, they want to help small businesses grow and all that. We've heard their talking points.

ROGER MCNAMEE: No, I don't I think, actually, I don't think any of that's right.

ANDY SERWER: OK, so tell me what's right. Tell me whether-- tell me what you think is right. And then tell me, have they made any progress?

ROGER MCNAMEE: I think you're looking at it wrong. So to me, the issue with big tech companies today-- and I'm speaking here about Google, Amazon, Facebook, Microsoft, and to a lesser extent Apple-- that they have a vision for the world. And in the case of especially Google and Facebook and Amazon, they have a value system that comes from the engineering world, that's based on engineering principles.

In engineering, the most important value is efficiency, right? It's you don't want waste. You want to optimize everything. And if you're making an engine or you're making a software product, efficiency is a really good thing. But if your product gets to be nation scale or global scale, the scale of Google or Amazon or Facebook, and you have a religious belief in making the world efficient, you're going to come into conflict with other values that countries are based on.

So the US, we've had two values that have been foundational. One is democracy. The other is the right to self-determination. Each of us is allowed to make our own choices. Well, the problem is that both of those values are inefficient by design, right?

Democracy has deliberation. It's slow. Self-determination, right, I got to wear Yahoo colors today. You chose not to wear Yahoo colors today, right? We each get to make our own choices.

That is incredibly inefficient. It would make much more sense if economically if somebody said all of-- today's purple, right? So we're all going to purple today.

So Google and Facebook and Amazon, when they get to global scale, their business model sees the values of countries like the United States as bugs. It's economic opportunities for exploitation. So it's not like a good versus evil kind of thing. It's competing value systems.

And we've never had an honest conversation about which one we want, because I can imagine that there are people out there who would sit there and say, you know, I really like the notion both a surveillance capitalist like Google or like Facebook or even Amazon choosing for me what I should buy. I like convenience. I just like to have them give stuff that I like, right? And I can see that there's a market for that.

But I do believe that there are a lot of people out there who would sit there and go, you know, I'd really like to make my own choices. I'd really like to live in a democracy. And so we should have an honest conversation about that, because these guys, they don't think of themselves as being antidemocratic, but their behavior shows that their success comes at a huge cost to democracy.

And it's not just internet platforms. You actually see this throughout the tech industry, whether it's artificial intelligence, where the impact of structural bias undermines the opportunities of lots and lots of people, whether it's crypto, where the essential nature of the thing is that it defies government authority, which in a democracy is going to undermine your democracy, or automated vehicles, where Google got caught picking a street in San Francisco and sent literally hundreds of self-driving cars to practice U-turns on that street every single day. It's a little cul-de-sac. And it's doing three-point turns at the end. And the people who live on that cul-de-sac have levels of traffic on that thing that are not natural Google didn't ask anybody's permission. It just did it.

And that kind of stuff is how the tech industry operates today. It uses data to exploit human weakness. Now, that's a really big change from 20 years ago, when everybody in tech 20 years ago viewed technology as a way to empower the people who used it.

ANDY SERWER: Right, right.

ROGER MCNAMEE: It's a good culture. And if we went back to that, the US would be wildly better off.

ANDY SERWER: Yeah, that's an incredible explanation. Roger, one platform which is smaller that we haven't talked about, but is pretty important is Twitter and Elon. And I'm wondering what your thinking is there with that drama.

ROGER MCNAMEE: So I'm deeply engaged in Twitter as a platform. And so I look at it historically as one of the biggest missed opportunities in the history of Silicon Valley. If you think about it, Twitter is an incredibly elegant product idea. And in the early days, it was really easy to imagine it playing a huge and very positive role in our public discourse. It was also pretty easy to imagine that if you did that, you'd have an incredibly valuable business.

So they managed to make a product whose impact on our national conversation has been almost entirely negative, and which is embarrassingly unvaluable in comparison to the impact that it has on the national conversation. You would think that something that important to politics, that important to journalism, that important to celebrity would be immensely valuable. And don't get me wrong, it's worth billions, tens of billions of dollars. So it's a valuable company. But when it got started, it wasn't crazy to imagine that it could be as valuable as Facebook. And I think with a better management team, it would have been, and a better board of directors.

This whole thing with Elon Musk is a piece with the history of this company, which is snatching a disaster out of almost every great opportunity available to the company. And there should be a war crimes trial for the board of directors for the people that they've picked. And the way they've handled the whole thing with Elon is just completely incomprehensible to me. And I do not know what's going to happen here, because it might be that the best thing for everybody would be for the deal to break and for everybody to sue Elon for tens of billions of dollars for the next 20 years. That might be the happiest ending for everyone.

But we're in a bad place in Silicon Valley. You know the culture of the Valley does not honor or respect the people touched by its products. And you see this all over the place. You have Robinhood in stock trading, which the entire business model is based on exploiting the relative ignorance of retail investors.

You have Uber and Lyft. They exploit the drivers. You had WeWork, which, I mean, just all these insane business plans. You have AI, which is profiting from the amplification of bias.

None of that is necessary. What the industry needs is an FDA. It needs somebody who sits there and says, look, as a condition of market access, you have to prove your product is safe and it works. I think that would do wonders, because there's nothing about AI that can't be great.

There's nothing about self-driving cars-- we could do self-driving cars today. We just need to give them their own lanes. We need to put beacons on anything that they could run into, right? That's what we do with ships. That's what we do with airplanes. It's totally doable.

But it does require investment. It would reduce the rate of return to the guys making the cars. So they don't do it. And there's nobody telling them otherwise.

