Ex-Facebook exec Chamath Palihapitiya on data leaks: 'What do you expect? It was free'

Key Points
  • Consumers need to re-evaluate their relationships with internet companies that provide free services, venture capitalist Palihapitiya says.
  • "That doesn't take away the ethical responsibility of every company to treat us fairly," he says.
  • Palihapitiya says he would be on board with a paid version of Facebook for assurances around his data and how he's tracked.
Chamath Palihapitiya on the future of the internet

Consumers need to re-evaluate their relationships with internet companies that provide free services, former Facebook executive Chamath Palihapitiya told CNBC on Wednesday.

"We really have to understand what relationships we have with these companies, particularly when the things we get from them are free," he said in a "Squawk Box" interview, in the wake of the Facebook data scandal.

"For example, if someone gave you a car, gave you a car, and the seat belts and airbags didn't work, what would you do? Well, you couldn't go much because the car manufacturer would say, 'What do you expect. It was free,'" Palihapitiya said.

"We've gotten incredible value, we as consumers, incredible value for 20 years on the internet for free," he said. "We're finally at a point where we ask ourselves, 'Should we be paying for some of these things so that we actually have established expectations.'"

"That doesn't take away the ethical responsibility of every company to treat us fairly," he said. "But there's probably going to be a basic set of expectations that everybody lives by. And then, by having it more of a paid relationship, you can expect more."

Palihapitiya said he would be on board with a paid version of Facebook "for assurances around my data and privacy around how I was targeted and tracked."

After leaving Facebook in 2011, Palihapitiya founded and currently runs Social Capital, which provides venture funding to startups, and runs a hedge fund. He's also a co-owner of the NBA's Golden State Warriors.

"If I had to forecast the next four or five years, we have European regulations around data privacy. Other countries will copy it," Palihapitiya said. "[That] will restrict many companies, internet companies, from gathering data, period."

"I think valuations are going to change," he predicted. "I think business models are going to change." Under the current arrangement, he added, "the real customers are the advertisers that pay," not consumers.

Last month, Palihapitiya told CNBC's "Closing Bell" the social network is "doing the right thing" in addressing the concerns about data privacy after it was revealed in March that Cambridge Analytica improperly shared information from millions of user profiles. He said it's "super hard" and nuanced" to protect data, though he expressed confidence that Facebook will figure it out.

Palihapitiya, who made those comments to CNBC after speaking at the 2018 Sohn Investment Conference in New York, also said he disagrees with billionaire investor Jeffrey Gundlach about Facebook. Gundlach, founder of investment DoubleLine Capital firm, said at Sohn he's short, or betting against, Facebook shares in a trade with a long bet on the SPDR S&P Oil and Gas Exploration and Production ETF.

After hearing Palihapitiya's CNBC interview, Gundlach accused Palihapitiya in a tweet of talking out of both sides of his mouth.

"Guy on stage after me at Sohn 2day told me he's short FB since Jan. Then on TV he said he disagrees with the short call. Both can't be true."

In response to Gundlach, Palihapitiya told CNBC Wednesday, "I was not short Facebook."

"We should not talk about the past," he added. "But I am not short Facebook. My fund is not short Facebook. We believe in the company."

"What I said to Jeff and what I said on television is you cannot short Facebook based on Mark's testimony and a correlation to oil," Palihapitiya said, referring to Facebook co-founder Mark Zuckerberg's congressional testimony last month about the data scandal. "That to me doesn't make any sense."

"What I said on television is, if you're going to short that business, you have to step back and ask these other more fundamental questions about business models," he said.

In December, Palihapitiya did criticize social media, and by extension Facebook, for creating a society that confuses "popularity" with "truth." He argued, "The tools that we have created today are starting to erode the social fabric of how society works."

Facebook took issue with Palihapitiya's remarks, saying in a statement that he hadn't worked for the company for six years, and noting that the company had undergone changes since then.

Over his four-year tenure at Facebook, which started in 2007, Palihapitiya had served in various management roles, including vice president of user growth.

As an early bitcoin investor, Palihapitiya also told CNBC on Wednesday he's a "disciple" of Warren Buffett but the billionaire investor is wrong to bash the world's largest cryptocurrency.