By Sam Schechner
Big tech companies have taken a public lashing in the past year
over their handling of users' personal information. But many of
their biggest privacy battles have yet to be fought -- and the
results will help determine the fate of some of the world's largest
businesses.
So far, tech giants like Facebook Inc. and Alphabet Inc.'s
Google have proved relatively resilient against a growing backlash
over possible abuse of their users' personal privacy. Tech
companies' stocks may have swooned, but advertisers are continuing
to cut them checks, and their profits are still growing at
double-digit rates that would earn most CEOs a standing
ovation.
This year may be stormier. Growing discontent among users over
privacy and other issues -- such as the widespread feeling that
mobile devices and social media are addictive -- could damp profit
growth, discourage employees or chase away ad dollars. In Europe,
regulators are slated to make major rulings about tech companies'
privacy practices, likely setting off high-stakes litigation. In
the U.S., revelations about allegedly lax privacy protections are
raising political pressure for federal privacy regulation.
At risk are tens of billions of dollars that marketers spend
every year in online advertisements targeted at users with the help
of personal information about individuals' web browsing, mobile-app
usage, physical location and sometimes other data, like income
levels.
The behavior of tech giants is likely to be a major topic at the
World Economic Forum this week in Davos, Switzerland. While the
yearly meeting of world leaders and company executives normally
celebrates how businesses can solve the world's problems, tech
companies were on the defensive last year against complaints that
ranged from fomenting political polarization to building artificial
intelligence that will displace millions of workers.
Since then, the pressure has increased. Facebook executives have
been dragged before legislators on both sides of the Atlantic,
after the company said data related to as many as 87 million people
may have been improperly shared with Cambridge Analytica, a
political analytics firm. And in September, Facebook said hackers
had gained access to nearly 50 million accounts.
Google, meanwhile, has faced criticism of its privacy practices
from political leaders, including flak after The Wall Street
Journal reported that the company had exposed the private data of
hundreds of thousands of users of its Google+ social network and
opted initially not to disclose it.
Some tech executives have raised alarms, too. Apple Inc. Chief
Executive Tim Cook, speaking in October before a privacy conference
organized by the European Union, called for tighter regulation in
the U.S. along the lines of a strict new privacy law in the EU,
saying that some companies had "weaponized" users' personal
information in what he described as a "data-industrial
complex."
Facebook and Google both say that they have been investing
heavily in improving how they protect user privacy and that they
welcome tighter privacy rules; both companies support passage of a
U.S. federal privacy law. Tech-industry lobbyists say they are
planning to support U.S. privacy legislation over the coming year,
in part to avoid contending with a patchwork of laws like one
passed last year in California.
"Our industry strongly supports stronger privacy protections for
consumers," says Josh Kallmer, executive vice president for policy
at the Information Technology Industry Council, which represents
Facebook, Google and other tech companies. Mr. Kallmer says
consumers "benefit incredibly from these technological
innovations," but adds that "alongside that are some very
legitimate concerns about how data is being handled."
What impact will stricter privacy rules have? There are two
theories.
One school of thought says that stricter rules and tighter
enforcement will benefit big, incumbent companies that already have
access to large amounts of user data and can spend more heavily on
legal-compliance efforts. The other argues that rules like those in
the EU's new General Data Protection Regulation, if strictly
applied, will force significant changes to how the biggest tech
companies collect and analyze individuals' personal information --
undercutting their advertising businesses and weakening their
advantage over existing or potential new competitors.
"Both are reasonable claims. But it is far too early to tell
which will turn out to be true," says Alessandro Acquisti, a
professor at Carnegie Mellon University who studies the behavioral
economics of privacy.
At issue, in part, is the distinction between short-term and
long-term effects. There are signs that Google, for one, benefited
at least initially from the transition to the GDPR in May, in part
because advertisers shifted money to the bigger firms, which were
able to show they had users' consent to display targeted ads.
In Europe, Google saw a 0.9% increase in the share of websites
that include its advertising trackers two months after the GDPR
went into effect compared with two months before, according to
Cliqz, which makes antitracking tools for consumers. Facebook's
share declined 6.7%. The share for the other top 50 online-ad
businesses fell more than 20%.
The longer-term impact on big firms is harder to predict. One
study of nearly 10,000 online display advertising campaigns showed
that users' intent to purchase products was diminished after
earlier EU laws restricted advertisers' ability to collect data in
order to target those ad campaigns. But more research is needed to
determine what impact tighter rules would have on consumer spending
more broadly, Prof. Acquisti says.
How the laws are enforced by regulators and courts will play an
important role. Ireland's Data Protection Commission, which is the
EU's lead regulator for Facebook and Google, is investigating
complaints from privacy activists that the consent companies
sometimes request for the processing of individuals' data is a
condition of using a service and so is not "freely given," as the
law requires.
In Germany, the federal antitrust enforcer says it will issue
early this year a final decision regarding its preliminary finding
that Facebook uses its power as the most popular social network in
the country to strong-arm users into allowing it to collect data
about them from third-party sources. A German decision wouldn't
involve fines, but could include orders to change business
practices.
Both Facebook and Google say they comply with privacy laws.
Initial decisions could come this year, but whichever way the
watchdogs come down, their actions are likely to end up reviewed in
court. Those cases will end up determining how new privacy
standards will be applied. And that will determine how profound
their impact is.
"There is active litigation in a couple of places that could
become hugely important," Mr. Kallmer says. "It's uncertainty that
our industry thinks it's on the right side of."
Mr. Schechner is a Wall Street Journal reporter in Paris. Email
sam.schechner@wsj.com.
(END) Dow Jones Newswires
January 21, 2019 06:44 ET (11:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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