Android Dead? - Part 9: Is Google 'Nefarious'?

Apr.11.13 | About: Alphabet Inc. (GOOG)

Is Google (NASDAQ:GOOG) "nefarious?" Microsoft (NASDAQ:MSFT) says that it is, and has a new video on the topic. It all stems from a Feb. 13 blog post by Australian developer Dan Nolan, who was shocked when he received personal information about anyone who bought his app. He writes:

Let me make this crystal clear, every App purchase you make on Google Play gives the developer your name, suburb and email address with no indication that this information is actually being transferred.

That is to say, every time you purchase an app from the Google Play market, your name, neighborhood and email address are sent to developer of that app. This is irrespective of who that developer may be. Therefore, if Mr. X is a cybercriminal, then all he has to do is come up with some cute app and put it in the Google Play market and he will begin to harvest names and email addresses for those who download his app. He will also know that you own an Android device, and he gets all this without even needing to create a malware app.

Media Response

Eric K. Clemons, professor of Operations and Information Management at The Wharton School, wrote a scathing article in Huffington Post. He claims that Google's excuse is that its software design necessitates the sending of this information and that the transfer of information is covered in its privacy policy as the transfer is necessary to complete the transaction.

To Google, the developer is the seller of the app, not Google Play itself, and thus the buyer's information is required to process the transaction.

The LA Times reported:

"Google Wallet shares the information necessary to process a transaction, which is clearly spelled out in the Google Wallet Privacy Notice," Google said.

But Clemons writes:

Most consumers would not have assumed that violating their privacy was an essential feature of transactions on Google Play. Designs that do not share merchant information with the ultimate manufacturer or supplier are possible. Indeed, such safe designs are nearly universal, the Privacy Notice on Google Wallet was at best misleading and at worst deliberately false.

In Apple's (NASDAQ:AAPL) iTunes App Store, for example, the store itself is the marketer and therefore no personal information is passed to the developer.

Microsoft Lambasts

Now Microsoft has jumped in with a new video on the topic where it explains the process and chastise Google for the practice. An AP report by Michael Liedtke quotes Greg Sullivan, Microsoft's senior manager for Windows Phone:

"We think we have a better alternative that doesn't do these kinds of nefarious things ..."

"Nefarious." Strong wording! They go on to say, "Unlike Google, Windows Phone Store doesn't share your personal information with app makers."

Microsoft here is following up on a similar campaign against Google's policy to scan gmail users' email to garner info to target ads. It also has a video on the topic, and even an Internet petition to stop the practice. (The petition currently has some 117,000 signees.)

[Aside:] It is not as if Microsoft is squeaky-clean on the privacy issue. According to Online Media Daily:

A Windows Live ID login allows Microsoft to pull data from multiple sources to target ads across three screens. [TV, computer and mobile - ed.] The data is linked through the ID when consumers sign up for Microsoft's mail, messenger or other services.

And the Center for Digital Democracy writes:

Microsoft likes to suggest its [sic] concerned about consumer privacy. Yet because they are in the digital marketing business worldwide, they are engaged in the full range of data collection and targeting practices which are problematic to both privacy and consumer protection.

Still, they do not pass on your data to every app developer, nor do they scan your email.

$400 Trillion?

Clemons, in the Huffington Post article, claims that Google both violated its own privacy policies, and did so knowingly, and that this is in violation of its consent decree with the Federal Trade Commission. He further asserts that they could be fined $16,000 per violation, which, times about 25 billion downloads from Google Play, would equal $400 Trillion.

Meanwhile, the organization Consumer Watchdog recently filed a new complaint with the FTC on the issue in which they state that they were writing:

to formally lodge a complaint about Google's most recent egregious privacy violation - the disclosure of confidential user information to independent application developers - and to request immediate Commission action to rectify Google's conduct and to compel Google's future adherence to the law and to its obligations under the "Buzz Consent Order." As explained below, Google should face penalties into the billions of dollars.

They go on to note that Google has repeatedly violated consumer trust as well as the law. (See here for a detailed list.)

They go on to conclude:

The misrepresentation is public and ongoing; the number of downloads is known; the number of users who have purchased or received downloads is known. Calculating the amount of the penalty is a simple matter of multiplication. The number is enormous (in the billions of dollars), and only a penalty of that magnitude will deter Google from future violation of the Buzz Order.

Class Action?

The other possibility is that of a class action suit by users. In fact, it would be surprising if this were not to happen. If Google's only defense is that "It was necessary to process the transactions," then it will have a very hard time convincing a jury of that. In fact, it would be surprising if there were not to be a suit. With the number of downloads, a charge of $1 per incident would be an award of $25 Billion. Even at 4¢ per incident it would still be $1 billion.

In 2011, Apple paid $1 per user in Korea for storing unencrypted location data. That is a long way from here, but Google here has been much more egregious.


Microsoft's new video attacking Google for its marketplace mismanagement may be self serving, but still it does point out a policy of which Google Play users should be aware. As such, it does a real service.

In March of 2011 the FTC announced: "Google Agrees to Implement Comprehensive Privacy Program to Protect Consumer Data." Then, in August of last year it announced the largest settlement ever for violation of a commission order: "Google Will Pay $22.5 Million to Settle FTC Charges it Misrepresented Privacy Assurances to Users of Apple's Safari Internet Browser." In this second settlement, it was highly criticized by many groups for a fine that was chump change to a company with some $48 Billion in cash and short term investments. Clemons suggests a new fine of $16 Billion which would be only one third of that amount, although it would also be approximately two full quarters of gross profit, and about six quarters of net income.

If a lawsuit does come up, not only will the dollar award be serious, but the negative publicity will certainly affect the platform. Especially now that there are other alternatives aside from the iPhone to choose from.

A fine of this size would certainly affect the investor. It is also not very likely. In any case, we do have to wonder if the repeated bad press will have any affect on Google's popularity. To a large extent, people seem to be oblivious to it. Besides, Google has the greatest defense. It has the best search engine available, and it is so popular that its very name has become synonymous with the verb "to search."

Android is Dead?

Android is in its death throes! Well, this may be overstating a bit, but I do believe that the smartphone OS landscape will be very different in 4 years - and that Android OS, by Google , will be the loser. My basic thesis is that Windows Phone 8 (WP8) from Microsoft and BlackBerry 10 (NASDAQ:BBRY) will take massive market share from Android, and Apple's iOS will maintain or slightly gain market share. (See Part 1 and Part 2 for the basic rationale, and Part 3 for my market share predictions up to 2016.)

Series posts:

In part 1: Why? I put out my thesis and basic arguments.

In part 2: Titans Clash, I note corroborating analysis from a Goldman Sachs report titled Clash of the Titans.

In Part 3: The Numbers, I proposed a 2016 market share scenario, complete with numbers, in which Android had lost significantly to Windows Phone 8, and BlackBerry 10.

In Part 4: New Contender Windows Phone 8, I discuss the new Windows Phone 8 operating system, and a couple of particular devices.

In Part 5: Number of Players , I addressed criticism that 4 was too many players in the market.

In Part 6: Nokia Triumphs, I discuss Nokia's recent success with it Lumia models.

In Part 7: WP 8 Ratings, I discuss the high ratings that the WP8 phones received.

In Part 8: Samsung Strikes Back, I discuss the new Galaxy S4.

My Instablog post here will be updated with all new stories in the series as they come out.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.