Suddenly, Facebook (NASDAQ: FB) still has another controversial fire to put out.
Already the subject of an antitrust investigation, facing scrutiny for banning President Donald Trump and responding for his role in the Capitol insurrection, the tech giant is now facing a reaction against WhatsApp, the messaging service it acquired in 2014 for $ 19 billion.
After WhatsApp users received a notification about a new privacy policy, they rushed to alternatives, encouraged by names like Elon Musk and Edward Snowden, with peak downloads on rival messaging apps like Signal and Telegram. Signal, a secure messaging app popular with journalists, has become the most downloaded free app in both Apple and Android devices with downloads reaching 8.8 million in the week of January 4, an increase of almost 4,000% over the previous week, according to data from Sensor Tower.
Image source: Whatsapp.
A little privacy, please
In a notice that appeared on WhatsApp screens last week, users were told that the app now reserves the right to share data, including phone numbers, IP addresses and payments made through the app and the rest of the family. Facebook apps, which includes Instagram and Facebook Messenger. He also said that if users communicate with companies on WhatsApp, Facebook can use that data to target them with Facebook ads.
If users do not agree to the terms, their accounts will be blocked on February 8.
A global reaction ensued and Facebook is now doing damage control. In India, a key growth market for Facebook and the largest WhatsApp market, where it has approximately 400 million users, the company has been running ads that promise “WhatsApp respects and protects your privacy”.
A trust issue
The real changes in Facebook’s data sharing are not as damaging as they may seem. The company will not share or view chat data with friends and family; the new policy only applies to interactions with companies.
However, what usually happens in cases like this is that people are already skeptical about the company, and then easily misunderstood information goes viral and a reaction occurs against the company. Uber faced a similar setback in 2017, when it was believed that a strike by New York taxi drivers was breaking during the protest against travel bans in Muslim-majority countries.
The reaction against WhatsApp is an integral part of Facebook’s bigger branding problem. Although it has a huge user base of almost 3 billion in its app family, many of its users don’t really trust it and believe that the company is using its data without scruples or that the company is an accessory to things like hate speech and anti-democratic movements, as well as monopoly.
WhatsApp imposes a new “privacy policy” in India, its biggest market.
Indians start to leave the platform.
WhatsApp displays full-page ads about privacy.
Why would a “FREE” service spend so much money to retain users?
India needs stronger regulation to protect data.
What is the govt doing? pic.twitter.com/G2DkKRxsT3– Palki Sharma (@palkisu) January 13, 2021
What this means for Facebook investors
Facebook acquired WhatsApp seven years ago for a price that shocked the financial media at the time, and it has hardly monetized the messaging service since. This makes it a kind of white elephant for Facebook, as it invested in the platform, but it never generated much profit. Although owning WhatsApp and operating Facebook Messenger consolidates Facebook’s dominance over messages (outside of China), the company is still waiting for WhatsApp to deliver real dollar value to businesses. On the other hand, Facebook paid $ 1 billion for Instagram in 2012, and the photo-sharing app has become a major source of income for the company, now estimated at more than $ 100 billion.
The reaction against WhatsApp will only make monetization more difficult. It is unclear how the current turmoil will unfold, and moving entire group chats to new platforms can be difficult. This friction probably means that some users complaining about the new privacy policy will not make the switch. Furthermore, downloading a new app is not the same as deleting WhatsApp, and so far there have been no significant uninstalls in India.
Since WhatsApp is not relevant to Facebook’s business performance, the ordeal will not affect Facebook’s financial results. But it is more of a public relations crisis for a company that desperately needs good news, especially from the point of view of the brand image.
Facebook’s shares may be protected from the threat, but investors should watch what happens here, as this represents a greater distrust of Facebook and data sharing, and that user perception is one of the company’s biggest risks.