We need to have people who say, hey, I'm sorry, you can't do crypto if it's insecure and people can't get their money back, right? I mean, there's really basic good housekeeping rules that this industry doesn't do.

The second thing we need to do is we need to look at the laws related to data, because at the end of the day, this notion that data is an asset and that any corporation that touches that asset can claim ownership to it, there's something fundamentally wrong with that, because if you use behavioral economics, which is this notion that human decision making has not evolved much since the days of the caveman, so it's very primitive, easy to exploit if you have enough data. If you know enough about the population and you know enough about each individual person, you can not just predict people's behavior. You can use the app that you've created and the recommendation engines you have to steer their behavior in ways that are attractive to you.

Well, that results in things like the January 6 insurrection, where thousands of people who I guess two years earlier would have never imagined themselves attacking police officers, much less the Capitol, were manipulated into doing that. And there's a lot of that kind of stuff going on right now. And it's not just on internet platforms. It's spread into every-- you can't do anything these days without giving people data, because they perceive the data as the new oil. And somewhere we have to have a set of rules that protect people from being abused.

And then lastly, the third thing we need, so we need to look at tech in the context of the whole economy and ask, have we learned anything from allowing every industry in the economy to become monopolist? We've learned a bunch of things. It makes investors a ton of money, but it hurts literally everyone else.

And the question is, are we always going to make our national policy around the interests of active investors? Or are we going to have some portion of our policy be directed toward the needs of the vast majority of the people who don't? And that's-- I don't know the answer to that.

ANDY SERWER: Yeah, there's a lot to chew on there. And I'm wondering what some of that thinking informs, how it informs you to think about Web 3.0 and the metaverse and what's to come in technology around the corner.

ROGER MCNAMEE: So, Andy, I think to a first approximation of Web3 is nonsense. It's essentially crypto was losing its luster and they needed to rebrand it. So they rebranded it as Web3.

Do I believe there's going to be a next big thing? Of course, I do. Do I do I believe that the people who are leading Web3 are the people to lead it? Gosh, I hope not.

Right, if we can't do better than that, it's not going to be much of an industry cycle. They're good salespeople. But I don't think that they're particularly great when it comes to conceiving of whatever the next big thing is.

And I think the same thing applies to the metaverse, which is-- I think there's a huge opportunity for virtual reality. I think there's a huge opportunity for augmented reality. I think the best way to do it is to aim very narrowly and find use cases that today's technology can leverage and really bring to market in ways that are compelling.

And to me, I look at it Facebook's thing. And you just look at the demos, you realize what an incredibly bad idea that is. The notion is, OK, I'm not going to live in the real world. I'm going to live in a world that's completely controlled by Facebook, where they don't just know everything about me. They literally have control of every variable and every choice that's available to me.

No. Ask yourself, are you going to have-- let's say you want to make an investment or you're going to do a deal with another company. Are you going to do that in an environment completely controlled by Facebook? I mean, I don't think you're going to do that in an environment completely controlled by anybody. People go to great lengths when they're doing an M&A deal or when they're making an investment to do so in a manner that doesn't show up publicly.

And so I look at this and I go, what are we talking about here? Because everything they told you about Web2 is fundamentally correct. Web2 is not great. We really would like to improve it.

But I don't think Web3 is the answer, because the things that they've been doing so far-- and I think crypto is the best example of this-- almost everything they brag about isn't true. It's one thing if your product isn't as good as you claim, but it's directionally the same. When they tell you it's decentralized and it's quite obviously not, that wallets and all these other things result in massive centralization, when they tell you it's private, and it turns out it's only private for the sponsors, but for everybody else it's completely transparent, right, when they tell you that it is secure and yet things are being stolen constantly, right, those things should cause people to be skeptical.

ANDY SERWER: Right.

ROGER MCNAMEE: To me, the right question is, what should the next big thing be? And I think there are a lot of potential answers to that. One of the things I would observe is the maximum scale and maximum centralization in the cloud has not, in fact, been as good a thing as it was promised to be.

And history says that computer design usually goes in a penduluar fashion, from highly centralized to highly decentralized and back. And I do think when people talk about decentralization, there is something to that. I think that the zines that they've had-- because it's really hard to monetize things that are decentralized. They always put a point of control in so that they can monetize it.

And my point is, it would be cool if we spent a period of time not worried about monetization, that what we focused on instead is creating a vision for technology that we could all embrace and that would be good for democracy. It'd be good for public health, allow us to live our best lives. And I think there are a million things there. And eventually you'll be able to monetize them, right?

But the history of tech is at the beginning, you run a ton of experiments that nobody makes any money on. And so when they have a business model on day one, that's usually a sign that you ought to be careful. And I think Web3 and crypto in particular have certainly been examples of why that rule of thumb is important.

ANDY SERWER: On that note, we're going to have to leave it at that. Roger McNamee, noted investor, thank you so much for your time.

ROGER MCNAMEE: Andy, it's always a pleasure. And I want to wish everybody good luck out there, because I, too, am an investor. And the one thing I can say is that I think this is the most difficult time I can recall in the 40 years I've been doing this. And it's because there are certain assumptions that I've had about the rule of law and about the way our system of government works that I can no longer be confident in.

And I think if you're an investor, the uncertainty created by those things there changes everything. And how it changes is the thing we're all going to have to figure out. I think we want to be super, super careful about this, because there's stuff going on now that the US cannot control, and certainly a lot going on that we can't control. And when that's true, be careful.

ANDY SERWER: All right, we'll be watching and trying to figure things out. You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.