2 Stocks That Benefit From Apple Blowing Its Privacy Promise
Apple Inc. (Nasdaq: AAPL) managers successfully changed the debate about privacy.
They now want to add spyware to iPhones and iPads, then send suspicious data to law enforcement agencies.
On Thursday, Expanded Protections for Children was announced. The software will roll out in iOS 15, the next mobile operating system. Longtime privacy advocates called it a backdoor to Apple’s data storage and messaging systems.
And they’re exactly right.
In October 2018, Apple CEO Tim Cook began weaponizing user privacy. In a now-famous speech in Brussels, Cook went after Silicon Valley companies he said were monetizing user data with advertising-based business models.
Although he didn’t specifically mention any companies, his targets and intentions were clear: Consumers were either the customer or they were the product.
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Through the course of an afternoon, the debate over actual privacy changed from user data stored on devices and in the cloud to advertising.
It was a debate Apple could easily win … as long as the Cupertino, California-based firm stuck with tough end-to-end encryption and didn’t give up user data.
The latest proposed changes to iOS are designed specifically to break end-to-end encryption and give up user data.
The Electronic Frontier Foundation (EFF), a privacy advocate and staunch supporter of past Apple encryption policies, called the changes a backdoor.
EFF notes the proposed scanning tools amount to two sets of spyware. The first scans all photos on the devices as they are uploaded to iCloud Photos. While scanning, they look for markers associated with child sexual abuse material. The Child Sexual Abuse Material (CSAM) database is maintained by the National Center for Missing and Exploited Children (NCMEC). The other scan covers all iMessage images sent by accounts owned by minors.
These client-side scanning functionalities are software backdoors, according to the EFF. They break key promises of encryption and open the door wide to abuses by government policymakers.
Undoubtedly, some of these lawmakers will be authoritarian.
The response to Apple’s proposed changes has been swift and overwhelmingly critical.
An open letter at Appleprivacyletter.com quickly gained thousands of signatures and the backing of hundreds of security and privacy experts, cryptographers, researchers, professors and legal experts.
Although the intention to protect children is great, the amount of privacy being taken away far outweighs the benefits … but investors need to see the new opportunity being created.
And that main opportunity is with Alphabet Inc. (Nasdaq: GOOGL) and Facebook, Inc. (Nasdaq: FB). The uproar changes the debate about privacy from advertising back to actual user data stored on devices and in the cloud.
For three years, Cook has been talking about the turpitude of internet advertising. Mark Zuckerberg — founder of Facebook — became the equivalent of a James Bond film villain, an evil genius bent on destroying the world for personal financial gain.
Following a 2018 interview with Zuckerberg about user data accessed by developers, Kara Swisher told “TODAY” that Mark “knows what he did and he’s going to have to answer for it for several years.”
Now, Apple is creating a backdoor to scan actual user data on iPhones. It’s tough to argue privacy advocacy when your software is purposely scanning every photo snapped at birthday parties, soccer matches and bat mitzvahs.
Today, Apple is looking less like the undisputed privacy champion.
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In contrast, the digital ads that interrupt online media are annoying. That’s the intent. Advertising remains a huge growth business because if given a choice between paid content through subscriptions or a so-called free ride with ads, consumers overwhelmingly choose to watch ads.
Online research firm Statista notes that digital ad spending accounted for 51% of total ad spend in 2020. Growth is projected at 15.1% this year. Global digital ad spending reached $378 billion in 2020 and is expected to grow to $646 billion by 2024.
Alphabet and Facebook are set to benefit disproportionately. Google Search, YouTube, Gmail, Facebook, WhatsApp and Messenger are the most popular destinations on the internet.
They’re also walled gardens controlled completely by Alphabet and Facebook, and those apps will unquestionably see more user growth as a result of Apple’s costly decision.
Apple has a powerful walled garden, too. Unfortunately, one of the cornerstones of that ecosystem is being demolished in real time.
Longer-term investors should consider buying both Alphabet and Facebook shares into pullbacks.
Best wishes,
Jon D. Markman
