After weathering a year of scandal and criticism, Alphabet is officially acknowledging that fake news and disturbing YouTube videos can hurt its reputation.
For the first time, Google's parent company lists "misleading" information and "objectionable content" from third-parties in the risks section of its annual 10-K filing as issues that could potentially affect its brands.
2017 was a tough year for many of the major tech companies, which got slammed for allowing Russian election meddling, spreading hateful content and creating addictive products. Alphabet's new disclosure indicates that the company expects the increased scrutiny to continue into 2018.
Alphabet made over 86% of total revenues from advertising in 2017, but distrust of services like YouTube could impact how much time and money users and advertisers put into them. The company saw that risk become a reality last year when a handful of big-name companies pulled their advertisements off of YouTube in the wake of revelations about inappropriate videos exploiting children. As a result, the company vowed to hire more human content moderators.
More recently, Logan Paul, one of YouTube's most famous video creators, sparked controversy after uploading a video featuring a dead body, driving YouTube to adopt new advertising policies and explicitly warn video creators that there would be "consequences" for those who do something "egregious" that causes "significant harm" to the reputation (and revenue potential) of the site as a whole.
Earlier last year, Congress also grilled Google, Facebook, and Twitter about Russian interference and the spread of fake news on their platforms in the wake of the 2016 election. Separately, reports have criticized Google for serving ads for fake news stories on fact-checking websites, delivering misleading answers via voice search on its smart speaker, and favoring conspiracy videos against Hillary Clinton through YouTube's recommendation algorithm.
Alphabet shares are off about 8% since the company reported disappointing Q4 earnings last Thursday.
Here is the new wording versus the wording from 2016 (emphasis added):
2017 - Our business depends on strong brands, and failing to maintain and enhance our brands would hurt our ability to expand our base of users, advertisers, content providers, and other partners.
Our brands may be negatively impacted by a number of factors, including, among others, reputational issues, third-party content shared on our platforms, data privacy issues and developments, and product or technical performance failures. For example, if we fail to appropriately respond to the sharing of objectionable content on our services or objectionable practices by advertisers, or to otherwise adequately address user concerns, our users may lose confidence in our brands. Our brands may also be negatively affected by the use of our products or services to disseminate information that is deemed to be misleading.
2016 - Our business depends on strong brands, and failing to maintain and enhance our brands would hurt our ability to expand our base of users, advertisers, Google Network Members, and other partners.
Our strong brands have significantly contributed to the success of our business. Maintaining and enhancing the brands of both Google and Other Bets increases our ability to enter new categories and launch new and innovative products that better serve the needs of our users. Our brands may be negatively impacted by a number of factors, including, among others, reputational issues and product/technical performance failures.