Tech Transformers

Google, Facebook stock won't see their valuations hit over issues with inappropriate content, VC 'godfather' says

Tech companies previously only reacted to court orders

Technology stocks like Google and Facebook will not see their valuations hit by criticisms over the way they deal with inappropriate content, pioneering venture capitalist Yossi Vardi told CNBC on Friday, but added the firms will need to take more responsibility in policing what ends up on their services.

Vardi, who has often been dubbed the "godfather of Israel technology" and is the chairman of venture capital firm International Technology Ventures, said that tech companies have usually not acted until a court order has come to them, but this could change.

"Because of the magnitude and the effect of them on everybody's life and becoming the foremost media platform they have to take different issues ... they are being drafted into editing the content and again," Vardi said.

His comments come after the U.S. search giant came under fire from brands concerned that their advertisements on Google-owned video service YouTube were being placed next to extremist content. London newspaper The Times, found that ads from brands such as Mercedes-Benz and Waitrose were appearing next to neo-Nazi and jihadi content on YouTube. Many brands have pulled their advertising from YouTube, with the latest being AT&T and Johnson & Johnson.

The news has prompted debate over whether technology firms can just take a hands-off approach, or whether they act more like media companies and edit content.

Google's chief business officer, Philipp Schindler, said on Tuesday the company is going to hire "significant numbers of people" and develop new tools using artificial intelligence to improve its ability to review questionable content.

This was followed on Wednesday with an announcement that the online giant was carrying out an extensive review of its advertising policies.

Facebook has also dealt with criticism over its dealing with inappropriate content, particularly around the issue of fake news.

Wall Street has been concerned about the business impact on the likes of Facebook and Google. Vardi said that even if these firms had to bolster the number of people doing oversight on content, it would only be a small cost in comparison to the broader business.

"I don't think it's going to affect the valuation in a big way because whatever it will be, it will be a small fraction of the total cost," Vardi said.

"It will effect how people are perceiving the role of the social networks."

Both Mizuho and Bank of America Merrill Lynch warned on Thursday that Alphabet, Google's holding company, could see a potential hit to revenues but this could be a short-term blip if the issues are resolved.

"We would expect many advertisers to return to Google over the next few months as ad controls are improved, but it could take several quarters for spend levels to return to normal," Bank of America wrote in a note.