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WhatsApp's new privacy policy: What lies ahead for BigTech?

By Chloe Chan, Research Analyst at King's Global Markets

The world seems to have been presented at a crossroads when WhatsApp announced a change in its privacy. However, what exactly does this change entail? The updates specifically target individuals that utilise the function of interaction between individuals and businesses on WhatsApp. The new updates would allow a business to see the contents of the messages between their business and another WhatsApp user and use it for their own marketing purposes which could also include Facebook advertising under Facebook’s “secure hosting infrastructure”. This update was scheduled to happen on 8th February 2021, where WhatsApp would start prompting users to accept the new updated terms and conditions to continue their usage of the mobile application. However, Facebook has announced that it will now be pushing the date further for users to review and accept the revised terms, this gradual change will expire on 15th May 2021 due to the confusion it has caused most users and fears of increased data sharing and privacy concerns. Many users understood this change as an increased amount of data sharing between WhatsApp and its parent company Facebook. What they failed to account for is that certain data sharing has begun between the two companies as early as 2016. Furthermore, “end-to-end encryption” protected messages will remain intact.

Despite WhatsApp’s desperate attempt to save its reputation, the market has reacted quite negatively towards this news. WhatsApp received a significant amount of backlash from the public. A tremendous amount of WhatsApp users have begun flocking to alternative messaging platforms such as Telegram or Signal. In fact, Telegram experienced a doubling in their user base within a span of a few weeks, now standing at over 500 million users. The application is known for its secure end-to-end encryption messaging service, ensuring messages to be kept private. Moreover, many seem to favour their option of allowing anonymity within group chats. Coincidentally, Tesla CEO and also recently crowned world’s richest man Elon Musk tweeted “Use Signal”, which many interpreted to be a “stock tip” and this brought about an accidental +6000% increase in share price for a completely unrelated company Signal Advance Inc (OTCMKTS:SIGL). This triggered a price hike, peaking at $38.70 USD as markets closed on 11th January 2021, now maintaining a steady level at around $5 USD. Signal has also increased its user base from around 10 million to over 50 million users within a matter of days.

Apart from the general public backlash, multiple governments have also reacted to WhatsApp’s change in privacy policy. India has expressed “grave concerns regarding the implications for the choice and autonomy of Indian citizens” and requested WhatsApp to withdraw their new policy, through an email to the head of WhatsApp, Will Cathcart, via their IT ministry. Moreover, the email also stated that “Since the personal data protection bill strongly follows the principle of ‘purpose limitation’, these changes lead to significant implementational challenges for WhatsApp should the Bill become an Act”. Responding to that, WhatsApp had run front-page advertisements on multiple Indian broadsheet newspapers, targeted towards its 450 million Indian users to debunk some myths and explain in more details the changes to its privacy policy. In addition to that, India’s government has also asked for clarification from WhatsApp on its new policy, as its counterparts in the EU are exempted from this new privacy policy, yet India is forced to comply.

It was also reported that Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) are involved in an antitrust lawsuit filed by 10 state attorney generals, addressing the allegations related to collusion between the two firms. Alongside the European Commission’s proposed “ambitious reform of the digital space”, namely through The Digital Services Act and the Digital Markets Act, WhatsApp would expect to face further pressure from both the public, but also various regulatory bodies around the world.

This has sparked debate into the intensifying scrutiny on BigTech and also their dominance in their respective markets. It begs the question of whether BigTech has too much control over data privacy. This WhatsApp controversy also came around the same time as the Twitter suspension of Trump’s account and the possibility of social media platforms such as Facebook, WhatsApp and Twitter gaining excessive amounts of control and also the possibility of social media censorship.

As discussed, the change in privacy policy for WhatsApp is exaggerated by the public. However, a deeper concern is the general scepticism that the public has towards the company. The backlash against WhatsApp is directed towards Facebook’s larger brand image. Despite having close to 3 billion users across its apps (incl. subsidiaries), many of its users are discontent and believe the company misuses their personal data and are also considered to be an accessory to social issues such as hate speech and anti-democratic movements. Experts have investigated the impact of this “crisis”, and have settled upon the explanation that for Facebook stocks, this move is to cause “short-term pain for long-term gain”. An important note is that WhatsApp is not fully monetised within the Facebook group, and has only started earning meaningful revenue in the long run. This change in privacy policy is to allow an increase in monetisation through users directly communicating with businesses. Therefore, we can understand this decision to result in a short term loss in user base but monetising the business for those that continue to use the service.

Another point of consideration is that an increase in the number of downloads of rival platforms is not directly equivalent to termination of the usage of WhatsApp, as can be seen in India, there has not been significant deactivation or uninstallation in the market. At present, Facebook’s stock might not be immediately threatened, a larger problem that the company faces is the PR crisis looming ahead and also a heightened level of distrust towards the company, in regards to issues surrounding data sharing and user perception.

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