Today's Market: Concerns Around Big Tech And Data Gathering

by: Matthew Smith


Brief update on the current state of the markets.

Discuss the latest concerns in the tech world around what companies can do with users' data.

Highlight why recent concerns over some of these products have been overblown.

While it appears that Russia is calming the situation in Eastern Ukraine, we are not sure that newsflow will not pick up once again from the region. Putin is a tactician, sometimes playing a move or two ahead of the competition which requires that we not underestimate him or his ambitions. The good news is that Russia has not pushed the envelope as Islamic State insurgents take further territory in Iraq.

Lately we have seen a lot of interesting moves in the technology sector, especially among those who offer popular email and social media platforms to consumers. As companies offer more detailed products, they also seek more detailed information from users, especially if they are giving away the product free of charge.

Chart of the Day:

We like "Big Tech" right now as the companies have attractive valuations, decent growth rates and the ability to continue to raise their already healthy dividend rates. With the current volatility in the market, the PowerShares QQQ (NASDAQ:QQQ) look like the best way to get exposure to the entire Nasdaq 100, an index which is overwhelmingly overweight 'Big Tech' names.

Source: Yahoo Finance

We have no economic news today, but the busy week for economic news and data kicks off tomorrow.

The Asian markets are higher today:

  • All Ordinaries -- up 0.40%
  • Shanghai Composite -- up 1.38%
  • Nikkei 225 -- up 2.38%
  • NZSE 50 -- down 0.11%
  • Seoul Composite -- up 0.41%

In Europe, the markets are higher this morning:

  • CAC 40 -- up 1.18%
  • DAX -- up 1.85%
  • FTSE 100 -- up 0.99%
  • OSE -- up 1.48%

Big Tech, Big Brother

Recent stories in the media, some very true and others merely half truths, have consumers up in arms regarding what data the big technology companies are gathering and exactly how they use it. Over the years, users of Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) have seen the companies ramp up the amount of information they collect and use for identification purposes, which have historically been paired with new user agreements and permissions.

Each transformation these companies have put their popular products through have initially angered users, but over time the new features and changes have generally grown on users and served to differentiate those products in the marketplace. So should investors be worried about the talk of angry users of Facebook Messenger or Gmail? History says no.

While everyone can agree that getting those who exploit children off of the streets is a good policy, there were many who were taken aback by recent revelations that Google turned a man in to authorities because his Gmail account had child pornography passing through it. The initial reaction was one of worry as many feared that Google was looking even closer at individual emails than previously believed. We all know that Gmail is such a great product because of the free data that users allow Google to gather and generate targeted ads, but as this story gained traction questions arose about just how detailed the information that was gathered was. No one wants to feel that their emails are read by another human or that every one of their pictures and/or attachments are reviewed, and this perceived invasion of privacy is what sparked the outrage.

After the initial ruckus however, Google explained to the media that there is a government program that tags known illegal images and under law Google reports any of those images that appear within their services. Every email and post is scanned for these tagged images, but every emailed picture, for instance, is not viewed on an individual basis by a human. While some are still questioning how much data Google really gathers, the general public perception is now that this was a good policy and have moved on to other perceived problems...such as the requirement that Facebook users on mobile devices download the Messenger app separately.

The requirement that mobile users download two apps to utilize Facebook's main platform and their Messenger service riled up many consumers. While the added app was unwelcome, the misinformation on various Facebook and blog posts caused an uproar which is starting to die down as users become better educated on the privacy permissions and what they really mean.

The added app does add to clutter on one's phone, but the permissions to grant access to photos, the microphone, etc., do not invade one's privacy and are not out of line with standard industry user agreements. The transition to a multi-app platform has been expected by investors, but with Facebook really pushing its audience onto its other apps (such as Messenger and Paper) a good number of its consumers have been surprised by the move. We know that the privacy concerns are overblown and that most of the initial reports out there falsely highlighted certain permission requests as tools to invade one's privacy. Investors need not worry about the privacy and permissions hoopla but should instead focus upon the user base and its continued growth moving forward.

The more successful apps that Facebook can develop, the more they can drive usage rates among their audience. We know the company wants to create more apps moving forward, and while some of these apps will be newly developed items like Paper, others will be split off from the main Facebook app itself.

Source: Yahoo Finance

In the past there has been a lot of talk of leaving the platform when they roll out new items to the service offering, with News Feed coming to mind, or update their user agreements. A mass exodus has never happened and moving forward we doubt that this push towards an unbundled app and fake news stories create enough backlash to entice people to leave, especially since there is not really a viable second option.

Can Others Learn?

Although Twitter (NYSE:TWTR) is in a different phase of its growth, the company has done a good job in the way that it releases new products. Rather than creating a 'super app' like Facebook did and then later breaking it down to better collect data and provide a better experience, Twitter has kept its new services in separate apps, like Vine.

Google has long kept its various products separate, but the issue that we can see arising down the road is how the company decides to consolidate certain apps that it purchases into apps it already owns. The same can be said for Apple (NASDAQ:AAPL) and Facebook, especially when one considers that the focus on getting users to switch to the Messenger standalone app could be a precursor for building up scale to integrate Whatsapp and its large user base onto one platform.

It is obvious that Facebook dropped the ball when it came to their recent actions to drive growth for the Messenger app, not from a product standpoint but most certainly the public relations aspect. As the company looks to integrate its acquisitions moving forward we can only hope that they provide a smoother transition for consumers with those future moves than they did with the current one. But make no mistake, Facebook has been building another blockbuster app since 2011 with Messenger and will find a way to monetize that moving forward.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. AAPL has previously been recommended.