Facebook Inc (NASDAQ:FB) has been under fire for its privacy practices for quite some time, and now, there’s yet another reason to be concerned. The social network announced that it would acquire the popular messaging app WhatsApp, which many people use because of its high standards of privacy. So does this mean that users of WhatsApp will switch because they don’t trust Facebook? It will take time to find out the answer to this question, but it’s one worth asking—particularly in a world where privacy has become a luxury the average citizen can’t really expect any longer.
What’s more important in Facebook’s acquisition?
The big topic of conversation on Wall Street regarding Facebook Inc (NASDAQ:FB)’s acquisition is the high price it paid for WhatsApp–$19 billion, including a combination of cash, stock and restricted stock options. However, it’s likely that users of WhatsApp are more concerned about the privacy issue rather than whether Facebook overpaid, which means investors may become more concerned about it as well because without users, Facebook is basically an advertising company without an audience.
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Facebook Inc (NASDAQ:FB) has publicly said it would keep the privacy WhatsApp is known for in place, but exactly what that will look like is up for debate. On its blog, WhatsApp also reassured users that nothing will change, but that isn’t keeping them from asking the “what-if” questions.
Facebook’s model clashes with WhatsApp’s model
However, there’s no denying that the whole culture WhatsApp was founded upon seems to clash with that of Facebook Inc (NASDAQ:FB). The founders came from Yahoo! Inc. (NASDAQ:YHOO) and wanted to create a better user experience which is free of advertising and respects user privacy. Facebook, on the other hand, is all about monetizing the user data it collects, which is why privacy has become such a big problem for it.
Rob Shavell, CEO of privacy services startup Abine, told ValueWalk in an interview that he’s not sure how Facebook Inc (NASDAQ:FB) is going to be able to justify the price it paid for WhatsApp without making some changes—changes that could ultimately drag down the app’s user numbers.
“Somehow Facebook has to make $3, $4 or $5 dollars a user a year from the people using WhatsApp in order to convince Wall Street that they made a good deal,” he said. “Historically, Facebook has never charged its users for pretty much anything because they collect so much data and they’re able to use that data for marketing and advertising purposes. I’m not sure how they can do that and continue to not advertise to users and not collect data about where they’re chatting, who they’re chatting with, what keywords they’re using and a whole lot of other things.”
Currently, WhatsApp charges users $1 a year after one free year of using it. That’s a far cry from the amount Shavell believes is necessary for Facebook Inc (NASDAQ:FB) to be able to justify what it paid for the company. So if his estimation is correct, then how’s the social network going to make up the rest of the money without making some changes to it?
What analysts and investors should be considering is exactly how much Facebook Inc (NASDAQ:FB) must make per WhatsApp user and how the social network will go about doing that.
When Facebook swallows a potential competitor…
Facebook Inc (NASDAQ:FB) has been able to protect its social media turf so far, thanks in part to the acquisition of Instagram, which many analysts say is where defecting teenagers are going when they leave Facebook. The social network could be thinking the same thing might happen here with the WhatsApp acquisition, but if it changes the company’s business model too much, the result probably won’t be the same.
“The whole reason why some of these services like WhatsApp became popular is that they’re not Facebook,” Shavell told ValueWalk. “I think that especially the teens and the younger users of these services don’t want Facebook to know everything about them, or they don’t want all their messages or activities to be posted because their parents are on there, and their friends…”
He likened Facebook’s acquisition of WhatsApp to the coffee competition between Starbucks Corporation (NASDAQ:SBUX) and Dunkin Brands Group Inc (NASDAQ:DNKN). He thinks it would be comparable to a situation where people stopped buying Starbucks coffee en masse and switched to Dunkin Donuts, and then Starbucks bought Dunkin Donuts.
European Union probes WhatsApp acquisition
Privacy has become such a big concern for European users of WhatsApp that European regulators have made noise about launching a probe into the deal between Facebook Inc (NASDAQ:FB) and the company. And that might be just the tip of the iceberg in terms of privacy investigations. However, there’s a chance that nothing will come of it. Facebook could be free to do whatever it wants, according to Shavell.
“Typically, when the EU investigates these kinds of things, they issue a set of recommendations, and generally, I think the technology companies try to comply with those recommendations, but I would say that they have not made a tremendous difference,” Shavell said.
Options for the privacy-conscious
So if regulators are seemingly unable to do much about privacy, what are consumers to do? Most find it shocking that no matter which browser they’re using or what kind of device they’re using it on, everything they do is being tracked by 11 different companies. That’s right—eleven.
Abine blocks the code which sends the information to those companies, ensuring that users’ identities are not being seen across the various surfaces they’re using. Shavell recommends that consumers use a different email address for every website they use. He said this makes it more difficult for companies to track what consumers are doing. Abine also offers an email manager which makes it easier to do this.